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<1. Introduction> Congress chartered Fannie Mae and Freddie Mac, also known collectively as the government-sponsored enterprises (GSEs), to promote homeownership by providing liquidity to the secondary markets for single-family residential mortgages and multifamily (apartment and condominium) construction. Guaranteeing single-family residential mortgages is their core business activity, but it comes with risks. The GSEs retain the credit (default) risks from the mortgages they purchase from loan originators and subsequently issue mortgage-backed securities (MBSs), which are bond-like securities. Investors who purchase the MBSs are guaranteed to get their initial principal investment returned, but they assume the risk that borrowers may choose to repay their mortgages ahead of schedule, known as prepayment risk. The MBSs are considered more liquid (in comparison to the original mortgages with both attached risks) because they may be traded or sold for cash more quickly. If investors are willing to hold MBSs, then more private-sector funds become available for relatively less liquid mortgages particularly 30-year fixed-rate mortgages. National mortgage rates tend to fall as the supply of funds in this market increases, making homeownership more affordable. The Federal Housing Finance Agency (FHFA), an independent federal government agency created by the Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289 ), is the GSEs' primary supervisor. FHFA regulates the GSEs for prudential safety and soundness and ensure they meet their affordable housing mission goals. In September 2008, the GSEs experienced losses that exceeded their statutory minimum capital requirement levels due to the high rate of mortgage defaults. The GSEs also experienced losses following spikes in short-term borrowing rates that occurred while they were funding long-term assets held in their portfolios. The GSEs subsequently agreed to be placed under conservatorship. Until the GSEs' financial safety and soundness can be restored, the FHFA has the powers of management, boards, and shareholders. The FHFA established three conservatorship performance goals designed to restore confidence in the GSEs and restore them to a safe and solvent condition: 1. The GSEs must promote a well-functioning national housing finance market while operating in a financially safe and sound manner. 2. Credit or default risk to U.S. taxpayers should be reduced by increasing private capital's role in the mortgage market. 3. The GSEs must construct a contemporary single family securitization infrastructure for their use and other private mortgage securitizers. In addition, the Senior Preferred Stock Purchase Agreements (PSPAs) stipulate the conditions under which the U.S. Treasury will provide financial support to the GSEs while they are under conservatorship. The PSPAs require the GSEs to pay dividends to Treasury rather than private shareholders while they are under conservatorship. The PSPAs also require the GSEs to reduce the size of their lending portfolios to $250 billion. Since they entered conservatorship, congressional interest in the GSEs has continued due to uncertainty in the housing, mortgage, and financial market. For example, the final amount and duration of financial support that Treasury will eventually provide the GSEs is difficult to predict at present. Furthermore, reforming or replacing the GSEs might affect the availability of single-family 30-year fixed-rate mortgage loan products. This mortgage product is arguably popular with borrowers, but private lenders may be reluctant to retain them in their lending portfolios because they are relatively less liquid mortgages with both credit and prepayment risks attached and may last for several decades. Congressional interest has been reflected by various draft proposals, bills, and oversight hearings on housing finance reform. During the 116 th Congress, the U.S. Senate Committee on Banking, Housing, and Urban Affairs released a proposal that would affect the GSEs' role in the housing finance system. President Donald J. Trump also released a memorandum directing federal agencies to develop a plan to reform the housing finance system, which includes ending the conservatorships. This report first describes Fannie Mae's and Freddie Mac's activities and mission. It then summarizes the progress made to date on FHFA's initiatives, focusing primarily on the management of the GSEs' credit and liquidity risks. The FHFA has directed the GSEs to share more of the credit risk linked to their single-family mortgage purchases with the private sector to reduce potential risks that would be borne by U.S. taxpayers. The GSEs must also standardize numerous processes to foster greater liquidity in the market for their MBSs. This report concludes with a discussion of the policy implications of GSE challenges while they are under conservatorship. For example, recent FHFA initiatives require the GSEs to harmonize their business models, including certain borrower risk characteristics that are eligible for securitization. The GSEs' ability to satisfy their affordable housing goals, therefore, might depend upon the extent to which borrowers with risk characteristics deemed eligible for securitization overlap with those who traditionally face greater difficulty accessing mortgage credit. In addition, the GSEs' ability to purchase and securitize mortgages may depend upon certain legal protections that loan originators receive when their mortgages are sold to the GSEs. The regulation, which is known as the GSE patch (or QM patch), expires on January 10, 2021, and it is difficult to predict how secondary-market participants loan originators, the GSEs, and investors will respond if it expires as scheduled. <2. The GSEs' Secondary Mortgage Market Intermediation Activities> Borrowers obtain their mortgages from loan originators in the primary market; loan originations may be bought and sold in the secondary market. By law, the GSEs cannot originate mortgages directly to borrowers in the primary market. Instead, the GSEs operate in the secondary mortgage market, interacting with loan originators (that sell mortgages to the GSEs) and investors (that purchase the GSEs' debt and MBS issuances). The GSEs purchase conforming mortgages , single-family mortgages that meet certain eligibility criteria based on size and creditworthiness, from loan originators. The GSEs use two methods to acquire conforming mortgages. A GSE may pay cash directly from its cash window to a loan originator for delivery of a small number of mortgages. Alternatively, the GSEs may enter into a swap agreement with a loan originator to purchase a large number (pool) of mortgages. In exchange for a pool(s), the purchasing GSE delivers one (or more) MBS that is linked to the MBS trust that will hold the mortgages. An MBS trust is a legal entity established to hold pools of conforming mortgage loans; the streams of principal and interest are deposited as borrowers repay their mortgages. The GSEs issue MBSs to investors. MBSs are essentially derivative products that contain one, rather than both, of the financial risks attached to the original mortgages that the GSE purchased. Investors that purchase an MBS receive a coupon , which is the yield composed of the principal and interest repayments from borrowers whose mortgages are held in MBS trusts. However, various fees are subtracted before the coupons are paid to investors. For example, a designated mortgage servicer retains a fee to collect borrowers' regular payments, resolves borrower delinquency and default problems, and disburses payments to the GSEs (which subsequently disburse payments to MBS investors). Other fees related to the home purchase (e.g., settlement costs) that borrowers may have chosen not to pay upfront may also be subtracted. Simply put, the coupon is the rate of return net of fees that an investor receives for purchasing or investing in an MBS. The GSEs, like banks, are financial intermediaries that match mortgage borrowers with ultimate lenders. Under a traditional banking model, banks borrow funds from their depositors and use the funds to originate longer-term consumer and business loans. Consumers and businesses pay higher interest rates to banks for these longer-term loans than the banks pay to their depositors for successive sequences of relatively lower-rate loans (e.g., recurring deposits) for shorter periods of time. L ending spreads are the difference between lending at higher rates (revenues) and borrowing at successive sequences of shorter rates (costs). A bank can retain all of the profits generated by its lending spreads if the entire lending process and associated financial risks are retained on its balance sheet. Similar to banks, the GSEs create profitable lending spreads to finance assets retained in their lending portfolios (on-balance sheet) and the conforming mortgages held in the MBS trusts (off-balance sheet). The GSEs issue to investors debt securities, referred to as unsecured debentures , with shorter maturities relative to the longer-term assets retained in portfolio. By borrowing via successive sequences of lower-rate debentures, the GSEs create portfolio lending spreads. In addition, the GSEs fund mortgages held in the MBS trusts. Rather than issuing debentures, the GSEs fund the MBS trusts via issuing MBSs in the to-be-announced (TBA) market. When issuing MBSs, however, the GSEs act more like monoline bond insurers, meaning they retain credit risk and transfer prepayment risk to private investors. These concepts, which are key to understanding the GSEs' securitization activities, are described in detail in the sections below. <2.1. Retention of Mortgage Credit Risk, Transfer of Prepayment Risk> Another important fee, the guarantee fee (g-fee) , is deducted from the streams of principal and interest payments before an MBS investor receives a coupon payment. The g-fee compensates the GSEs for retaining credit risk , the risk that borrowers might default or fail to repay their mortgage loan obligations. Although the g-fee is typically charged to loan originators (and frequently passed onto borrowers), the benefit of the mortgage insurance accrues to MBS investors. Should a delinquency or default occur, the GSEs guarantee timely payment of the coupon (net of fees) to MBS investors. After a borrower defaults, the applicable GSE purchases the defaulted mortgage (for the amount of the remaining balance owed) out of the MBS trust. The purchase effectively reimburses the associated MBS trust and, therefore, prevents MBS investors from losing their initial principal investments. The MBS coupon is subsequently adjusted for the reduced stream of interest payments, thus making it appear to investors that mortgage obligations have been repaid ahead of schedule (rather than defaulted). The other key mortgage risk, prepayment risk , is transferred from the GSEs to MBS investors. Prepayment risk is the risk that borrowers will repay their mortgages ahead of schedule, resulting in lenders earning less interest revenue than initially anticipated. For example, if mortgage rates decline, some borrowers may repay their existing mortgages early by refinancing (replacing) them into new mortgages with lower rates. Borrowers also prepay their mortgages when they move. In this case, the GSEs pass on the principal repayment but reduce the investors' MBS coupons by the amount of interest forgone. In sum, the GSEs' securitization process entails detaching two mortgage risks into separate components. The GSEs retain the default risk component for a g-fee and transfer the prepayment risk component to MBS investors. For this reason, MBSs are considered derivative securities because they contain only one of the risks linked to the original underlying mortgages held in the MBS trusts. <2.2. Liquidity Risk in the Markets for MBSs> Many types of bonds and derivatives trade directly (via broker-dealers) between two parties in what are referred to as over-the-counter (OTC) market transactions. Bonds generally trade infrequently, and the trade sizes vary, which may cause valuation (pricing) challenges sometimes leading investors and market-makers to perceive that the bonds may be illiquid . Illiquid securities cannot easily be converted into cash or traded within a reasonable time, that is, without affecting their quoted prices. Investors arguably might offer (bid) "too much" to buy or sell (ask) for a price "too low" when trading illiquid securities. Consequently, investors require additional compensation, referred to as a liquidity premium , to buy or sell illiquid securities. Widening bid-ask spreads might signal the emergence of a liquidity premium being incorporated in securities prices. After being issued in the TBA market, the GSEs' MBSs trade in the OTC market and are considered to be almost as liquid as the U.S. Treasury bond market. Prior to conservatorship, the GSEs could actively trade their own MBSs to facilitate market liquidity. By conducting market trades when the bid-ask spreads for MBS widened, the GSEs could abate rising liquidity premiums and reduce mortgage costs for borrowers. Persistent liquidity premiums could result in higher mortgage rates for borrowers if investors demand greater compensation to account for the risk of selling their MBSs in the future for a price presumed to be too low. Furthermore, the TBA market is a forward market, meaning MBSs are purchased in advance of a specific future date. Investors wanting to hedge against adverse interest rate movements prior to delivery of their MBS purchases would, therefore, pay higher costs to cover the possibility of liquidity premiums emerging before the settlement date. Investors' larger hedging costs could also be passed on to borrowers wanting to lock in interest rates for a period of time prior to closing on their mortgages. Hence, high-volume trading by the GSEs facilitated narrower bid-ask MBS spreads in both the TBA and OTC markets. (The GSEs held their own MBSs to show incentive alignment with investors, meaning the GSEs were willing to hold the same risks that they were selling.) The current $250 billion cap on the GSEs' lending portfolios (resulting from the PSPAs) may limit their ability to buy and sell MBSs at the volumes necessary to influence market pricing. Although the Federal Reserve has purchased large amounts of the GSEs' MBS while carrying out its lender-of-last-resort responsibilities, it has largely retained them in its portfolio rather than actively trading them. Hence, less active trading of MBSs by the GSEs and more holding (rather than actively trading) of MBSs by the Federal Reserve might explain any declines in market liquidity. <3. FHFA's Initiatives for the GSEs Under Conservatorship> Since conservatorship, the FHFA has focused primarily on (1) the credit risks retained by the GSEs (posing a direct risk to U.S. taxpayers) and (2) the liquidity of their MBS issuances. The FHFA has released various versions of strategic plans and performance goals to inform the public. This section highlights FHFA initiatives that focus on those specific risks. <3.1. Initiatives Regarding the GSEs' Credit Risks> As previously mentioned, the PSPAs require the GSEs to pay dividends to the U.S. Treasury in exchange for its financial support while they are under conservatorship. The PSPAs also require the GSEs to reduce taxpayers' credit risk. The FHFA has subsequently required the GSEs to increase the private sector's role in credit risk sharing. The various programs to facilitate these objectives are discussed in this section. <3.1.1. Loan-to-Value Requirements for Borrowers> By statute, additional credit enhancements (discussed in the next paragraph) are required if the GSEs purchase mortgages with a loan-to-value (LTV) above 80% such that the mortgage balance exceeds 20% of the residential property value. If a borrower defaults, the GSE generally recovers losses by foreclosing (repossessing) and then liquidating (selling) the property. The 80% LTV requirement ensures that a property would need to sell for at least 80% of its original value for the GSE to recover enough proceeds to cover the remaining mortgage balance. Borrowers lacking sufficient funds to make a 20% downpayment have alternative options. One option is to purchase private mortgage insurance (PMI), an insurance policy that would assume the first 20% of losses associated with a mortgage default. In this case, the FHFA currently requires the GSEs to pay PMI initially and be reimbursed later by borrowers via interest rate adjustments on their loans. The GSEs currently contract with a limited group of private mortgage insurers that accept the GSEs' underwriting standards, thereby streamlining the process to obtain PMI. Fannie Mae calls its program Enterprise-Paid Mortgage Insurance (EPMI) Option and Freddie Mac calls its program Integrated Mortgage Insurance (IMAGIN). By doing business with a select group of PMI providers, the GSEs (and FHFA) can closely monitor their financial health and ensure their ability to pay any PMI claims after borrower defaults, thus reducing counterparty risk. <3.1.2. Guarantee Fees> The GSEs can generate revenues to cover potential credit losses by increasing g-fees, thus mitigating losses to taxpayers. The GSEs have two types of g-fees. First, the upfront g-fee is determined by the borrower's risk characteristics (e.g., credit score, loan-to-value ratio). Second, the ongoing g-fee, which is collected each month over the life of the loan, is determined by the product type (e.g., fixed rate, adjustable). In December 2011, Congress directed the FHFA to increase the ongoing g-fees for all loans by 10 basis points. The increase took effect on December 1, 2012, for loans exchanged for MBSs. (A single basis point is equal to 1/100 of a percent; 100 basis points is 1%.) The FHFA also increased g-fees in 2013. In 2017, FHFA reported that the average guarantee fee of 56 basis points was unchanged from 2016. <3.1.3. Credit Risk Transfer Programs> In July 2013, the GSEs initiated new credit risk transfer (CRT) programs to share a portion of the credit risk linked to their guaranteed single-family mortgages with the private sector. Both GSEs now offer another separate set of CRT financial instruments that are linked only to the credit risk of the mortgages held in the MBS trusts. Investors preferring exposure only to mortgage prepayment risk may continue to purchase MBSs; however, the private sector may now purchase CRT issuances, which function similarly to MBSs, to earn revenue in exchange for assuming exposure to the credit risk. Fannie Mae's CRT instruments are known as Connecticut Avenue Securities (CAS); Freddie Mac's CRT instruments are known as Structural Agency Credit Risk (STACR). The GSEs transfer the credit risk linked to mortgages with LTVs greater than 60% (or borrowers with 40% or less in accumulated home equity, making them more vulnerable to the possibility of owing more than the initial value of their homes if housing market prices were to fall) to investors. After defaults occur, the GSEs write down the coupons paid to CRT investors (similar to writing down the coupons on MBSs after prepayments occur). The GSEs retain the credit risk for mortgages with lower LTVs (or borrowers with 41% or more in accumulated home equity such that their outstanding balances are significantly below the value of their residential properties), which are less likely to default. Sharing risk at both the front end (before the mortgages are purchased) via the PMI programs and the back end (after the mortgages are purchased) via the CRT programs has reduced the federal government's exposure to mortgage credit risk. The CRT programs have grown rapidly, arguably filling the gap left by the private-label mortgage-backed securities market that existed prior to 2008. Nevertheless, the Congressional Budget Office reports that the GSEs' CRT transactions have not necessarily reduced taxpayers' costs. The GSEs pay more to the private sector to assume credit risk relative to what they collect in g-fees from borrowers, and the g-fees have not been raised to cover the additional costs. <3.1.4. Proposed Capital Framework> Although the exact definition of capital for financial firms is determined by law and regulation, it generally refers to common or preferred equity (as a percentage of assets), which can absorb financial losses. The FHFA suspended the GSEs' capital requirements during conservatorship, as required by the PSPAs with Treasury. The GSEs can pay dividends only to the Treasury as opposed to private shareholders while they are under conservatorship. The FHFA has solicited feedback on how to establish a prospective capital framework for the GSEs (see text box below) that would allow them to continue operating after an event similar to the recent financial crisis. The statutory minimum leverage (unweighted) capital requirement, specified in the Federal Housing Enterprises Safety and Soundness Act of 1992, is equal to 2.5% of on-balance sheet (portfolio) assets and 0.45% of off-balance sheet (MBS trust) obligations. HERA, however, gave FHFA the authority to increase capital standards above the statutory minimum as necessary. Given the deteriorated financial conditions that caused the GSEs to be placed in conservatorship, FHFA's proposed capital framework would result in higher capital requirements. <3.2. Standardization Initiatives to Foster MBS Liquidity> The FHFA has introduced initiatives to standardize many aspects of the GSEs' operations, which include their mortgage data collection processes, securitization processes, mortgage servicing policies (e.g., resolving delinquencies), and MBS issuances. Such standardization arguably increases transparency, reduces the length of the single-family mortgage origination and securitization processes, and ultimately increases the liquidity and uniform pricing of the GSEs' MBS and CRT issuances. <3.2.1. Mortgage Data Standardization> The FHFA's mortgage data standardization initiative requires the GSEs to support standardizing the single-family mortgage data information used by the industry. Data collected on loan applications, property appraisals, loan closings, and disclosures are the focus of the standardization efforts. <3.2.2. The Common Securitization Platform> In 2012, FHFA determined that both technology platforms the GSEs used to securitize (the process of transferring the underlying mortgage payments into MBSs) were "antiquated and inflexible." Rather than updating two separate systems, the FHFA required the GSEs to jointly develop a new platform to facilitate the various tasks associated with their securitization processes. The GSEs entered into a joint venture, the Common Securitization Solutions (CSS), which operates the Common Securitization Platform (CSP). The GSEs continue to acquire mortgages from originators; establish separate loss-mitigation practices for delinquent and defaulted mortgages for their mortgage servicers to follow; choose the underlying mortgages for placement in each MBS trust; and guarantee the credit risk linked to the MBS trusts they individually create. The CSS, however, acts as a technology service provider for the GSEs. <3.2.3. The Uniform MBS Single Security Initiative> In the TBA market, a loan originator selling mortgages to the GSEs would contract to deliver mortgages in exchange for an MBS at a specified future date. Specifically, the MBS buyer (loan originator) and MBS seller (one of the GSEs) negotiate in advance for future delivery and settlement date. The buyer and seller agree on six general features that the MBS should have: the issuer, maturity, coupon rate, sale price, approximate face value, and settlement date. The exact features of the securities to be delivered are disclosed to the participants two days prior to settlement. MBSs that meet the required criteria can be delivered as long as the underlying MBS pools are fungible , that is, sufficiently interchangeable with other MBSs. Because the MBS issuer is one of the trading features, MBSs have generally been fungible only with other MBSs issued by the same GSE. Fannie Mae-issued MBSs and Freddie Mac-issued MBSs have not previously been interchangeable, and their MBSs do not trade at identical prices despite the fact that the GSEs have essentially the same federal charters and business (securitization) models. Freddie Mac's MBSs have been frequently traded at lower prices than Fannie Mae's. Following declines in mortgage rates that prompt borrowers to refinance, the mortgage pools underlying Freddie Mac's MBSs historically have had faster prepayment rates (relative to Fannie Mae's MBSs). Faster prepayment translates into higher prepayment risk for Freddie Mac MBS investors, which would explain trading at lower prices. The persistent price difference led to an exploitable arbitrage opportunity, particularly for large originators that sell loans via swap agreements. By entering into a swap agreement with Fannie Mae, a large mortgage originator would immediately acquire a higher-priced MBS that could subsequently be sold in the OTC market. Freddie Mac could respond by lowering its g-fees, thereby slightly increasing its MBS coupons relative to Fannie Mae's MBS coupons to remain somewhat competitive. Besides the persistent pricing differential, Freddie Mac's MBS issuances were approximately 70% of Fannie Mae's MBS issuances, and Freddie Mac's MBSs accounted for only 9% of total trading activity in 2014. Hence, the pricing differential between the GSEs' MBSs especially while they are under conservatorship is arguably transformed into a taxpayer subsidy for the larger loan originators. Under the single security initiative, the FHFA has directed the GSEs to align their key contractual and business practices by acquiring mortgages with similar prepayment speeds along with other features. The GSEs may continue to separately purchase conforming mortgages and guarantee the credit risks linked to the MBS trusts they create. Nevertheless, harmonizing the financial characteristics of their mortgage purchases would allow the GSEs' MBS trusts to generate similar cash-flow predictability and prepayment speeds, thus facilitating the creation of uniform and fungible securities when issued through the CSP. The GSEs would be required to align their prepayment speeds such that they do not constitute a material misalignment, or a divergence by more than 2% over a three-month interval. Rather than separate MBS issuances (i.e., Fannie Mae's mortgage-backed security and Freddie Mac's participation certificates), the FHFA has directed the GSEs (via the CSP) to issue one common security, the uniform mortgage-backed security (UMBSs). (Private-sector guarantors would also be able to use the CSP to issue fungible UMBSs.) The FHFA argues that a combined market for the GSEs' UMBSs would enhance market liquidity and mitigate the rise of market liquidity premiums; the pricing differential would also be eliminated. FHFA will monitor both GSEs to ensure that their underwriting policies remain intact to avoid material misalignment that compromises UMBS fungibility. UMBS issuances began on June 3, 2019. <4. Selected Policy Implications> Congress established the GSEs with a public policy mission that includes a variety of ways to support affordable housing. Following the Great Recession, Congress also established a macroprudential economic policy tool in the form of new mortgage market underwriting requirements to mitigate a systemic risk event. Given these broader public policy objectives, this section discusses selected challenges for the GSEs while they are under conservatorship. <4.1. Efforts to Support Broader Access to Mortgage Credit> The GSEs have statutory single- and multi-family goals along with other requirements designed to promote affordable housing. The affordable housing goals, duty to serve goals, and cash contributions make up the three sets of requirements: 1. The GSEs must satisfy specified housing goals that require them to purchase certain percentages of mortgages for families with very low incomes (at or below 50% of area median family income) and extremely low incomes (at or below 30% of area median family income). 2. HERA created a duty to serve for underserved markets, specifically manufactured housing, rural housing, and affordable housing preservation. The FHFA requires the GSEs to develop their own duty to serve plans to encourage lenders to increase their lending in these areas. 3. HERA requires the GSEs to contribute to the Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF). The HTF funds states and state-designated entities for eligible activities that primarily support affordable rental housing for extremely low- and very low-income families, including homeless families. The CMF awards competitive grants to financial institutions designated as Community Development Financial Institutions and qualified nonprofit housing organizations for which the development or management of affordable housing is one of their principal purposes. The GSEs must set aside 4.2 basis points (0.042%) of the unpaid principal balance of mortgages purchased in a year for these funds. Achieving the affordable housing mission has been difficult for the GSEs while they are under conservatorship. For one reason, FHFA suspended the requirement that the GSEs make contributions to the HTF and the CMF between 2008 and 2014. The requirement was reinstated in 2015. Another factor may be that the PSPAs caps of $250 billion on both of the GSEs' portfolios potentially limit the amount of mortgages with nonstandardized characteristics they can purchase. The GSEs retained portfolios consist primarily of (1) mortgages in the pipeline to be securitized, (2) non-performing mortgages that may receive loss-mitigation, and (3) mortgages that support affordable housing mission goals. The PSPA caps and changing mortgage market conditions may prompt the GSEs to be more deliberate when allocating their portfolios for certain purposes. Under the current standardization initiatives, some mortgage purchases made to support the GSEs' affordable mission goals might not be securitized if they lack, for example, the prepayment characteristics required to be securitized into a UMBS. Hence, the standardization initiatives would not adversely affect low- and moderate-income borrowers whose prepayment speeds can be securitized into UMBSs; however, borrowers with prepayments speeds not acceptable for UMBS securitization could pay more for mortgages if the GSEs' portfolios are being used primarily as securitization pipelines for acceptable mortgages and operating closer to their PSPA caps while the GSEs are under conservatorship. <4.2. The GSE Patch/QM Patch and Possible Implications for CRT> On January 10, 2013, the Consumer Financial Protection Bureau (CFPB) released a final rule implementing the ability-to-repay (ATR) requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203 ); the rule took effect on January 10, 2014. The Dodd-Frank Act requires lenders to verify a borrower's ATR with documentation. The final rule provides multiple ways for a loan originator to comply, one of which is by originating a qualified mortgage (QM). If a loan meets certain underwriting and product-feature requirements, it receives QM status; the lender receives a presumption of ATR compliance for legal purposes. Specifically, QM loans provide safe harbor legal protection, meaning that a borrower would not be able to assert that the originator (and any subsequent secondary-market purchaser) failed to comply with any of the required underwriting criteria. Limiting the borrower's debt-to-income (DTI) ratio to 43% is one of the underwriting requirements for a loan to receive QM status. If, however, a loan's DTI exceeds 43%, it may still receive QM status if another federal agency that insures mortgage credit risk is willing to guarantee it. The QM patch allows the GSEs and other federal agencies to operate under their own QM rules for seven years (until January 10, 2021) or until the GSEs exit conservatorship, whichever is sooner. Consequently, the Federal Housing Administration, U.S. Department of Veterans Affairs, and United States Department of Agriculture did not adopt a 43% DTI requirement for the mortgages they guarantee. Instead, these agencies adopted their own QM definitions, which included the exclusion of product features they considered would impede repayment from borrowers they predominantly serve but they did not limit DTIs to 43%. Furthermore, the CFPB's QM rule created an exemption from the 43% DTI cap for mortgages eligible for purchase by the GSEs. Hence, loan originations either acquired by the GSEs while they are under conservatorship (or until January 10, 2021) or guaranteed by other federal agencies receive QM status. Since 2007, the private-label securitizations market has diminished whereas the roles of GSEs and federal agencies that guarantee or issue residential mortgage loans have increased in importance. One reason might be related to the legal protections linked to QM loan originations. Many originators have limited themselves to making only QM loans to avoid exposure to potential liability and litigation risks. Although they may be willing to assume customary lending risks, such as credit and prepayment, financial institutions historically have been less willing to originate mortgage loans with attached compliance or legal risks. For example, since the passage of the 1994 Home Ownership Equity Protection Act (HOEPA), mortgage originations covered by the law make up a small share of the mortgage market and are concentrated among very few lenders. HOEPA lending declined markedly after new regulations were implemented to amend the definition of a high-cost mortgage to cover more types of loans. After the passage of the Georgia Anti-Predatory Lending Act of 2002, the GSEs announced that they would no longer purchase mortgages originated in the state of Georgia to avoid the legal risk of assignee liability. Likewise, many mortgage originators have reportedly limited themselves to making QM safe harbor loans. If the QM patch expires in January 2021 as currently scheduled (or the GSEs are no longer in conservatorship), it is unclear whether the GSEs would purchase non-QM loans in the future. Because the GSEs currently purchase loans that meet the QM standards, questions that pertain to the legal liabilities of the GSEs (and holders of GSE issuances) if they were to purchase non-QM loans are largely unknown at this time. If the GSEs did limit their non-QM purchases, some borrowers could find it more difficult to access mortgage credit and others could experience an increase in the cost of obtaining a mortgage. Furthermore, the MBS and CRT financial market conditions, in terms of demand, supply, and liquidity, could exhibit greater volatility after January 2021 if the patch expires.

Congress chartered Fannie Mae and Freddie Mac, also known collectively as the government-sponsored enterprises (GSEs), to promote homeownership for underserved groups and locations by providing liquidity to the secondary mortgage market. The GSEs specifically facilitate financing for single-family residential mortgages and multifamily (apartment and condominium) construction. After purchasing pools of single-family 30-year fixed rate mortgages, the GSEs retain the credit (default) risks from the whole mortgages and subsequently issue mortgage-backed securities (MBSs), which are bond-like securities. Investors who purchase MBSs are guaranteed a return on their initial principal and interest, but they assume prepayment risk, which is the risk that borrowers prepay their mortgages ahead of schedule. In contrast to the original mortgages (with both credit and prepayment risks attached), the MBSs are relatively more liquid, meaning they can be exchanged for cash more quickly with little change in their quoted prices. If institutional investors from around the globe are willing to hold liquid MBSs, then additional funds are channeled to the nation's mortgage market (particularly to support 30-year fixed rate mortgages). National mortgage rates tend to fall as the supply of funds in this market increases, making homeownership more affordable. The Federal Housing Finance Agency (FHFA), an independent federal government agency created by the Housing Economic and Recovery Act of 2008 (HERA; P.L. 110-289 ), is the GSE's primary supervisor. FHFA regulates the GSEs for prudential safety and soundness and to ensure that they meet their affordable housing mission goals. In September 2008, the GSEs experienced losses that exceeded their statutory minimum capital requirement levels as a result of above-normal mortgage defaults. The GSEs also experienced losses following spikes in short-term borrowing rates that occurred while they were funding long-term assets held in their portfolios. The GSEs subsequently were placed under conservatorship, and the FHFA currently has the powers of management, boards, and shareholders until the GSEs' financial safety and soundness can be restored. In addition, the U.S. Treasury is providing financial support through the Senior Preferred Stock Purchase Agreements (PSPAs) program, which requires the GSEs to pay dividends to Treasury rather than private shareholders while they are under conservatorship. Congressional interest in the GSEs has continued since conservatorship. First, the final costs to the U.S. Treasury (and, by proxy, to U.S. taxpayers) of providing financial support to the GSEs are unknown. Furthermore, the GSEs' future viability could affect the availability of single-family 30-year fixed rate mortgage loan products. Although these mortgage products are arguably popular with borrowers, private lenders may be reluctant to retain in portfolio and fund relatively less liquid mortgages—with both credit and prepayment risks attached—for several decades. Congressional interest has been reflected by various draft proposals, bills, and oversight hearings on housing finance reform. During the 116 th Congress, the Senate Committee on Banking, Housing, and Urban Affairs released a proposal that would likely affect the GSEs' role in the housing finance system. President Donald J. Trump also released a memorandum directing federal agencies to develop a plan to reform the housing finance system, which includes ending the conservatorships. The FHFA's initiatives have focused primarily on managing the GSEs' liquidity, operational, and credit risks. The FHFA has directed the GSEs to standardize numerous processes to foster greater liquidity in the market for their MBSs. The standardization initiatives may also reduce operational risks, particularly risks associated with data breaches and other technology disruptions. The GSEs are also being required to share more of the credit risk linked to their single-family mortgage purchases with the private sector. The GSEs still face future challenges. For example, recent FHFA initiatives require the GSEs to harmonize their business models, including certain borrower risk characteristics that are eligible for securitization. The GSEs' ability to satisfy their affordable housing goals, therefore, might depend upon the extent to which borrowers with risk characteristics deemed eligible for securitization overlap with those who traditionally face greater difficulty accessing credit. In addition, the GSEs' securitization activities may depend upon certain legal protections that loan originators receive when their mortgages are sold to the GSEs. These protections are granted under what is referred to as the GSE patch, which expires on January 10, 2021. It is unclear how the secondary-market participants—the loan originators, the GSEs, and investors in the MBSs issued by the GSEs—will respond if the GSE patch expires.

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The manner in which staff are integrated and utilized within an organization may reflect the missions and priorities of that organization. In Congress, staff work for Members of Congress in personal, committee, and leadership offices, and are involved with every facet of congressional activity. Activities might include supporting a Member's representational, legislative, leadership, or administrative responsibilities as they arise in those settings. House and Senate staff activities may be of particular interest as one Congress comes to a close, and another Congress integrates new Members and staff in support of addressing its constitutional and representational responsibilities. Interest in staff issues may also arise when considering committee funding or appropriations for the legislative branch. CRS has several products about congressional staff, listed below, that provide information about staff roles and data over time about the number of staff, pay levels, and time in specific positions in Member office and committee settings. Congressional clients may contact the authors of the individual reports for additional information. <1. House of Representatives> CRS Report R43947, House of Representatives Staff Levels in Member, Committee, Leadership, and Other Offices, 1977-2016 , by R. Eric Petersen and Amber Hope Wilhelm. CRS Report R44323, Staff Pay Levels for Selected Positions in House Member Offices, 2001-2018 , coordinated by R. Eric Petersen. CRS Report R44682, Staff Tenure in Selected Positions in House Member Offices, 2006-2016 , by R. Eric Petersen and Sarah J. Eckman. CRS Report R44322, Staff Pay Levels for Selected Positions in House Committees, 2001-2015 , coordinated by R. Eric Petersen. CRS Report R44683, Staff Tenure in Selected Positions in House Committees, 2006-2016 , by R. Eric Petersen and Sarah J. Eckman. <2. Senate> CRS Report R43946, Senate Staff Levels in Member, Committee, Leadership, and Other Offices, 1977-2016 , by R. Eric Petersen and Amber Hope Wilhelm. CRS Report R44324, Staff Pay Levels for Selected Positions in Senators' Offices, FY2001-FY2018 , coordinated by R. Eric Petersen. CRS Report R44684, Staff Tenure in Selected Positions in Senators' Offices, 2006-2016 , by R. Eric Petersen and Sarah J. Eckman. CRS Report R44325, Staff Pay Levels for Selected Positions in Senate Committees, FY2001-FY2015 , coordinated by R. Eric Petersen. CRS Report R44685, Staff Tenure in Selected Positions in Senate Committees, 2006-2016 , by R. Eric Petersen and Sarah J. Eckman. <3. Staff Duties, Qualifications, Expectations, and Skills> CRS Report R46262, Congressional Staff: Duties, Qualifications, and Skills Identified by Members of Congress for Selected Positions , by R. Eric Petersen.

The manner in which staff are integrated and utilized within an organization may reflect the missions and priorities of that organization. In Congress, staff work for Members of Congress in personal, committee, and leadership offices, and are involved with every facet of congressional activity. Activities might include supporting a Member's representational, legislative, leadership, or administrative responsibilities as they arise in those settings. House and Senate staff activities may be of particular interest as one Congress comes to a close, and another Congress integrates new Members and staff in support of addressing its constitutional and representational responsibilities. Interest in staff issues may also arise when considering committee funding or appropriations for the legislative branch. CRS has several products about congressional staff, listed below, that provide information about staff roles and data over time about the number of staff, pay levels, and time in specific positions in Member office and committee settings. Congressional clients may contact the authors of the individual reports for additional information.

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<1. Introduction> Paid family leave (PFL) refers to partially or fully compensated time away from work for specific and generally significant family caregiving needs, such as the arrival of a new child or serious illness of a close family member. Although the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3 ) provides eligible workers with a federal entitlement to unpaid leave for a limited set of family caregiving needs, no federal law requires private-sector employers to provide paid leave of any kind. Currently, employees may access PFL if offered by an employer. In addition, some states have created family leave insurance (FLI) programs, which provide cash benefits to eligible workers who engage in certain (state-identified) family caregiving activities. In these states, workers can access PFL by combining an entitlement to unpaid leave with state-provided insurance benefits. Some Congressional proposals to expand national access to paid family leave expand upon these existing mechanisms. A new tax credit, created in December 2017 ( P.L. 115-97 ), seeks to expand voluntary employer-provided PFL, and similar to the state insurance approach the Family and Medical Insurance (FAMILY Act; S. 463 / H.R. 1185 ), which proposes to create a national wage insurance program for persons engaged in family caregiving activities or who take leave for their own serious health condition. The New Parents Act ( S. 920 / H.R. 1940 ) would allow parents of a new child to receive Social Security benefits, to be repaid at a later date, for the purposes of financing parental leave. Others proposals, such as the Working Parents Flexibility Act of 2019 ( H.R. 1859 ) and the Freedom for Families Act ( H.R. 2163 ), would amend the tax code to provide tax-advantages to individuals with caregiving responsibilities. Members of Congress who support increased access to paid leave generally cite as their motivation the significant and growing difficulties some workers face when balancing work and family responsibilities, and the financial challenges faced by many working families that put unpaid leave out of reach. In general, expected benefits of expanded access to PFL include stronger labor force attachment for family caregivers and greater income stability for their families, and improvements to worker morale, job tenure, and other productivity-related factors. Potential costs include the financing of payments made to workers on leave, other expenses related to periods of leave (e.g., hiring a temporary replacement or productivity losses related to an absence), and administrative costs. The magnitude and distributions of costs and benefits will depend on how the policy is implemented, including the size and duration of benefits, how benefits are financed, and other policy factors. This report provides an overview of paid family leave in the United States, summarizes state-level family leave insurance programs, notes PFL policies in other advanced-economy countries, and notes recent federal legislative action to increase access to paid family leave. <2. Paid Family Leave in the United States> Throughout their careers, many workers encounter a variety of family caregiving obligations that conflict with work time. Some of these are broadly experienced by working families but tend to be short in duration, such as episodic child care conflicts, school meetings and events, routine medical appointments, and minor illness of an immediate family member. Others are more significant in terms of their impact on families and the amount of leave needed, but occur less frequently in the general worker population, such as the arrival of a new child or a serious medical condition that requires inpatient care or continuing treatment. Although all these needs for leave may be consequential for working families, the term family leave is generally used to describe the latter, more significant, group of needs that tend to require longer periods of time away from work. As defined in state law and federal proposals, family caregiving activities that are eligible for PFL or leave insurance benefits generally include caring for and bonding with a newly arrived child and attending to the serious medical needs of certain close family members; some also allow leave or benefits for workers with certain military family needs. In practice, day-to-day needs for leave to attend to family matters (e.g., a school conference or lapse in child care coverage), minor illness (e.g., common cold), or preventive care are not included among family leave categories. <2.1. Employer-Provided Paid Family Leave> Employer-provided PFL in the private sector is voluntary. According to a national survey of employers conducted by the Bureau of Labor Statistics (BLS), 16% of private-industry employees had access to PFL (separate from other leave categories) through their employer in March 2018. These statistics, displayed in Table 1 , further show that PFL was more prevalent among managerial and professional occupations; information, financial, and professional and technical service industries; high-paying occupations; full-time workers; and workers in large companies (as measured by number of employees). Recent announcements by several large companies suggest that access may be increasing among certain groups of workers. Among new company policies announced in recent years, some emphasize parental leave (i.e., leave taken by mothers and fathers in connection with the arrival of a new child), and others offer broader uses of family leave. A 2017 study by the Pew Research Center (Pew) examined U.S. perceptions of and experiences with paid family and medical leave; its results provide insights into the need for such leave among U.S. workers and its availability for those who need it. Pew reports, for example, that 27% of persons who were employed for pay between November 2014 and November 2016 took leave (paid and unpaid) for family caregiving reasons or their own serious health condition over that time period, and another 16% had a need for such leave but were not able to take it. Among workers who were able to use leave, 47% received full pay, 36% received no pay, and 16% received partial pay. Consistent with BLS data, the Pew study indicates that lower-paid workers have less access to paid leave; among leave takers, 62% of workers in households with less than $30,000 in annual earnings reported they received no pay during leave, whereas this figure was 26% among those with annual household incomes at or above $75,000. <2.2. State-Run Family Leave Insurance Programs> Some states have enacted legislation to create state paid FLI programs, which provide cash benefits to eligible workers who engage in certain caregiving activities. Four states California, New Jersey, New York, and Rhode Island have active programs. Three additional programs those in the District of Columbia (DC), Washington State, and Massachusetts await implementation. Table 2 summarizes key provisions of state FLI laws and shows the following: The maximum weeks of benefits available to workers and wage replacement rates vary across states. Existing state FLI programs offer between 4 weeks (Rhode Island) and 10 weeks (New York) of benefits. Starting July 1, 2020, New Jersey is to increase benefit weeks from 6 to 12. When its plan is implemented, DC is to offer 8 weeks of paid family leave in 2020, and Washington State is to offer 12 weeks of paid family leave in the same year. New York's entitlement is to increase to 12 weeks of benefits when its plan is fully implemented in 2021. Massachusetts is to provide up to 12 weeks for family leave, unless leave is used to provide care to a seriously ill or injured military service member, when up to 26 weeks may be used. Program eligibility typically involves in-state employment of a minimum duration, minimum earnings in covered employment, or contributions to the insurance funds. All state FLI programs currently in operation are financed entirely by employee payroll tax receipts; however, when implemented, the DC program is set to be financed by employers. Massachusetts' and Washington State's programs are to be jointly financed by employers and employees, with some exceptions. Some FLI programs (e.g., Rhode Island) provide job protection directly to workers who receive FLI benefits, meaning that employers must allow a worker to return to his or her job after leave has ended. Workers in other states may receive job protection if they are entitled to leave under federal or state family and medical leave laws, and coordinate such job-protected leave and FLI benefits. <3. Paid Family Leave in OECD Countries> Many advanced-economy countries entitle workers to some form of paid family leave. Whereas some provide leave to employees engaged in family caregiving (e.g., of parents, spouse, and other family members), many emphasize leave for new parents, mothers in particular. As of 2016, the Organization for Economic Co-operation and Development (OECD) family leave database counts 34 of its 35 members as providing some paid parental leave (i.e., to care for children) and maternity leave, with wide variation in the number of weeks and rate of wage replacement across countries. This is shown in Figure 1 , which plots the OECD's estimates of weeks of full-wage equivalent leave available to mothers. Weeks of full-wage equivalent leave are calculated as the number of weeks of leave available multiplied by the average wage payment rate. For example, a country that offers 12 weeks of leave at 50% pay would be said to offer 6 full-wage equivalent weeks of leave (i.e., 12 weeks x 50% = 6 weeks). A smaller share (27 of 35) of OECD countries provides paid leave to new fathers. In some cases, fathers are entitled to less than a week of leave, often at full pay (e.g., Greece, Italy, and the Netherlands), whereas others provide several weeks of full or partial pay (e.g., Portugal provides five weeks at full pay, and the United Kingdom provides two weeks at an average payment rate of 20.2%). Some countries provide a separate entitlement to fathers for child caregiving purposes. This type of parental leave can be an individual entitlement for fathers or a family entitlement that can be drawn from by both parents. In the latter case, some countries (e.g., Japan, Luxembourg, and Finland) set aside a portion of the family entitlement for fathers' use, with the goal of encouraging fathers' participation in caregiving. Figure 2 summarizes paid leave entitlements reserved for fathers in OECD countries in 2016; it plots the OECD's estimates of weeks of full-wage equivalent paternity leave and parental leave reserved for fathers. The OECD examined the availability of family caregiver leave among its member countries in 2011 and found that of the 25 countries for which it could identify information, 14 had polices providing paid leave to workers with ill or dying family members; these are summarized in Table 3 . Qualifying needs for leave, leave entitlement durations, benefit amounts, and eligibility conditions varied considerably across the countries included in the OECD study. <4. Recent Federal PFL Legislation and Proposals> The overarching goal of PFL legislative activity in the 116 th Congress has been to increase access to leave by reducing the costs associated with providing or taking leave. The Strong Families Act, which became law in December 2017 ( P.L. 115-97 ), allows employers to claim tax credits for a portion of wages paid to certain employees taking family or medical leave; this approach potentially increases access to PFL for workers while reducing the costs to employers of providing the leave. A second approach addresses costs incurred by workers taking leave. For example, the establishment of a national family leave insurance program, such as that proposed in the Family and Medical Insurance Leave Act (FAMILY Act; S. 463 / H.R. 1185 ), would provide cash benefits to eligible individuals who are engaged in certain caregiving activities, potentially making the use of unpaid leave (e.g., as provided by FMLA or voluntarily by employers) affordable for some workers. Proposals such as the New Parents Act ( S. 920 / H.R. 1940 ) would allow eligible new parents to receive to up to three months of Social Security benefits, in return for deferring retirement (or early retirement) by a period of time determined by the Social Security Administration to cover the costs of the parental benefit. Other approaches include proposals to create tax-advantaged parental leave savings accounts (e.g., the Working Parents Flexibility Act of 2019, H.R. 1859 ) and tax-advantaged distributions from health savings accounts for family and medical leave purposes (e.g., the Freedom for Families Act, H.R. 2163 ). In addition, the President's FY2020 budget proposes to provide six weeks of financial support to new parents through state unemployment compensation (UC) programs. A similar approach was taken in 2000 by the Clinton Administration, which via Department of Labor regulations allowed states to use their UC programs to provide UC benefits to parents who take unpaid leave under the FMLA, other approved unpaid leave, or otherwise take time off from employment after the birth or adoption of a child. The Birth and Adoption Unemployment Compensation rule took effect in August 2000, and it was later removed from federal regulations in November 2003.

Paid family leave (PFL) refers to partially or fully compensated time away from work for specific and generally significant family caregiving needs, such as the arrival of a new child or serious illness of a close family member. Although the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3) provides eligible workers with a federal entitlement to unpaid leave for a limited set of family caregiving needs, no federal law requires private-sector employers to provide paid leave of any kind. Currently, employees may access paid family leave if it is offered by an employer. In addition, workers in certain states may be eligible for state family leave insurance benefits that can provide some income support during periods of unpaid leave. As defined in state law and federal proposals, family caregiving activities that are eligible for PFL or family leave insurance generally include caring for and bonding with a newly arrived child and attending to serious medical needs of certain close family members. Some permit leave for other reasons, but in practice, day-to-day needs for leave to attend to family matters (e.g., a school conference or lapse in child care coverage), minor illness, and preventive care are not included among "family leave" categories. Employer provision of PFL in the private sector is voluntary. According to a national survey of employers conducted by the Bureau of Labor Statistics, 16% of private-industry employees had access to PFL through their employers in March 2018. The availability of PFL was more prevalent among professional and technical occupations and industries, high-paying occupations, full-time workers, and workers in large companies (as measured by number of employees). Recent announcements by several large companies indicate that access may be increasing among certain groups of workers. In addition, some states have enacted legislation to create state paid family leave insurance (FLI) programs, which provide cash benefits to eligible workers who engage in certain caregiving activities. California, Rhode Island, and New Jersey currently operate FLI programs, which offer 4 to 10 weeks of benefits to eligible workers. Three other states and the District of Columbia have enacted FLI programs, but they are not yet fully implemented and paying benefits. The New York program began phased implementation in 2018. The District of Columbia FLI legislation took effect in April 2017, and Washington State's FLI law took effect in July 2017; benefit payments start in 2020 for both programs. Massachusetts' family leave program was signed into law in June 2018; its benefit payments are to begin in January 2021. Many advanced-economy countries entitle workers to some form of paid family leave. Whereas some provide leave to employees engaged in family caregiving (e.g., of parents, spouses, and other family members), many emphasize leave for new parents, mothers in particular. The United States is the only Organization for Economic Co-operation and Development (OECD) member to not offer paid leave to new mothers. In December 2017, Congress passed H.R. 1 (P.L. 115-97), which included tax incentives to employers to voluntarily offer paid family and medical leave to employees. Proposals to expand national access to paid family leave have been introduced in the 116th Congress, such as the Family and Medical Insurance Leave Act (FAMILY Act; S. 463/H.R. 1185), which proposes to create a national wage insurance program for persons engaged in family caregiving activities or who take leave for their own serious health condition (i.e., a family and medical leave insurance program), and the New Parents Act (S. 920/ H.R. 1940) which would allow parents of a new child to receive Social Security benefits for the purposes of financing parental leave. Others have proposed using the tax code to provide tax advantages to individuals with caregiving responsibilities.

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<1. Introduction> The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) are two separate provisions that reduce regular Social Security benefits for workers and/or their eligible family members if the worker receives (or is entitled to) a pension based on earnings from employment not covered by Social Security. The WEP affects retired or disabled workers and their family members, and the GPO affects spouses and survivors. Some beneficiaries who are entitled to both Social Security retirement benefits and spousal (or survivors') benefits (i.e., dually entitled) may be affected by both the WEP and the GPO. As of December 2018, 263,775 Social Security beneficiaries had their benefits reduced by both provisions, which accounted for 38% of spouses and survivors who were affected by the GPO and 14% of beneficiaries affected by the WEP. The provisions' benefit offsets create complications in calculating and administering Social Security benefits. This report examines the current-law provisions of the WEP and the GPO, who is affected by both provisions, and the size of the affected population. It also focuses on issues related to Social Security overpayments associated with dually entitled beneficiaries affected by both provisions, the two offsets' impact on Social Security benefits and household wealth, and how extending Social Security coverage through Section 218 agreements impacts the population affected by both provisions. For an overview of the WEP and the GPO, see CRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) ; and for an explanation of the dual entitlement rule, see CRS In Focus IF10738, Social Security Dual Entitlement . <2. Background on the WEP and the GPO> A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are subject to Social Security payroll taxes. About 7% of all workers are not covered by Social Security, mainly state and local government employees covered by alternative state-retirement systems and most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS) or other alternative retirement plans. Social Security beneficiaries who receive a pension based on employment not covered by Social Security may be affected by the WEP, the GPO, or both. <2.1. The Windfall Elimination Provision> The WEP was enacted in 1983 as part of major amendments to Social Security. Its purpose was to remove an unintended advantage or windfall that the regular Social Security benefit formula provided to workers who also had pensions from noncovered employment. The regular formula is weighted to replace a greater share of career-average earnings for low-paid workers than for high-paid workers. However, the formula could not differentiate between those who worked in low-paid jobs throughout their careers and other workers who appeared to have been low paid because they worked in jobs not covered by Social Security for many years (these years are shown as zeros for Social Security benefit purposes). The WEP is intended to remove this unintended advantage. Under the WEP, a worker's Social Security benefit is computed using a new formula, rather than the regular benefit formula, which results in a lower initial monthly benefit. The WEP applies to most people who receive both a pension from noncovered work (including certain foreign pensions) and Social Security retired worker benefits based on fewer than 30 years of substantial earnings in covered employment or self-employment. In 2019, the WEP reduces the share of the first $926 of average indexed monthly covered earnings that Social Security benefits replace, from 90% to as low as 40%. That adjustment reduces the associated benefit from $833.40 to as low as $370.40 per month, with a maximum reduction of $463.00. The WEP reduction amount is phased out for workers with between 21 years and 30 years of substantial earnings in employment covered by Social Security. Therefore, the WEP reduction's impact is smaller for workers who have more years of substantial covered employment. In addition, the WEP includes a guarantee that the reduction in the benefit amount caused by the WEP formula is limited to one-half of the noncovered pension. <2.2. The Dual Entitlement Rule and the Government Pension Offset> In general, Social Security spousal and survivors benefits are paid to the spouses of retired, disabled, or deceased workers covered by Social Security. The spousal benefit equals 50% of a retired or disabled worker's benefit and the survivors benefit equals 100% of a deceased worker's benefit. Under Social Security's dual entitlement rule , a person's spousal benefit is reduced, dollar-for-dollar, by the amount of his or her own Social Security retired- or disabled-worker benefit but not below zero (i.e., a 100% offset). The difference, if any, is paid as a spousal benefit and is added to the worker's Social Security benefit. In effect, the person receives the higher of the two Social Security benefit amounts, but not both. Enacted in 1977, the GPO is intended to replicate the dual entitlement rule for spouses and widow(er)s who receive pensions based on employment not covered by Social Security. The Social Security spousal or survivors benefit is reduced by an amount equal to two-thirds of the noncovered government pension (i.e., a 67% offset). <3. Social Security Beneficiaries Affected by Both the WEP and the GPO> Social Security beneficiaries will be affected by both the WEP and the GPO if they receive a noncovered government pension; are entitled to a WEP-reduced Social Security retired- or disabled-worker benefit; and are dually entitled to a Social Security spousal or survivors benefit (hereinafter "spousal benefits") after the reduction of the retired- or disabled-worker benefit. Table 1 illustrates four examples of how the WEP and the GPO affect Social Security benefits. <3.1. Affected by the WEP Only: Example 1> Retired workers are affected by only the WEP, and not the GPO, if they either are not entitled to Social Security spousal benefits or their spousal benefits are less than the WEP-reduced retirement benefits (i.e., the spousal benefit is reduced to zero after the dual entitlement rule). To illustrate, in example 1, the retired worker receives a pension based on noncovered employment ($900), thus the worker's benefit is computed based on the WEP formula ($700). The retired worker may also be entitled to a $500 spousal benefit before any reduction, but the spousal benefit is reduced dollar-for-dollar by the amount of the retired worker's benefit ($700), according to the dual entitlement rule, but not below zero. Therefore, this worker's spousal benefit is reduced to zero after the dual entitlement reduction. The worker is not subject to the GPO because he or she does not receive a positive spousal benefit. The worker's total retirement benefits equal $1,600, based on the WEP formula and a noncovered pension ($700+$900=$1,600). <3.2. Affected by the GPO Only: Example 2> Spouses and survivors are affected only by the GPO, but not the WEP, if they are not entitled to Social Security benefits based on their own earnings record, if any. To illustrate, in example 2, the beneficiary does not receive a Social Security worker's benefit ($0), but is entitled to a $1,000 spousal benefit. Because the beneficiary receives a noncovered pension benefit of $900, the spousal benefit is reduced by two-thirds of the noncovered pension ($600), resulting in a net spousal benefit of $400. This beneficiary receives total benefits of $1,300 from reduced Social Security spousal benefits and a noncovered pension ($400+$900=$1,300). <3.3. Affected by Both the WEP and the GPO: Examples 3 and 4> Social Security beneficiaries are affected by both the WEP and the GPO if they receive both WEP-adjusted retired worker benefits based on their own work record and a reduced spousal benefit after the dual entitlement rule (i.e., dually entitled beneficiaries). The spousal benefit reduced by the dual entitlement rule is then subject to the GPO offset. In certain cases, the Social Security spousal benefit is high enough and remains positive after the GPO reduction (partial offset). To illustrate, in example 3, the worker receives a noncovered pension of $900 and a WEP-reduced retired-worker benefit of $700. If the worker is also eligible for a $1,500 spousal benefit, this is reduced by the worker's benefit based on the dual entitlement rule ($700), and further reduced by two-thirds of the noncovered pension based on the GPO ($600), thus the net spousal benefit equals $200 ($1,500- $700-$600). The beneficiary's total benefits of $1,800 include a WEP-reduced retirement benefit, a net spousal benefit after offsets, and a noncovered pension ($700+$200+$900=$1,800). In other cases, the Social Security spousal benefit is reduced to zero after the GPO reduction (fully offset). Example 4 illustrates a scenario in which a WEP-affected worker receives a $1,000 spousal benefit, which is reduced by the worker's benefit based on the dual entitlement rule ($700), and the resulting $300 is further reduced by the GPO offset ($600). The net benefit for this worker based on the spouse's working record ends with zero, because the spousal benefit cannot be reduced below zero. Therefore, this beneficiary will receive total benefits of $1,600 based on the WEP formula and the noncovered pension ($700+$900=1,600). <4. Number of Social Security Beneficiaries Affected by the WEP and the GPO> As of December 2018, about 2.3 million Social Security beneficiaries, or almost 4% of all beneficiaries, had benefits reduced by the WEP, the GPO, or both. More than 11% of those affected were subject to both provisions. Social Security beneficiaries who were affected by both the WEP and the GPO accounted for 38% of spouses and survivors affected by the GPO and 14% of beneficiaries affected by the WEP. Table 2 breaks down the affected beneficiaries by state and type of offset. <5. Selected Issues for Dually Entitled Beneficiaries Affected by the WEP and the GPO> This section highlights issues related to dually entitled Social Security beneficiaries affected by both the WEP and the GPO: Social Security overpayments to affected beneficiaries, the impact of the WEP and GPO on Social Security benefits and household wealth, and the effect of extending Social Security coverage through Section 218 agreements. <5.1. Overpayments to Those Affected by Both the WEP and the GPO> Overpayments to dually entitled Social Security beneficiaries affected by both the WEP and the GPO have been an issue for SSA since the provisions were implemented. The improper payments occurred in part because SSA did not properly impose the WEP and the GPO on dually entitled beneficiaries who also receive a pension based on noncovered employment. In a January 2013 report, SSA's Office of the Inspector General (OIG) identified 20,668 dually entitled beneficiaries in current-payment status whose WEP or GPO reductions were not applied properly. Among them, OIG estimated that SSA has overpaid approximately $349.5 million to 10,546 dually entitled beneficiaries whose WEP reduction was not applied properly and $320.6 million to 10,122 dually entitled beneficiaries whose GPO offset was not imposed correctly. OIG also estimated that SSA overpaid those beneficiaries an additional $231.9 million from 2013 to 2017, and that if no corrective action is taken, SSA might continue overpaying them by approximately $46.4 million annually. In 2018, OIG identified about 7,409 dually entitled beneficiaries with a GPO reduction on their spousal benefits but no WEP reduction on their retirement benefits and 8,127 dually entitled beneficiaries with a WEP reduction on their retirement benefits but no GPO offset on their spousal benefits. To prevent further improper payments to dually entitled beneficiaries who are subject to both the WEP and the GPO, in September 2018, SSA planned to generate system alerts for individuals who apply for retirement and spousal benefits when pension information is already available. OIG indicates that the planned alterations to the system, if implemented properly, might effectively prevent additional WEP and GPO overpayments. Improper payments to Social Security beneficiaries affected by the WEP and the GPO also occurred because some beneficiaries fail to report receipt of or changes in their pensions based on employment not covered by Social Security. If a beneficiary is receiving a noncovered pension based on his or her own employment, the beneficiary must provide evidence from the employer or pension-paying agency (e.g., an award letter) that shows the gross periodic pension amount, including the effective date and expected future pension increases. SSA cited GPO errors as one of the most important causes of the increase in the overpayment error rate between FY2016 and FY2017. Several proposals have been made to improve SSA's collection of pension information from states and localities for administering the WEP and the GPO. For example, the President's FY2020 budget includes a proposal for up to $70 million for administrative expenses, $50 million of which would be available to the states, to develop a mechanism to facilitate reporting of information about pensions based on noncovered employment. In addition, a 1998 report from the General Accounting Office (GAO; now called the Government Accountability Office) recommended that SSA obtain public pension data from the Internal Revenue Service (IRS). SSA has indicated that discussions with the IRS to obtain noncovered pension information are ongoing. <5.2. Impact on Social Security Benefits and Household Wealth> The WEP and the GPO reduce the Social Security benefit received by either member or both members of a couple within a household, and have the largest impact on households affected by both provisions. One study finds that the WEP and the GPO, on average, reduce the present value of lifetime Social Security benefits by about 20% among households affected by either provision and by another 10% among households affected by both provisions. In this study, the households affected by both the WEP and the GPO include those in which either member is affected by both provisions or one member is affected by the WEP and the other is affected by the GPO. The study found that the present value of lifetime Social Security benefits and total household wealth including the present value of lifetime Social Security benefits, public pension benefits, and other pension benefits, as well as all other assets were lower among households subject to both the WEP and the GPO than among households subject to either provision alone. <5.3. Effect of Extending Social Security Coverage to Noncovered Workers> About one-quarter of state and local government employees, or approximately 6.4 million individuals, are not covered by Social Security. Social Security coverage may be extended to state and local government employees through a voluntary Section 218 Agreement between a state and the Social Security Administration. If a state or local government employee's position is covered under a public retirement system that provides a minimum retirement benefit comparable to Social Security retired-worker benefits, Social Security coverage may be extended to those positions via employee referendums. If a majority of all eligible employees votes in favor of Social Security coverage, all current and future employees in positions under the public retirement system will be covered. The adoption of a Section 218 Agreement during a worker's or a spouse's midcareer may cause some future (dually entitled) Social Security beneficiaries to become subject to the WEP and the GPO. Table 3 illustrates an example of a worker's Social Security benefits with and without an extension of Social Security coverage on the worker's own employment. Without Social Security coverage, the worker in example 1 might have no Social Security retired-worker benefits ($0), and his or her Social Security spousal benefits ($1,000) would be reduced by the GPO (2/3 of noncovered pension = 2/3 $900=$600). In this example, the beneficiary would be affected by only the GPO. If the worker's position became covered by Social Security in midcareer, the Social Security retirement benefits based on his or her own earnings record would become positive (assumed to be $450) and the noncovered component of the pension would decrease accordingly ($450) to reflect fewer years of noncovered employment (example 2). This individual would be subject to both the WEP and the GPO. Consequently, the beneficiary would become dually entitled to both Social Security retirement benefits and spousal benefits, and the spousal benefits would be reduced by both the dual entitlement rule ($450) and the GPO (2/3 of noncovered pension=2/3 $450=$300). Table 4 illustrates another example of the Social Security and pension benefits of a beneficiary whose spouse becomes covered under Social Security in midcareer. The beneficiary is assumed to receive Social Security retirement benefits based on his or her own covered earnings and a pension benefit based on noncovered employment, which makes the beneficiary subject to the WEP (example 1). Extending the spouse's Social Security coverage would increase the before-offset spousal benefits from zero to positive, which consequently would result in the beneficiary becoming dually entitled (examples 2 and 3). In example 2, the Social Security spousal benefits ($1,000) would be reduced by the worker's own Social Security benefit under the dual entitlement rule ($600). The Social Security spousal benefits would be further reduced by the GPO (2/3 of noncovered pension=2/3 $900= $600), and result in a net spousal benefit of zero (because the spousal benefit cannot be reduced below zero). In example 3, the Social Security spousal benefit ($1,300) is higher than the combined benefit reductions from the dual entitlement rule ($600) and the GPO ($600), thus resulting a net spousal benefit of $100. In all three examples, the beneficiary is affected by both the WEP and the GPO. Although a Section 218 Agreement may result in some potential beneficiaries being subject to both the WEP and the GPO, such an extension of Social Security coverage may also have a reverse effect future Social Security beneficiaries who might be affected by both provisions without the Section 218 Agreement might become subject to only one provision with such an agreement. For example, a potential dually entitled beneficiary subject to both the WEP and the GPO might be exempted from the GPO if he or she switched from a noncovered position to a covered position and stayed in that covered position for at least five years.

The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) are two separate provisions that reduce Social Security benefits for workers and/or and their eligible family members if the worker receives (or is entitled to) a pension based on employment not covered by Social Security. Certain beneficiaries may be subject to both the WEP and the GPO if they are dually entitled to Social Security retirement and spousal (or survivors') benefits and also receive a noncovered government pension. As of December 2018, 263,775 Social Security beneficiaries were affected by both the WEP and the GPO. They accounted for 38% of spouses and survivors affected by the GPO and 14% of beneficiaries affected by the WEP. The provisions' benefit offsets create complications in calculating and administering Social Security benefits. Overpayments to dually entitled Social Security beneficiaries affected by both the WEP and the GPO have been an issue for the Social Security Administration (SSA) since the WEP was enacted in 1983. In January 2013, SSA's Office of the Inspector General (OIG) estimated that SSA has overpaid approximately $349.5 million to 10,546 dually entitled beneficiaries who were identified among those in current-payment status and whose WEP reduction was not applied properly and $320.6 million to 10,122 dually entitled beneficiaries in current-payment status whose GPO offset was not imposed correctly. OIG's estimates further indicated that SSA overpaid those beneficiaries an additional $231.9 million from 2013 to 2017, and that SSA may continue overpaying them approximately $46.4 million annually if no corrective action is taken. Other studies show that beneficiaries who were subject to both the WEP and the GPO tended to have lower average Social Security benefits and household wealth than those affected by only the WEP or the GPO. In addition, some state and local government employees might become dually entitled and subject to both provisions through an extension of Social Security coverage under a Section 218 Agreement.

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Article II, Section 2 of the U.S. Constitution authorizes the President "to grant Reprieves and Pardons for Offences against the United States, except in Cases of Impeachment." This executive power of clemency encompasses several distinct forms of relief from criminal punishment, of which a full presidential "pardon" is only one. The power has its roots in the king's prerogative to grant mercy under early English law, which later traveled across the Atlantic Ocean to the American colonies. The Supreme Court has recognized that the authority vested by the Constitution in the President is quite broad, extending to "every offence known to the law" and available "at any time after [a crime's] commission, either before legal proceedings are taken or during their pendency, or after conviction and judgment." That said, there are some limits to the power conferred by the pardon provision of Article II: for instance, the President may grant pardons only for federal criminal offenses, and impeachment convictions are not pardonable. An administrative process has been established through the Department of Justice's (DOJ's) Office of the Pardon Attorney for submission and evaluation of requests for pardons and other forms of clemency, though this process and the regulations governing are purely advisory in nature and do not affect the President's ultimate authority to grant relief. This report provides an overview of the President's pardon power. After briefly discussing the historical background to the power conferred by Article II, Section 2 of the Constitution, the report explores the different forms of clemency that are available, the relatively few limits on the pardon power, and the process of seeking and receiving clemency. The report concludes by addressing selected legal issues related to the pardon power: (1) the legal effect of pardons and other forms of clemency; (2) whether the President may grant clemency to himself; and (3) Congress's role in overseeing the use of the pardon power. <1. Historical Background> The concept of governmental relief from the punishment that would otherwise apply to a criminal act has deep historical roots, with some scholars tracing it as far back as ancient Greece and Rome. An English form of pardon power vested in the king, the "prerogative of mercy," first appeared during the reign of King Ine of Wessex (688-725 A.D.). Over time, perceived abuses "such as royal sales of pardons or use of pardons as bribery to join the military" prompted Parliament to impose limitations on the pardon power. The king's power to pardon nevertheless endured through the American colonial period and applied in the colonies themselves through delegation to colonial authorities. Following the American Revolution, the English legal tradition of a pardon power held by the executive directly influenced the pardon provision included in the U.S. Constitution. At the Constitutional Convention, the two major plans offered the Virginia and New Jersey plans did not address pardons. However, in a "sketch" of suggested amendments to the Virginia plan, Alexander Hamilton included a pardon power vested in an "Executive authority of the United States" that extended to "all offences except Treason," with a pardon for treason requiring Senate approval. It appears that the rationale for the treason limitation was, at least in part, that the head of the executive branch should not be able to absolve himself and possible conspirators of a crime threatening "the immediate being of the society." Hamilton's proposal was included in a subsequent draft of the Constitution, though the requirement of Senate approval for a pardon of treason was replaced with an exception for impeachment, apparently with the thought that exempting impeachment was sufficient to protect against abuse. Debate at the Convention over the pardon power was limited, primarily centering on questions of (1) how broad the power should be (i.e., what restrictions or exceptions to the power should exist), and (2) whether the legislature should have a role in the power's exercise. Ultimately, proposals to impose additional limits on pardons beyond an exception for impeachment such as by calling for Senate approval of pardons or requiring conviction prior to pardon were rejected, resulting in the expansive power in Article II, Section 2 of the Constitution. Alexander Hamilton made the case for the breadth of this executive-held power in The Federalist , arguing that it "should be as little as possible fettered or embarrassed" to ensure "easy access to exceptions in favour of unfortunate guilt." And on this view, "a single man of prudence and good sense," that is, the President, would be "better fitted, in delicate conjunctures, to balance the motives which may plead for and against the remission of the punishment, than any numerous body whatever." In accordance with these principles, the text of the Constitution, as ratified, places few limits on the President's ability to grant pardons, as discussed in more detail below. <2. Scope of the Pardon Power> <2.1. Forms of Clemency> In light of references in scholarship and the popular press to the President's "pardon power," a casual observer might think that Article II, Section 2 of the Constitution authorizes only one form of relief from criminal punishment. That is not the case, however: the text of the Constitution speaks of "Reprieves and Pardons," and the Supreme Court has explained that the "language of the [provision] is general, that is, common to the class of pardons, or extending the power to pardon to all kinds of pardons known in the law as such, whatever may be their denomination." As such, the President has "plenary" constitutional authority under the pardon provision "to 'forgive'" an accused or convicted person "in part or entirely, to reduce a penalty in terms of a specified number of years, or to alter it with conditions which are in themselves constitutionally unobjectionable." At least five forms of clemency fall under this authority: 1. pardon; 2. amnesty; 3. commutation; 4. remission of fines and forfeitures; 5. reprieve. A full pardon is the most expansive form of clemency; it "releases the wrongdoer from punishment and restores the offender's civil rights without qualification." A pardon may be granted at any time prior to charge, prior to conviction, or following conviction, but it appears that it must be accepted to be effective or at least may be refused. For instance, President Woodrow Wilson issued a pardon to George Burdick, an editor at the New York Tribune , for any federal offenses he "may have committed" in connection with the publication of an article regarding alleged customs fraud, despite the fact that Burdick had not been charged with any crime at the time of the pardon. The apparent motivation for the pardon was that Burdick had refused to testify before a grand jury investigating the involvement of Treasury Department officials in leaks concerning the wrongdoing, asserting his Fifth Amendment right not to provide testimony that would tend to incriminate him. Despite President Wilson's issuance of the pardon, Burdick "refused to accept" it and continued to refuse to answer certain questions put to him before the grand jury. In Burdick v. United States , the Supreme Court assumed that the pardon was within the President's power to issue and concluded that "it was Burdick's right to refuse it" and stand on his Fifth Amendment objection. Amnesty is essentially identical to a pardon in practical effect, with the principal distinction between the two being that amnesty typically "is extended to whole classes or communities, instead of individuals[.]" As an example, President Jimmy Carter granted amnesty to many who violated the Selective Service Act by evading the draft during the Vietnam War. In contrast to pardons and amnesty, which obviate criminal punishments in their entirety, commutation merely substitutes the punishment imposed by a federal court for a less severe punishment, such as by reducing a sentence of imprisonment. To take a well-known example, President Richard Nixon conditionally commuted to six and a half years the 13-year sentence of famed labor union leader Jimmy Hoffa, who had been convicted of mail fraud, wire fraud, and obstruction of justice. Along the same lines, the President "may remit [criminal] fines, penalties, and forfeitures of every description arising under the laws of [C]ongress," and, apparently in contrast to a pardon, a commutation or remission is valid even in the absence of the consent of the offender whose punishment is reduced. Finally, a reprieve merely "produces delay in the execution of a sentence" for a period of time "when the President shall think the merits of the case, or some cause connected with the offender, may require it," such as "where a female after conviction is found to be [pregnant], or where a convict becomes insane, or is alleged to be so." President Bill Clinton, for instance, issued a reprieve delaying by six months the execution date of Juan Raul Garza, who had been convicted of multiple capital homicide offenses, so that DOJ could conduct a study of "racial and geographic disparities in the federal death penalty system." As noted above, forms of clemency such as pardons and commutations may be unconditional or may carry specific conditions that must be met for the relief to be effective. <2.2. Constraints on the Pardon Power> The federal courts have recognized that the power conferred by Article II, Section 2 of the Constitution is quite broad, establishing virtually "unfettered executive discretion" to grant clemency. The judiciary accordingly has been reticent to weigh in on clemency matters within the purview of the executive branch, particularly given separation-of-powers constraints inherent in the Constitution's structure. As a result, there is very little judicial guidance regarding the limits of the President's pardon authority. Two limits are nonetheless obvious from the constitutional text: first, pardons may be granted only for "offences against the United States," that is, federal crimes, and second, pardons may not be granted "in Cases of Impeachment." Beyond the limits established in Article II, Section 2 of the Constitution, the power to grant conditional or unconditional clemency, though broad, may also be externally limited by other constitutional provisions and guarantees. The Supreme Court has, at times, alluded to such limits, noting, for example, that the President may attach to a grant of clemency conditions "which are in themselves constitutionally unobjectionable." Notably, in Hoffa v. Saxbe , the federal district court for the District of Columbia was called upon to squarely address the relationship between the President's pardon power and "the rights and liberties of the individual" as enshrined in other constitutional provisions. The case involved a commutation that was conditioned on the recipient forgoing participation in labor union management for a period of years. The recipient of the commutation challenged the condition as a violation of his First Amendment rights of free speech and association, among other things. Faced with the issue, the court took the view that "there are obvious limits beyond which the President may not go in imposing and subsequently enforcing" clemency conditions and "arrive[d] at a two-pronged test of reasonableness in determining the lawfulness of a condition: first, that the condition be directly related to the public interest," meaning that it "must relate to the reason for the initial judgment of conviction" in a way that reflects regard for protection of the public; "and second, that the condition not unreasonably infringe on the individual commutee's constitutional freedoms." Applying this two-pronged test, the district court ultimately concluded that the condition was valid because (1) the commutation recipient's crimes related to participation in union activities, which the public had a strong interest in the integrity of; and (2) the condition met applicable First Amendment standards. Because case law regarding the President's authority to grant clemency is limited, the two-pronged analysis laid out in Hoffa has not been endorsed by the Supreme Court, nor has there been extensive judicial development of alternative frameworks. Nevertheless, though the proposition remains largely theoretical given the dearth of case law, legal scholars have maintained that grants of clemency or clemency conditions at odds with certain constitutional guarantees like equal protection of the law, due process, and the prohibition of cruel and unusual punishment are subject to judicial review and potential invalidation. <3. Clemency Process> While not necessary, clemency is typically granted through an administrative process established in regulations that provide for consideration of applications by the Office of the Pardon Attorney within the Department of Justice (DOJ). The regulations require any person "seeking executive clemency by pardon, reprieve, commutation of sentence, or remission of fine" to execute a "formal petition" and submit it to the Pardon Attorney. To be eligible to file a pardon petition, at least five years must have elapsed since one's release from confinement or one's conviction (if no prison sentence was imposed). Petitions for commutation generally may be filed only after all other forms of judicial and administrative relief have been pursued, though allowance may be made "upon a showing of exceptional circumstances." Once a petition for clemency has been submitted, the Pardon Attorney is to investigate its merit by engaging "appropriate officials and agencies of the Government" like the Federal Bureau of Investigation. At the conclusion of the investigation, the Pardon Attorney submits a recommendation through the Deputy Attorney General to the Attorney General as to whether the request for clemency should be granted or denied, and the Attorney General is to then review all pertinent information to "determine whether the request for clemency is of sufficient merit to warrant favorable action by the President." The Attorney General's final recommendation is made to the President in writing. The general standard for a pardon request "of sufficient merit" is that the petitioner has "demonstrated good conduct for a substantial period of time after conviction and service of sentence." DOJ lists five "principal factors" in determining whether a particular application warrants a favorable recommendation: 1. post-conviction conduct, character, and reputation , including, among other things, financial and employment stability, "responsibility toward family," and participation in community service; 2. the seriousness and relative recentness of the offense , with consideration of victim impact and whether sufficient time has passed "to avoid denigrating the seriousness of the offense or undermining the deterrent effect of the conviction"; 3. acceptanc e of responsibility, remorse, and atonement , including victim restitution and any attempts "to minimize or rationalize culpability"; 4. the need for relief , such as a legal disability like a bar to licensure, though "the absence of a specific need should not be held against an otherwise deserving applicant"; and 5. recommendations and reports from officials like the prosecuting attorneys and sentencing judge. Factors considered on a request for commutation include "disparity or undue severity of sentence, critical illness or old age," the "amount of time already served," the "availability of other remedies," "meritorious service rendered to the government" (such as cooperation with investigations and prosecutions), and/or "other equitable factors" like demonstrated rehabilitation or pressing unforeseen circumstances. Similarly, "satisfactory post-conviction conduct" is considered on application for remission of a fine or restitution, as well as "the ability to pay and any good faith efforts to discharge the obligation." During President Obama's second term, DOJ announced a "clemency initiative" to "encourage qualified federal inmates to petition to have their sentences commuted[.]" Under the initiative, DOJ prioritized applications of inmates who met special factors that included (1) being nonviolent, low-level offenders without significant ties to organized criminal enterprises; (2) lacking a significant criminal history; (3) demonstrating good conduct in prison; (4) lacking a history of violence; (5) having served at least 10 years of their sentence; and (6) serving a sentence for which they "likely would have received a substantially lower sentence" by operation of law if convicted at the time of consideration. DOJ made recommendations to President Obama on thousands of petitions received through the initiative, many of which were still pending at the end of his second term. The program ended when President Obama left office on January 20, 2017. More broadly, according to statistics kept by the Office of the Pardon Attorney, recent Presidents have granted a relatively small percentage of clemency petitions for instance, President George W. Bush received over 11,000 petitions for pardon or commutation and granted a total of 200. Though DOJ's regulations and requirements guide its consideration of requests for clemency, they do not "restrict the authority granted to the President under Article II, section 2 of the Constitution." In other words, the President is free to grant clemency as he or she sees fit (subject to the constraints described elsewhere in this report), regardless of whether a prospective recipient meets DOJ standards or even participates in the formal petition process through the Office of the Pardon Attorney. For instance, as noted above, while DOJ regulations impose a five-year waiting period for submission of a pardon application through the Pardon Attorney, the President may issue a pardon at any time after the commission of a federal offense even if no charges have been filed, as was the case with President Gerald Ford's pardon of former President Nixon. When a pardon or commutation is granted, the recipient is notified, and a "warrant" is mailed to him or her (or sent to the officer in charge of the place of confinement in the case of a commutation of a sentence still being served). Though the requirements of notice and delivery are set out in DOJ regulations, it appears that they may be necessary for at least a full pardon to have legal effect. As noted above, an ostensible pardon recipient may be able to reject the pardon, at least when "personal rights" like assertion of the Fifth Amendment right against self-incrimination are at issue. Moreover, Presidents have, in the past, revoked pardons prior to delivery and acceptance. For instance, in 1869, after outgoing President Andrew Johnson issued but did not deliver a pardon, incoming President Ulysses S. Grant revoked the pardon, and a federal court upheld the revocation. <4. Selected Legal Issues for Congress> The President's use of the pardon power in particular circumstances can raise a number of legal questions, many of which may be unresolved given the limited authority addressing federal clemency matters. Three unresolved legal issues may be of particular interest to Congress given recent commentary: (1) the legal effect of clemency; (2) whether a President may issue a self-pardon; and (3) Congress's role in overseeing the exercise of the pardon power. <4.1. Legal Effect of Clemency> The legal effect of limited forms of clemency like commutations is fairly clear: criminal punishment is reduced "either totally or partially," but the relief "does not change the fact of conviction, imply innocence, or remove civil disabilities that apply to the convicted person as a result of the criminal conviction." The legal significance of a full pardon, however, has been a subject of shifting judicial views over time. While early cases suggested that a pardon obviates all legal guilt of the offender, effectively wiping the crime from existence, more recent case law suggests that a pardon removes only the punishment for the offense without addressing the guilt of the recipient or other consequences stemming from the underlying conduct. In an 1866 decision, Ex parte Garland , the Supreme Court took a broad view of the nature and consequence of a pardon: A pardon reaches both the punishment prescribed for the offense and the guilt of the offender; and when the pardon is full, it releases the punishment and blots out of existence the guilt, so that in the eye of the law the offender is as innocent as if he had never committed the offence. If granted before conviction, it prevents any of the penalties and disabilities consequent upon conviction from attaching; if granted after conviction, it removes the penalties and disabilities, and restores him to all civil rights; it makes him, as it were, a new man, and gives him a new credit and capacity. A few years after Garland , the Court appeared to affirm that a pardon "not merely releases the offender from the punishment prescribed for the offence, but . . . obliterates in legal contemplation the offence itself." However, in subsequent decisions, the Court backed away from the broad proposition that a pardon erases both the consequences of a conviction and the underlying guilty conduct. Most notably, in Carlesi v. New York , the Court determined that a pardoned offense could still be considered "as a circumstance of aggravation" under a state habitual-offender law, and then in Burdick v. United States , the Court noted that a pardon in fact "carries an imputation of guilt; acceptance a confession of it." Based on this more recent Supreme Court case law, multiple federal Courts of Appeals have concluded that the "historical language" from early cases "was dicta and is inconsistent with current law." Modern cases instead recognize a distinction between the punishment for a conviction, which the pardon obviates, and "the fact of the commission of the crime," which may be considered in subsequent proceedings or preclude the pardon recipient from engaging in certain activities. A pardon will accordingly relieve the recipient of legal disabilities that "would not follow from the commission of the crime without conviction," such as possession of a firearm or the right to vote, but the conduct and circumstances of the offense may still be considered for purposes of, among other things, certain benefits or licensing determinations or as a basis for censure under rules of professional conduct. Relatedly, courts have held that a pardon does not automatically expunge the record of the conviction itself or require that the court's orders be vacated. Despite the judicial trend toward a narrower understanding of the legal effect of a pardon, however, the Supreme Court has not directly revisited its broad language from Garland , and thus its precise meaning in relation to later pronouncements from the Court remains somewhat unclear. <4.2. Presidential Self-Pardons> Whether a President may pardon himself is an unresolved legal question that has been a subject of renewed interest following President Trump's statement in 2018 that he has "the absolute right" to do so. No past President has issued a self-pardon, and, as a result, no federal court has directly addressed the matter. That said, legal scholars and commentators have debated the question extensively and reached differing conclusions. Proponents of the view that the President may pardon himself tend to emphasize the lack of limitation in the constitutional language, as well as certain historical views and pronouncements of the Supreme Court as to the breadth of the President's pardoning power in general. By contrast, those asserting that the President lacks the power of self-pardon raise competing textual arguments and suggest that self-pardons would be inconsistent with other constitutional provisions, such as the Article I provision stating that officials convicted in an impeachment trial "shall . . . be liable and subject to Indictment, Trial, Judgment, and Punishment, according to law." An Office of Legal Counsel opinion issued shortly before President Nixon's resignation in 1974 concluded that the President cannot pardon himself "[u]nder the fundamental rule that no one may be a judge in his own case," and some scholars subsequently have supported this opinion. In any event, even were a President to pardon himself, at least one commentator has noted that it is questionable whether a court would issue a definitive ruling as to that pardon's lawfulness given practical considerations and separation-of-powers concerns. <4.3. Role of Congress in President's Use of the Pardon Power> <4.3.1. Legislation> The Supreme Court has taken the view that Congress generally cannot circumscribe the President's pardon authority. In Ex parte Garland , the Court remarked that the "power of the President [to pardon] is not subject to legislative control. Congress can neither limit the effect of his pardon, nor exclude from its exercise any class of offenders. The benign prerogative of mercy reposed in him cannot be fettered by any legislative restrictions." Consistent with this broad language, the Court later rejected post-Civil War attempts by Congress to limit the effect of pardons granted to those who aided the Confederate cause on their right to recover for seized property, stating that "the legislature cannot change the effect of such a pardon any more than the executive can change the law." More recently, in rejecting the proposition that a condition attached to clemency must be authorized by statute, the Court indicated that "the power [of clemency] flows from the Constitution alone, not from any legislative enactments, and . . . it cannot be modified, abridged, or diminished by the Congress." It thus appears that Congress lacks the authority to substantively constrain the President's power to grant clemency, though Congress may be able to take some actions that would facilitate exercise of the power, such as through appropriations. There is historical precedent for Congress funding positions in DOJ to assist in considering clemency petitions. That said, attempts to indirectly impair the pardon power through appropriations limitations could potentially be viewed as inappropriate. Given these limitations, Congress's practice for formally conveying its views on clemency matters has typically involved passing nonbinding resolutions expressing the sense of Congress as to whether clemency should or should not be granted. Legislation has also been introduced in the 116th Congress that would impose certain post hoc procedural requirements on the Attorney General in connection with pardons specifically, (1) requiring submission of investigative materials to congressional committees upon the grant of a pardon or commutation arising from an investigation in which the President or a relative is a target, subject, or witness; and (2) requiring publication of pardon information within three days of any grant. Although such legislation may not be a direct substantive constraint on the President's authority to grant clemency, given the relative lack of case law interpreting the pardon power and the sometimes sweeping language the Court has used to describe the President's prerogative, it is unclear whether such legislation would be viewed by the courts as an impermissible imposition on an area of executive authority. <4.3.2. Oversight> Beyond legislation, Congress may have a role to play in pardon decisions through other constitutional processes. For instance, Congress has invoked its Article I authority to conduct oversight as a more indirect constraint on the use of the pardon power. And on that front, Congress has, in the past, been relatively successful in obtaining information from the executive branch on particular clemency decisions, up to and including congressional testimony from the President himself. Nevertheless, DOJ has taken the position that past examples of executive branch compliance with congressional requests for information regarding pardon decisions have been purely voluntary, and that in fact "Congress has no authority whatsoever to review a President's clemency decision." Whether a court, faced with an interbranch dispute regarding congressional demands for information on pardon decisions, would order the executive branch to comply with such demands would likely depend on the court's view of two possible constraints on Congress's oversight authority: (1) the existence of a valid legislative purpose, and (2) executive privilege. With respect to the first constraint, the Supreme Court has said that Congress's power to conduct oversight is inherent in the legislative process and is broad, encompassing "inquiries concerning the administration of existing laws[,] . . . proposed or possibly needed statutes," and "probes into departments of the federal government to expose corruption, inefficiency, or waste." However, a congressional investigation cannot be used "to expose for the sake of exposure," meaning that a valid inquiry "must be related to, and in furtherance of, a legitimate task of the Congress." The Court has also cautioned that Congress "cannot inquire into matters which are within the exclusive province of one of the other branches of the Government." It is on the basis of this language that DOJ has maintained that Congress's oversight authority does not extend to clemency decisions, averring that "[t]he granting of clemency pursuant to the pardon power is unquestionably an exclusive province of the Executive Branch." That said, the Supreme Court has at other times framed the issue of legislative purpose in the context of executive or judicial prerogatives as being whether it is "obvious that there was a usurpation of functions exclusively vested in the Judiciary or the Executive," and a congressional committee seeking information on a clemency decision might accordingly argue that a subpoena or request for information on the decision is not a "usurpation" of the clemency function but is merely levied in aid of a "probe . . . to expose corruption, inefficiency, or waste." Assuming a valid legislative purpose, the question would become whether materials related to a pardon decision are nevertheless protected from disclosure by executive privilege. Executive privilege "is a term that has been used to describe the President's power to 'resist disclosure of information the confidentiality of which [is] crucial to the fulfillment of the unique role and responsibilities of the executive branch of our government.'" The term encompasses at least two distinct forms of privilege that have been recognized by the federal courts: (1) a "presumptive privilege for Presidential communications" that extends to "direct communications of the President with his immediate White House advisers" made "'in performance of the President's responsibilities'" and "'in the process of shaping policies and making decisions,'" as well as "communications authored or solicited and received" by immediate White House advisers; and (2) a "deliberative process privilege" that may extend more broadly to "decisionmaking of executive officials generally," shielding "documents and other materials that would reveal advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." Neither form of privilege is absolute, as either "can be overcome by a sufficient showing of need." However, "the presidential communications privilege is more difficult to surmount" than the deliberative process privilege; at least in the context of a congressional subpoena, the U.S. Court of Appeals for the D.C. Circuit has indicated that the former can be overcome on a showing that "the subpoenaed evidence is demonstrably critical to the responsible fulfillment of the Committee's functions," while the latter is subject to a flexible, "ad hoc" determination of need and may "disappear[] altogether when there is any reason to believe government misconduct has occurred." It does not appear that courts have addressed the application of either form of privilege to information regarding presidential clemency decisions sought by Congress. However, the U.S. Court of Appeals for the D.C. Circuit considered whether the presidential communications privilege would apply to "internal pardon documents" of the Offices of the Pardon Attorney and Deputy Attorney General that were not solicited or received by the President or his immediate advisors in Judicial Watch v. Department of Justice , concluding that such documents fell outside the scope of the presidential communications privilege but might still be covered by the deliberative process privilege. Based on Judicial Watch and the limited Supreme Court precedent addressing executive privilege, it seems that whether a court would order disclosure to a congressional committee of information concerning a presidential clemency decision in the face of an assertion of executive privilege could depend on whether the information sought is limited to internal agency documents (in which case the deliberative process privilege could apply) or includes communications among and between the President and/or senior White House officials (in which case the presidential communications privilege would appear to apply). Because the threshold of need is higher in the latter case than in the former, it seems more likely that Congress could obtain documents and information generated by the Pardon Attorney that are not requested by or submitted to the President or his advisors. Even in the case of presidential communications, however, a court could still conclude that a congressional committee is entitled to the information if the committee can demonstrate that it is critically needed. <4.3.3. Impeachment> An additional way in which Congress might assert itself with respect to presidential pardon decisions is through impeachment. James Madison alluded to this "great security" against abuse of the pardon power when he noted during the Virginia ratification convention that "if the President be connected, in any suspicious manner, with any person, and there be grounds to believe he will shelter him, the House of Representatives can impeach him[.]" The Supreme Court also appeared to acknowledge the possibility of impeachment for misuse of clemency in the early 20th century case of Ex parte Grossman . In concluding that the pardon power extended to criminal punishment for contempt of court, the Supreme Court in that case indicated that if the President ever sought to "deprive a court of power to enforce its orders" by issuing "successive pardons of constantly recurring contempts in particular litigation," such an "improbable" situation "would suggest a resort to impeachment, rather than a narrow and strained construction of the general powers of the President." Consistent with these authorities, several commentators have alluded to the potential availability of impeachment as a check on the President's pardon authority. That said, some have also raised doubts as to the efficacy of impeachment as a constraint on the President, arguing that it is "useless against a President . . . who grants controversial pardons in the very last hours of his tenure" as some Presidents have. Were a President to be impeached in the House of Representatives for abusing the pardon power and subsequently convicted in the Senate, the remedy would be limited by the Constitution to his removal from office and "disqualification to hold and enjoy any Office of honor, Trust or Profit under the United States[.]" <4.3.4. Constitutional Amendment> Finally, Congress can seek to amend the Constitution to clarify or constrain the President's clemency authority. Resolutions have been introduced in the 116th Congress that would amend the Constitution to prohibit the President from granting a pardon to himself or to family members and current or former members of his campaign or administration. However, the requirements for successfully amending the Constitution are, by design, exceptionally stringent amendments would need to be passed by a two-thirds vote of each House of Congress and ratified by three-fourths of the states. Passing a constitutional amendment as a means of addressing unpopular or controversial pardon decisions accordingly may be difficult.

Article II, Section 2 of the U.S. Constitution authorizes the President "to grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment." The power has its roots in the king's prerogative to grant mercy under early English law, which later traveled across the Atlantic Ocean to the American colonies. The Supreme Court has recognized that the authority vested by the Constitution in the President is quite broad, describing it as "plenary," discretionary, and largely not subject to legislative modification. Nonetheless, there are two textual limitations on the pardon power's exercise: first, the President may grant pardons only for federal criminal offenses, and second, impeachment convictions are not pardonable. The Court has also recognized some other narrow restraints, including that a pardon cannot be issued to cover crimes prior to commission. The pardon power authorizes the President to grant several forms of relief from criminal punishment. The most common forms of relief are full pardon s (for individuals) and amnesties (for groups of people), which completely obviate the punishment for a committed or charged federal criminal offense, and commutations , which reduce the penalties associated with convictions. An administrative process has been established through the Department of Justice's Office of the Pardon Attorney for submitting and evaluating requests for these and other forms of clemency, though the process and regulations governing it are merely advisory and do not affect the President's ultimate authority to grant relief. Legal questions concerning the President's pardon power that have arisen have included (1) the legal effect of clemency; (2) whether a President may grant a self-pardon; and (3) what role Congress may play in overseeing the exercise of the pardon power. With respect to the first question, some 19th century Supreme Court cases suggest that a full pardon broadly erases both the punishment for an offense and the guilt of the offender. However, more recent precedent recognizes a distinction between the punishment for a conviction , which the pardon obviates, and the fact of the commission of the crime , which may be considered in later proceedings or preclude the pardon recipient from engaging in certain activities. Thus, although a full pardon restores civil rights such as the right to vote that may have been revoked as part of the original punishment, pardon recipients may, for example, still be subject to censure under professional rules of conduct or precluded from practicing their chosen profession as a result of the pardoned conduct. As for whether a President may grant a self-pardon, no past President has ever issued such a pardon. As a consequence, no federal court has addressed the matter. That said, several Presidents have considered the proposition of a self-pardon, and scholars have reached differing conclusions on whether such an action would be permissible based on the text, structure, and history of the Constitution. Ultimately, given the limited authority available, the constitutionality of a self-pardon is unclear. Finally, regarding Congress's role in overseeing the pardon process, the Supreme Court has indicated that the President's exercise of the pardon power is largely beyond the legislature's control. Nevertheless, Congress does have constitutional tools at its disposal to address the context in which the President's pardon power is exercised, including through oversight, constitutional amendment, or impeachment.

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Border officials are dually responsible for facilitating the lawful flow of people and goods, while at the same time preventing unauthorized entries and stopping illicit drugs and other contraband from entering the United States. As such, policy discussions around border security often involve questions about how illicit drugs flow into the country. These include questions about the smugglers, types and quantities of illicit drugs crossing U.S. borders, primary entry points, and methods by which drugs are smuggled. Further, these discussions often center on the shared U.S.-Mexico border, as it is a major conduit through which illicit drugs flow into the United States. Mexican transnational criminal organizations (TCOs) are a dominant influence in the U.S. illicit drug market and "remain the greatest criminal drug threat to the United States; no other groups are currently positioned to challenge them." They produce and transport foreign-sourced drugs into the United States and control lucrative smuggling corridors along the Southwest border. Drug intelligence and seizure data provide some insight into drug smuggling into the country. Generally, intelligence suggests that more foreign-produced cocaine, methamphetamine, heroin, and fentanyl flow into the country through official ports of entry (POEs) than between the ports. Seizure data from U.S. Customs and Border Protection (CBP) follows this pattern as well. Conversely, more foreign-produced marijuana has historically been believed to flow into the country between the ports rather than through them. However, CBP seizure data indicate that, like cocaine, methamphetamine, heroin, and fentanyl, more marijuana was seized at POEs than between them in FY2019. While indicators suggest that large amounts of illicit drugs are flowing through POEs and that drug seizures are more concentrated at the ports, it is the flows between them that have been a primary topic of recent policy discussions around border security. This report focuses on the smuggling of illicit drugs between POEs. It briefly describes how these drugs are smuggled between the ports and then illuminates the discussion of how border barriers may shift or disrupt smuggling methods and routes. <1. Illicit Drug Smuggling Between Ports of Entry> Notably, there are no data that capture the total quantity of foreign-produced illicit drugs smuggled into the United States at or between POEs; drugs successfully smuggled into the country have evaded seizure by border officials and are generally not quantifiable. In lieu of these data, officials, policymakers, and analysts sometimes rely on certain drug seizure data to help understand how and where illicit drugs are crossing U.S. borders. By weight, marijuana continues to be the illicit drug most-seized by border officials both at and between POEs, though total annual marijuana seizures have declined both at and between the ports in recent years. Historically, border officials have reported seizing more marijuana between POEs than at them. However, more marijuana, by weight, was seized at the ports than between them in FY2019. Of the 556,351 pounds of marijuana seized by CBP in that year, 289,529 pounds (52%) were seized at the ports, and 266,822 pounds (48%) were seized by the Border Patrol between the ports. While marijuana remains the primary drug seized by the Border Patrol between POEs, the annual quantity seized, in pounds, has declined since FY2013 (see Figure 1 ). Conversely, the amount of methamphetamine seized by the Border Patrol has increased annually since FY2013, and seizures of cocaine, heroin, and fentanyl have fluctuated. <1.1. Smuggling Methods> Smugglers employ a variety of methods to move illicit drugs into the United States between POEs, through land, aerial, and subterranean routes. These methods include the use of underground tunnels, ultralight aircraft and unmanned aerial systems (UASs), maritime vessels, and backpackers, or "mules." As noted, the smuggling between the official POEs has received heightened attention in policy discussions about border security. Specifically, there has been some debate about how physical barriers along the Southwest border between the POEs may deter or alter the smuggling of foreign-produced, illicit drugs into the country. <1.1.1. Border Barriers and Smuggling> Since the early 1990s, there have been efforts to build barriers along the Southwest border, in part, to deter the unauthorized entry of migrants and smugglers. More recently, in debates about physical barriers along the Southwest border, the prevention of drug smuggling and trafficking has been cited as a key goal and a reason to expand and enhance the physical barriers. For instance, the January 25, 2017, Executive Order 13767 stated that it is executive branch policy to "secure the southern border of the United States through the immediate construction of a physical wall on the southern border, monitored and supported by adequate personnel so as to prevent illegal immigration, drug and human trafficking, and acts of terrorism." Analysts suggest that smugglers may respond (if they have not already, given the hundreds of miles of border barriers already in place) by moving contraband under, over, or through the barriers, as well as around them including by changing their concealment techniques to move illicit drugs more effectively through POEs. <1.1.1.1. Under Barriers> Mexican traffickers utilize subterranean, cross-border tunnels to smuggle illicit drugs primarily marijuana from Mexico into the United States. Since the first one was discovered in 1990, tunnel construction has increased in sophistication. Tunnels may include amenities such as ventilation, electricity, elevators, and railways, and tunnel architects may take advantage of existing infrastructure such as drainage systems. For instance, in August 2019 officials discovered a sophisticated drug smuggling tunnel running more than 4,300 feet in length (over three-quarters of a mile) and an average of 70 feet below the surface from Tijuana, Mexico, to Otay Mesa, CA the longest smuggling tunnel discovered to date. CBP and Immigration and Customs Enforcement (ICE) have primary responsibility for investigating and interdicting subterranean smuggling. CBP has invested in technology and services to help close certain capability gaps such as predicting potential tunnel locations as well as detecting and confirming existing tunnels including their trajectories and tunneling activities. Reportedly, among the challenges in detecting tunnels is the variance in types of soil along the Southwest border, which requires different types of detection sensors. ICE, CBP, and other agencies coordinate through initiatives such as the Border Enforcement Security Task Force (BEST) program, where they have focused Tunnel Task Forces in various border sectors. The Government Accountability Office (GAO) recommended in 2017 that CBP and ICE further establish standard operating procedures, including best practices applicable to all border sectors, to coordinate their counter-tunnel efforts. Policymakers may question whether current agency coordination is sufficient or whether the agencies have implemented or should implement GAO's recommendation. <1.1.1.2. Over Barriers> Traffickers have moved contraband over border barriers through a variety of mechanisms, from tossing loads by hand and launching bundles from compressed air cannons to driving vehicles on ramps up and over certain types of fencing, as well as employing ultralight aircraft and unmanned aircraft systems (UASs) and drones. While ultralights are used to transport bulkier marijuana shipments, "UASs can only convey small multi-kilogram amounts of illicit drugs at a time and are therefore not commonly used, though [officials see] potential for increased growth and use." For instance, in August 2017, border agents arrested a smuggler who used a drone to smuggle 13 pounds of methamphetamine over the border fence from Mexico into California. Border officials have tested several systems to enhance detection of ultralights and UASs crossing the border. Currently, CBP uses a variety of radar technology, including the Tethered Aerostat Radar System. These technologies are not, however, focused specifically on detecting illicit drugs being smuggled into the country over barriers; rather, they are more broadly used to help detect unauthorized movement of people and goods. Policymakers may examine technologies acquired and used by border officials, including whether they allow officials to keep pace with the evolving strategies of smugglers moving illicit drugs over the U.S. borders specifically, over border barriers. In addition, they may examine whether, as GAO has recommended, CBP is assessing its performance in interdicting UASs and ultralights against specific performance targets to better evaluate the outcome of using these technologies. <1.1.1.3. Through Barriers> Various forms of physical barriers exist along the Southwest border, generally intended to prevent the passage of vehicles and pedestrians. Barrier styles and materials include expanded metal, steel mesh, chain link, steel and concrete bollards, and others. Smugglers have found ways to defeat them. They have cut holes and driven vehicles through fencing and, in at least one instance, have bribed border officials to provide keys to the fencing and inside knowledge about unpatrolled roads and sensor locations. More recently, smugglers have reportedly sawed through steel and concrete bollards on the newly constructed border barrier; "after cutting through the base of a single bollard, smugglers can push the steel out of the way, creating an adult-size gap" through which people and drugs can pass. <1.1.1.4. Around Barriers> Some have noted that border barriers may deter some portion of illegal drug smuggling, while an unknown portion will be displaced to areas without fencing. Specifically, along the Southwest border, barriers may shift some portion of smuggling traffic to other areas of the land border between the United States and Mexico as well as to the ocean. Some of these alternate areas may have terrain that acts as some sort of a barrier, presenting different challenges than those from constructed border barriers. These challenges may, in turn, deter or alter drug smuggling. In addition, there have been reports that the newly constructed border barrier in the San Diego border sector has coincided with an increase of maritime smuggling along that coast. Smugglers use small open vessels ("pangas"), which can travel at high speeds. They also use recreational boats and small commercial fishing vessels that can be outfitted with hidden compartments to "blend in with legitimate boaters." In addition to moving illicit drugs across water or open areas of the land border without manmade barriers, the addition or enhancement of border barriers could lead some smugglers to move their contraband through POEs. The most recent data from CBP indicate that, in pounds, more illicit drugs specifically marijuana, cocaine, methamphetamine, heroin, and fentanyl are already being moved through POEs than between them. Policymakers may question whether any drug smuggling displaced to the POEs as a result of additional or augmented border barriers is a substantive change. <1.1.2. Border Barriers and Their Influences on Illicit Drug Smuggling Between POEs> A question policymakers may ask is what effect, if any, increased miles or enhanced styles of border barriers may have on drug smuggling between the POEs. Specifically, they may question whether additional border barrier construction will substantially alter drug smugglers' routes, tactics, speed, or abilities to breach these barriers and bring contraband into the country. A comprehensive analysis of this issue is confounded by a number of factors, the most fundamental being that the exact quantity of illicit drugs flowing into the United States is unknown . Without this baseline, analysts, enforcement officials, and policymakers rely on other data, albeit selected or incomplete, to help inform whether or how border barriers may affect illicit drug smuggling. Border barriers are only one component of tactical infrastructure employed at the border. Infrastructure, in turn, is only one element (along with technology and personnel) of border security. Isolating the potential effects of changes in border barriers from those of other infrastructure investments, as well as from the effects of changes in technology and personnel, is a very difficult task. The Department of Homeland Security (DHS) has made efforts to estimate the effectiveness of border security on the Southwest border between POEs; however, the department recognizes inevitable shortcomings of these estimates due, in part, to unknown flows of people and goods. Further, its estimates of border security effectiveness do not make precise attributions of effectiveness to personnel, technology, or infrastructure or even more specifically, the portion of infrastructure that is border barriers. There are also factors beyond the immediate personnel, technology, and infrastructure of border security efforts that may affect drug smuggling. These include "the demand and supply for drugs, the type of drug being shipped, terrain and climate conditions, and smuggler counterintelligence functions." And, it may be difficult to separate the results of border security efforts from the effects of those external factors on drug smuggling. Moreover, changes in drug smuggling cannot always be directly linked to changes in border security efforts. Policymakers may continue to question how DHS is identifying and evaluating any potential changes in drug smuggling between the POEs. More specifically, they may examine whether or how DHS is linking observed changes in drug seizure data sometimes used as one proxy for drug smuggling to specific border security efforts such as expanded border barriers. They may also consider how any return on investment in border barriers (measured by effects on illicit drug seizures) compares to the relative return from other border security enhancements. Relatedly, policymakers may continue to examine how DHS defines "success" or "effectiveness" of border barriers in deterring or altering drug smuggling. For instance, is an effective barrier one that deters the smuggling of illicit drugs altogether, or might it be one that slows smugglers, changes their routes, or alters their techniques so that border officials have more time, opportunity, or ability to seize the contraband? In addition, policymakers may question whether or how border barriers contribute to gathering intelligence that can be used by the broader drug-control community and whether that potential outcome is a measure of effectiveness.

Policy discussions around border security often involve questions about how illicit drugs flow into the United States. These include questions about the smugglers, types and quantities of illicit drugs crossing U.S. borders, primary entry points, and methods by which drugs are smuggled. Further, these discussions often center on the shared U.S.-Mexico border, as it is a major conduit through which illicit drugs flow. There are no comprehensive data on the total quantity of foreign-produced illicit drugs smuggled into the United States at or between official ports of entry (POEs) because these are drugs that have generally evaded seizure by border officials. In lieu of these data, officials, policymakers, and analysts sometimes rely on certain drug seizure data to help understand how and where illicit drugs are crossing U.S. borders. Data from U.S. Customs and Border Protection (CBP) indicate that, by weight, more marijuana, cocaine, methamphetamine, heroin, and fentanyl were seized at POEs than between them in FY2019. While available indicators suggest that drug seizures are more concentrated at POEs, it is the flow of drugs between them that have been a primary topic of recent policy discussions around border security. Specifically, there has been some debate about whether, how, and to what extent physical barriers along the Southwest border between the POEs may deter or alter the smuggling of foreign-produced, illicit drugs into the country. Since the early 1990s, there have been efforts to build pedestrian and vehicle barriers along the Southwest border in part to deter the unauthorized entry of migrants and smugglers. Analysts have suggested that in some cases, smugglers have responded by moving contraband under, over, or through the barriers, as well as around them—including by changing their concealment techniques to move illicit drugs more effectively through POEs. Drug smugglers utilize subterranean, cross-border tunnels to move illicit drugs—primarily marijuana—from Mexico into the United States. Their construction has increased in sophistication; tunnels may include amenities such as ventilation, electricity, and railways, and tunnel architects may take advantage of existing infrastructure such as drainage systems. Traffickers move contraband over border barriers through myriad mechanisms, from tossing loads by hand and launching bundles from compressed air cannons to driving vehicles on ramps up and over certain types of fencing, as well as employing ultralight aircraft and unmanned aircraft systems (UASs) and drones. Smugglers may also attempt to go through various types of border barriers; strategies include cutting holes in the barriers and bribing border officials to provide keys to openings in them. Smugglers may also move illicit drugs around border barriers. For instance, along the Southwest border, they may use boats to move contraband around fencing that extends into the Pacific Ocean, move drugs over land areas without constructed barriers, or smuggle goods through the POEs. A key question policymakers may ask is what effect an increase in border barrier length or enhancement of barrier style might have on drug smuggling between the POEs. Specifically, they may question whether or how additional border barrier construction might substantially alter drug smugglers' routes, tactics, speed, or abilities to breach these barriers and bring contraband into the country, and whether or how it has done so in the past. A comprehensive analysis of this issue is confounded by a number of factors, the most fundamental being that the exact quantity of illicit drugs flowing into the United States is unknown . Without this baseline, analysts, enforcement officials, and policymakers rely on other data points to help inform whether or how border barriers may affect illicit drug smuggling.

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<1. What Laws Regulate the Treatment of the U.S. Flag?> The federal law regulating flags ("flag code") sets forth guidelines for private citizens on the appearance and display of the U.S. flag ("flag"). The flag code also specifies how to deliver the Pledge of Allegiance to the flag and appropriate conduct while watching a performance of the National Anthem. Most of the flag code contains no explicit enforcement mechanisms, and relevant case law would suggest that provisions without enforcement mechanisms are declaratory and advisory only. Efforts by states to punish either verbal flag disparagement or disrespectful flag display ("flag-misuse laws") have been struck down under First Amendment free speech precepts that apply to the states through the Due Process Clause of the Fourteenth Amendment. Federal law and many state laws also provide penalties for physical mistreatment of the flag ("flag-desecration" laws), although application of these laws would generally violate the U.S. Constitution. For instance, the federal Flag Protection Act, which criminalizes flag desecration, was struck down on First Amendment free speech grounds as prohibiting symbolic speech. Some federal and state flag-misuse laws also prohibit placing advertising images on the U.S. flag or displaying the U.S. flag on merchandise; these laws may also be vulnerable to free speech challenges, although the Supreme Court has reserved this question. Finally, there are mandatory state requirements directing the daily recital of the Pledge of Allegiance by teachers that have been upheld against Establishment Clause challenges, although a requirement that students participate in such recitation was struck down as a violation of free speech. <2. What Are the Voluntary Guidelines for How U.S. Flags Are Displayed?> The flag code provides detailed guidelines for the appearance and display of the flag. The flag is to contain thirteen horizontal stripes, alternating red and white, and the union of the flag (the blue field) is to contain one star for each state. Flags are displayed from sunrise to sunset; however, a properly illuminated flag may be displayed at night. The flag should be hoisted briskly and lowered ceremoniously and should not be displayed during days of inclement weather unless an all-weather flag is used. The flag should be displayed daily on or near the main building of every public institution, in or near polling places on election day, and in or near schools on school days. There are guidelines for when a flag is used in a procession, displayed on a float or motorcar, displayed with other flags, or displayed from a flagpole. There are also detailed guidelines for when and how flags are to be displayed at half-staff. There are guidelines for when a flag is used to cover a casket and for when a flag is suspended across a building corridor or lobby. There is a description of the appropriate conduct of persons during the hoisting, lowering, and passing of the flag, and there are directions for how a flag is not to be treated. Finally, the President can modify the flag display requirements of the flag code. <3. Can Prohibitions on Flag Misuse or Desecration Be Enforced?> The Supreme Court has repeatedly struck down the application of flag improper use or desecration laws on free speech grounds. In Street v. New York , the Court considered a challenge to a law that made it a misdemeanor to "publicly mutilate, deface, defile, or defy, trample upon, or cast contempt upon either by words or act [any flag of the United States]." In Street , the defendant, learning of the shooting of civil rights activist James Meredith, burned a flag on a Brooklyn street corner while stating "Yes; that is my flag; I burned it. If they let that happen to Meredith, we don't need an American flag." The Court in Stree t first concluded that the trial record did not establish whether the defendant's conviction had been for burning the flag or for the accompanying words, so it considered either as possible grounds for the conviction. The Court evaluated the purported governmental interest in punishing the defendant's words, rejecting the argument that the government's intent was to deter the incitement of unlawful acts. The Court next held that the speech in question was not "fighting words," i.e., words so inherently inflammatory that they were "likely to provoke the average person to retaliations, and thereby cause a breach of the peace." Nor, the Court concluded, was the statute narrowly drawn to punish only words of that character. Further, the Court dismissed the argument that government interests in avoiding "shocking" or disrespectful speech outweighed the freedom to express one's opinions about the flag. Finally, the Court concluded that freedom of speech protected public expression of opinions about the flag, even if such opinions are defiant or contemptuous. Because it had sufficient basis to overrule the conviction based on the spoken words alone, the Court declined to pass upon the validity of the New York law as applied to the flag burning. In the subsequent flag-misuse case of Spence v. Washington , a college student was convicted under a Washington State improper use law for affixing a peace symbol made of removable tape to a U.S. flag and hanging the flag upside down from an apartment window. The defendant testified that he had put the peace symbol on the flag as a protest against the Cambodian invasion and the killing of students at Kent State University during anti-war protests. The Court held that the student's act was symbolic speech, an activity imbued with communication. The Court also held there were no facts to support a breach of the peace, nor was there a valid governmental interest in avoiding offensive speech. The Court concluded that the flag had not been damaged by the removable tape, so maintaining the physical integrity of the flag was not at issue. Thus, the Court concluded that no governmental interest existed to support the conviction within the contours of the First Amendment. In Texas v. Johnson , a political demonstration participant at the 1984 Republican National Convention in Dallas was convicted of burning a flag in front of Dallas City Hall. He was convicted under a Texas statute that prohibited the desecration of a venerated object, sentenced to a year in jail, and fined $2000. Texas conceded that the flag burning was expressive conduct, but argued that there was sufficient governmental interest in such prohibition. The Court rejected the argument that the law was designed to prevent breaches of the peace, noting that no such breach occurred in this case and that Texas had not shown that every flag-burning was "directed to inciting or producing imminent lawless action and is likely to incite or produce such action." Further, Texas already had a statute that prohibited breaches of the peace. The Court in Johnson also held that Texas's assertion that the law was needed to preserve the flag as a symbol of nationhood and national unity only showed that the law was targeting expression, not conduct. Further, the law's application only to severe acts of physical abuse against the flag that were likely to be offensive made clear that the restriction was content-based. The Court found Texas's expressed interest that flag-burning casts doubts on the meaning of the flag as a national symbol could not be justified because society found the burning offensive or disagreeable. Thus, the defendant's conviction was held to violate the First Amendment. In response to the Johnson decision, Congress enacted the Flag Protection Act of 1989. Two separate groups of protestors were prosecuted for flag burning under this act, and their cases were considered by the Supreme Court in U nited S tates v. Eichman . As the government in Eichman conceded that the defendant's conduct was expressive, the Court limited its decision to whether the Flag Protection Act was constitutionally distinct from the Texas statute in Johnson . The government contended the Flag Protection Act did not target expressive conduct, but was intended to protect the physical integrity of the flag in order to safeguard the flag's identity "as the unique and unalloyed symbol of the Nation." It argued that, unlike the Texas statute in Johnson that prohibited only flag desecration "that seriously offend[s]" onlookers, the act's prohibitions were not based on motive, intended message, or the likely effects of the conduct on onlookers. The Court, however, held that the mere destruction of a U.S. flag did not affect the significance of the flag as a symbol of national unity unless that destruction was done with the intent to communicate a message. Further, the language of the act which prohibits mutilating, defacing, defiling or trampling upon a flag connotes disrespectful treatment of a flag in order to damage the flag's symbolic value, and the exception for disposal of "worn or soiled" flags exempts acts traditionally associated with patriotic respect for the flag. Thus, the Court held that the act was a regulation of expressive activity and, consistent with its decision in Johnson , struck it down. Resolutions were introduced in the 115th Congress proposing a constitutional amendment to authorize Congress to prohibit physical desecration of the flag, but no similar resolutions have been introduced in the 116th Congress thus far. <4. Can a U.S. Flag Be Used for Advertising?> Flag-misuse laws sometimes include a prohibition on the use of the U.S. flag for certain forms of commercial speech such as advertising. Commercial speech, however, has fewer constitutional protections than other forms of speech. The Supreme Court considers speech commercial when: (1) it is contained in an advertisement; (2) refers to a specific product or service; and (3) the speaker has an economic motivation for making it. The Court in Eichman , when striking down the Flag Protection Act, noted that its opinion did not extend to prohibitions on the commercial exploitation of the U.S. flag. Thus, the question remains whether prohibitions on the use of flags for advertising purposes violates the First Amendment. It does not appear that any court has directly addressed whether the use of a U.S. flag in advertising is commercial speech. One difficulty in analyzing this issue is that the display of a flag in advertising appears to add little expressive content to the commercial aspects of the advertisement. In other words, while a U.S. flag may be used in an advertisement and its use may be economically motivated (fulfilling the first and third criteria for commercial speech), the display of a flag is unlikely to convey information about the specific product or service. Rather, the expressive content of displaying the flag would appear to be to link the product or service to a political message such as patriotism or national pride. To the extent that the display of the flag in an advertisement communicated an idea such as patriotism, then it might not even be treated as commercial speech but would be analyzed as expressive conduct. Even if advertising using a flag was evaluated as commercial speech, the statute prohibiting it might still be found to violate free speech, as commercial speech does retain some free speech protections. In Central Hudson Gas & Elec. v. Public S ervice Comm ission , the Court considered whether the Public Service Commission of the State of New York could order electric utilities in New York State to cease advertising promoting electricity use. The Court noted a "common sense" distinction between speech proposing commercial transactions that occurs in an area traditionally subject to government regulation and other varieties of speech. Consequently, the Court applied a four-part analysis for commercial speech. First, for commercial speech to be protected, it must concern lawful activity and not be misleading. Next, there must be a substantial government interest in its regulation. If both inquiries yield positive answers, the Court must determine whether the regulation directly advances the governmental interest asserted and whether it is "narrowly drawn" to be no more extensive than necessary to serve that interest. In Central Hudson , the Court held that New York's interest in reducing inequities in the regulated electricity market that would be caused by increased energy consumption was substantial, as was the government's energy conservation interest. The Court went on to hold, however, that it was speculative whether the governmental interest in avoiding inequities would be served, and that this interest was only served if other factors that affected electricity rates remained constant. The Court did find that the State's interest in energy conservation was substantial and that the parties did not dispute that advertising would increase sales. The Court, however, struck down the advertising ban as not narrowly drawn to that interest, in that it prohibited not only advertising that would increase energy use but also advertising that would have an energy neutral effect or would lead to a net decrease in energy consumption. It should be noted that, despite the more limited protection afforded commercial speech, the Supreme Court has not upheld governmental suppression of truthful commercial speech in more than twenty years. Further, several post- Central Hudson cases seem to afford more protection to commercial speech than originally contemplated by the case. For instance, in City of Cincinnati v. Discovery Network, Inc. , the Court, considering a City of Cincinnati regulation banning commercial publications from public newsracks, rejected the "bare assertion that the 'low value' of commercial speech is a sufficient justification for [a] selective and categorical ban on newsracks dispensing 'commercial handbills.'" Rejecting the city's regulation, the Court noted that "the city's argument attaches more importance to the distinction between commercial and noncommercial speech than our cases warrant and seriously underestimates the value of commercial speech." Similarly, in 44 Liquormart, Inc. v. Rhode Island , Justice Stevens, writing for a plurality, suggested that the First Amendment requires a full, "rigorous review" of any commercial speech regulations "unrelated to the preservation of a fair bargaining process[.]" Even applying the Hudson analysis, there are arguments that flag-misuse laws regarding advertising would violate free speech. Assuming such advertising neither involved an inherently unlawful activity nor was intended to mislead a viewer (the first prong of the Central Hudson test), the law would be subject to the remaining three prongs of Central Hudson : whether there is a substantial government interest, whether the law directly advances that governmental interest and whether the law is "narrowly drawn." While this analysis would occur in the context of commercial speech, the Court's analysis of restrictions on symbolic speech, which is similar to the analysis of commercial speech, would be relevant. For instance, while concerns about avoiding a breach of the peace is a substantial governmental interest, it seems unlikely that, after Spence and Johnson , the Court would find that prohibiting using a flag for commercial advertising was intended to avoid a breach of the peace. Similarly, preserving the flag as a symbol of national unity, while it might be a substantial governmental interest, would also seem unlikely to be significantly damaged by the use of flags for commercial activity. Finally, as in Eichman , preserving the physical integrity of a privately owned flag would be unlikely to be a sufficient government interest to outweigh the suppression of expressive conduct. Thus, a court would be likely to find that enforcement of a flag-misuse statute against a commercial advertisement violates precepts of free speech. <5. Can Schools Require Teacher-Led Recitation of the Pledge of Allegiance?> Teacher-led recitations of the Pledge of Allegiance have been challenged as violations of the Establishment Clause of the First Amendment. Specifically, a variety of federal courts have addressed whether the use of the phrase "one Nation under God" in the Pledge of Allegiance renders a recitation of the Pledge by a teacher to students unconstitutional. For instance, the U.S. Court of Appeals for the Ninth Circuit Court (Ninth Circuit) held that daily recitations of the Pledge of Allegiance violates the Establishment Clause of the First Amendment. That decision was overturned by the Supreme Court on other grounds, however, and a later decision by the Ninth Circuit reached the opposite conclusion. In Newdow v. Unite d States Congress , the Ninth Circuit considered a case brought by a father that argued the Pledge of Allegiance recitation by his daughter's public school teacher violated the Establishment Clause of the First Amendment. The father did not claim that his daughter was compelled to recite the Pledge, but argued that his daughter was compelled to watch her state-employed teacher proclaim that there is a God and that the United States is nation under that God. The Ninth Circuit considered this challenge using the "coercion test," first articulated in the case of Lee v. Weisman , which held that "the Constitution guarantees that government may not coerce anyone to support or participate in religion or its exercise, or otherwise to act in a way which establishes a state religion or religious faith, or tends to do so." In Weisman , the court concluded that "the graduation prayers bore the imprint of the State and thus put school-age children who objected in an untenable position." The Court also considered the "heightened concerns with protecting freedom of conscience from subtle coercive pressure in the elementary and secondary public schools," holding that the school district's supervision and control of the graduation ceremony put impermissible pressure on students to participate in, or at least show respect during, the prayer. The court in Newdow similarly reasoned that the school had placed its students in the untenable position of choosing between participating in the Pledge or protesting and that the monotheistic religious content of the Pledge was not de minimus. The Supreme Court, however, overturned the Newdow case on other grounds, holding that the child's father, who had disputed custody over his child, lacked standing to bring the case. Subsequently, the Ninth Circuit, considering a Pledge of Allegiance passed by Congress after the Newdow decision (but using the same words), concluded that its previous opinion in Newdow was no longer binding precedent, that Supreme Court Establishment Clause case law had subsequently changed, and that Congress, when passing the new version of the Pledge of Allegiance, established a secular purpose for the use of the terms "Under God." Thus, the Ninth Circuit upheld the recitation of the Pledge of Allegiance by public school teachers. Other United States Courts of Appeals have also rejected Establishment Clause challenges to the recitation of the Pledge of Allegiance in public schools. <6. Do Students Have to Recite of the Pledge of Allegiance?> The flag code provides that the Pledge of Allegiance shall be rendered standing at attention facing the flag with the right hand over the heart. Many states have statutes providing that schools provide for an opportunity for the daily recitation of the Pledge by public school students. The Court in West Virginia State Board of Education v. Barnette , however, held that that mandating that a student participate in a recitation of the Pledge of Allegiance violates free speech principles under the First Amendment. As noted previously, the federal "flag code" specified conduct when delivering the Pledge of Allegiance is voluntary. In West Virginia State Board of Education , the Supreme Court considered a West Virginia Board of Education (Board) mandate for public school students to perform the Pledge on a daily basis. A child who would not participate was expelled until such time as they complied and the child's parent or guardian could be fined $50 or jailed for up to 30 days. The Court concluded that the requirement, that students perform a stiff-arm salute and recite the Pledge, was a violation of the free speech protections of the First Amendment. The plaintiffs in Ba rnette were Jehovah's witnesses whose religious beliefs conflicted with the requirement of pledging allegiance to the laws of a secular government. The Court analyzed the Board requirement as compelled speech holding that the mandated flag salute was a form of symbolic utterance. The Court also noted that remaining passive during a flag salute did not present the kind of clear and present danger that would justify regulation. The Court also discounted arguments that the Pledge fostered national unity, noting that "[a]uthority here is to be controlled by public opinion, not public opinion by authority." The Court held that these precepts applied regardless of whether there was a religious basis for the student's objection to performing the Pledge.

The "flag code" is the federal law that sets forth guidelines for the appearance and display of the U.S. flag ("flag") by private citizens. These guidelines specify times and conditions for display of the flag, manners and methods of display, and buildings where such display should occur. The guidelines for flag display vary based on the context and occasion, and there are detailed specifications for displaying flags at "half-staff." The flag code also specifies how to deliver the Pledge of Allegiance to the flag and appropriate conduct while watching a performance of the National Anthem. Most of the flag code contains no explicit enforcement mechanisms, and relevant case law would suggest that the provisions without enforcement mechanisms are declaratory and advisory only. Efforts by states to punish verbal flag disparagement or prevent disrespectful flag display ("flag-misuse laws") have been struck down by the Supreme Court in Street v. New York and Spence v. Washington as free speech violations under the First and Fourteenth Amendments of the U.S. Constitution. Federal and many state laws also specify punishments for physical mistreatment of the U.S. flag ("flag-desecration laws"), although under Texas v. Johnson and U nited S tates v. Eichman , the Court held that application of these laws against expressive conduct violates free speech precepts. A separate issue is that federal and many state flag-misuse laws provide punishment for placing advertising images on a U.S. flag or displaying an image of a flag on merchandise. While these laws have not been challenged on free speech grounds, the Court has reserved the question whether the Johnson and Eichman holdings would apply in a commercial context, and it seems likely these laws would survive judicial scrutiny. Finally, while federal courts of appeals have rejected Establishment Clause challenges to recitation of the Pledge of Allegiance in classrooms despite language in the Pledge describing "one Nation under God," the Court in West Virginia State Board of Education v. Barnette held that a state law mandating that students participate in a recitation of the Pledge of Allegiance violates free speech precepts.

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<1. Introduction> Cigarette use remains the leading cause of preventable death in the United States, claiming an estimated 480,000 lives or more each year. Further, between 2009 and 2012, cigarette smoking-attributable economic costs totaled over $289 billion in the United States. Although cigarette use in the United States continues to decline, according to Centers for Disease Control and Prevention (CDC) analyses, 34.2 million American adults smoked cigarettes every day or some days in 2018, and nearly 1.2 million American middle and high school students smoked cigarettes in the past 30 days in 2019. Electronic nicotine delivery systems (ENDS) have become popular in recent years, particularly among youth. ENDS is an umbrella term for various types of electronic tobacco products, including electronic cigarettes (e-cigarettes). An e-cigarette is a battery-operated device typically containing nicotine, flavorings, and other chemicals that, when heated, creates inhalable aerosol (i.e., vapor). According to CDC analyses, 8.1 million American adults used e-cigarettes every day or some days in 2018. About 5.4 million American middle and high school students used an e-cigarette in the past 30 days in 2019. There has been debate in the public health community regarding the public health impact of ENDS products. Some view them as a safer alternative for adults who smoke cigarettes because the aerosol produced from e-cigarettes is considered less harmful in the short-term than combusted smoke produced from cigarettes. However, others are alarmed by the marked increase in ENDS use among youth, and are concerned that these products may undo the years of tobacco control efforts that have successfully reduced cigarette smoking among both youth and adults. Further, the emergence of e-cigarette, or vaping, product use-associated lung injury (EVALI) that has resulted in 60 deaths and 2,711 hospitalizations as of January 21, 2020 has raised concern among public health stakeholders, Congress, and the general public. The Food and Drug Administration (FDA), an agency within the Department of Health and Human Services (HHS), is responsible for regulating the manufacture, marketing, distribution, and sale of tobacco products. FDA's Center for Tobacco Products (CTP) established in 2009 pursuant to the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA; P.L. 111-31 ) is primarily responsible for tobacco product regulation. The TCA established FFDCA chapter IX, under which FDA is authorized to regulate tobacco products. Within CTP, the Tobacco Products Scientific Advisory Committee (TPSAC) provides recommendations on tobacco regulatory decisions or any other matter listed in chapter IX of the FFDCA. The TPSAC includes 12 members with diversified experience and expertise. Because tobacco products have no added health benefits, FDA's regulation of these products differs in certain respects from FDA's regulation of medical products under its jurisdiction (e.g., prescription drugs, biologics, and medical devices). Similar to medical product manufacturers, tobacco product manufacturers are subject to manufacturer requirements, including payment of user fees, registration establishment, and premarket review, among others. However, while medical product manufacturers are generally required to meet a standard of safety and effectiveness to receive premarket approval from FDA, tobacco product manufacturers are instead generally required to meet a standard of "appropriate for the protection of public health" to receive marketing authorization. In addition, tobacco product manufacturers, importers, distributors, and retailers are required to comply with certain tobacco-specific requirements that have been authorized under the TCA as a result of the unique harms that tobacco products pose to human health. Examples of such requirements include the development of tobacco product standards, testing and reporting of ingredients, submission of health information to the agency, and distribution and promotion restrictions, among others. This report describes (1) FDA's authority to regulate tobacco products; (2) general requirements for manufacturers of tobacco products, many of which are modeled after medical product requirements; (3) requirements that are unique to tobacco product manufacturers, distributors, importers, and retailers; and (4) compliance and enforcement. The report concludes with a discussion of policy issues and considerations for Congress. Appendix A describes the IQOS Tobacco Heating System, Appendix B briefly summarizes the Tobacco Master Settlement Agreement of 1998, Appendix C provides definitions of terms used in this report, and Appendix D provides acronyms used in this report. <2. FDA's Authority to Regulate Tobacco Products> As amended by the TCA, Section 901 of the FFDCA gives FDA the authority to regulate the manufacture, marketing, sale, and distribution of tobacco products. A tobacco product is defined as "any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product)." Any article that is a drug, device, or combination product (a combination of a drug, device, or biological product) is excluded from the definition of tobacco product. Drugs, devices, and combination products are subject to chapter V authorities under the FFDCA. However, it is not always clear whether a product that is derived from tobacco should be regulated as a drug, device, combination product, or a tobacco product (e.g., an ENDS product that makes certain health claims). As such, FDA has promulgated regulations to provide assistance to manufacturers intending to market products that are made or derived from tobacco based on the products' "intended uses." Upon enactment, the TCA explicitly covered the following tobacco products: cigarettes and cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. However, the TCA gave FDA the broad authority to regulate any other tobacco products deemed by the agency to meet the definition of a tobacco product and thus subject to chapter IX of the FFDCA. In 2016, FDA promulgated regulations (known as "the deeming rule") that extended the agency's authority over all tobacco products that were not already subject to the FFDCA, including ENDS, cigars, pipe tobacco, hookah tobacco, nicotine gels, dissolvable tobacco, and other tobacco products that may be developed in the future. Figure 1 shows each of the tobacco products currently under FDA's authority. <3. Tobacco Product Regulation: Manufacturer Requirements> Tobacco product manufacturers are subject to certain requirements, including payment of user fees, registration establishment, premarket review, and postmarket surveillance, among others. In the sections below, manufacturer requirements are discussed for tobacco products overall, with exceptions for issues unique to certain classes of tobacco products. <3.1. User Fees> Pursuant to its authorities in the FFDCA, FDA is required to assess and collect user fees from domestic manufacturers and importers of tobacco products and use the funds to support CTP's activities. Similar to FDA's other user fee programs, the agency assesses and collects fees from industry sponsors of certain FDA-regulated products in this case, tobacco manufacturers and importers and uses those funds to support statutorily defined activities. However, in contrast to other FDA centers that are generally funded by a combination of discretionary appropriations from the General Fund and user fees, CTP is funded solely by user fees. The tobacco product fee authorities are also indefinite. Thus, unlike medical product fees that are authorized in legislation on a five-year cycle, tobacco product fees do not require reauthorization. As with other FDA user fees, the tobacco fees are only available pursuant to an annual appropriation from Congress, which provides FDA the authority to collect and spend fees. Tobacco user fees are assessed and collected quarterly, and the total user fee amount that can be authorized and collected each year is specified in statute. For fiscal year (FY) 2019 and subsequent fiscal years, this amount is $712 million. The total user fee amount is assessed among six tobacco product classes specified in statute: (1) cigarettes, (2) cigars (including small cigars and cigars other than small cigars), (3) snuff, (4) chewing tobacco, (5) pipe tobacco, and (6) roll-your-own tobacco (see Table 1 for FY2020 data). The FFDCA requires that FDA use the Fair and Equitable Tobacco Reform Act of 2004 (FETRA) enacted as Title VI of the American Jobs Creation Act of 2004 ( P.L. 108-357 ) framework to assess user fees on six classes of tobacco products, and these are the same six classes that are specified in the FETRA provisions. The FETRA provisions specify a two-step formula. The first step determines the allocations for each of the six tobacco product classes, and the second step determines the individual domestic manufacturer and importer allocations within each respective tobacco product class. Because FETRA did not account for the differential taxing of cigars compared to the other tobacco product classes, the FFDCA specifies how user fees will be assessed for cigars. FDA has determined that it currently does not have the authority to assess user fees on ENDS manufacturers and importers, or manufacturers or importers of certain other newly deemed tobacco products (e.g., hookah tobacco). This determination was made by FDA because Congress did not specify enumerated classes for these products and did not provide a framework by which FDA could potentially assess user fees for such products. <3.2. Establishment Registration and Product Listing> Owners and operators of domestic tobacco product manufacturers are required to immediately register with FDA upon beginning operations and to subsequently register their establishments by the end of each year. FDA is required to make this registration information public. As part of the registration requirements, domestic tobacco product manufacturers must also submit product listing information, which includes a list of all tobacco products manufactured for commercial distribution. The listing for each tobacco product must be clearly identified by the product category (e.g., smokeless tobacco) and unique name (i.e., brand/sub-brand). If the listed tobacco products differ in any way, such as a difference in a component or part, manufacturers are encouraged to list each tobacco product separately. In addition, the listing must include a reference for the authority to market the tobacco product, and it must provide all consumer information for each tobacco product, such as labeling and a "representative sampling of advertisements." However, given the potential administrative burden on the registrant, FDA specifies in a guidance document that labeling for each individually listed tobacco product is not necessary if information that represents the labeling for a selected set of related products is provided. Registrants are encouraged to submit their materials online using FDA's Unified Registration and Listing System (FURLS) Tobacco Registration and Product Listing Module (TRLM). <3.2.1. Tobacco Product Manufacturer Inspections> Every tobacco product manufacturer that registers with FDA is subject to biennial inspections. This inspection requirement starts on the date the establishment registers, and FDA must conduct an inspection at least once in every successive two-year period thereafter. The goal of such inspections is to review processes and procedures, observe and evaluate operations, document and collect information, identify any violations, communicate those violations to the manufacturer, and document any proposed corrective action plans. FDA personnel upon presenting appropriate credentials and a written notice to the owner, operator, or agent in charge are authorized to enter the tobacco product manufacturer to inspect the factory and all pertinent equipment and materials "at reasonable times and within reasonable limits and in a reasonable manner." Upon completing the inspection and prior to leaving the premises, FDA is required to produce a written report describing any observed conditions or practices indicating that any tobacco product has been prepared in a way that is injurious to health. <3.3. Good Manufacturing Practices (GMPs)> FDA is required to promulgate regulations that outline good manufacturing practices (GMPs) to ensure that "the public health is protected and that the tobacco product is in compliance" with chapter IX of the FFDCA. Specifically, statute specifies that the regulations should include the methods, facilities, and controls involved in the manufacture, packing, and storage of a tobacco product. Prior to promulgating the regulations, TPSAC and the public (through an oral hearing) have an opportunity to recommend modifications to the proposed regulations. In addition, the regulations are required to take into account different types of tobacco products, the financial resources of different tobacco manufacturers, and reasonable time for manufacturers to comply with GMPs. A manufacturer may petition to be exempt from such requirements and receive approval from FDA if the agency determines that compliance with GMPs is not required to ensure that the tobacco product would be in compliance with chapter IX of the FFDCA. To date, FDA has not promulgated GMP regulations. In 2012, 13 tobacco companies submitted recommendations to be included in the GMP regulations and subsequently met with FDA to review their recommendations and approach to developing them. FDA then established a public docket for additional comments on the tobacco companies' recommendations in 2013. However, FDA did not take further action specific to promulgating GMP regulations after these actions. FDA's 2016 deeming rule stated that "FDA will have the authority to issue tobacco product manufacturing practice regulations under section 906(e)" of the FFDCA for ENDS and other newly deemed products. Following the issuance of this rule, numerous ENDS industry stakeholders submitted recommendations to FDA highlighting differences between GMP regulations for ENDS products and other tobacco products (cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco). FDA then opened a public docket in November 2017 to allow for comment on these proposed ENDS GMPs, but the agency has not taken further action since then. <3.4. Premarket Review Pathways> There are four different premarket review pathways for tobacco products: (1) premarket tobacco application (PMTA), (2) substantial equivalence (SE), (3) substantial equivalence (SE) exemption, and (4) modified risk tobacco product (MRTP). To legally market a new tobacco product, a manufacturer must receive a PMTA marketing authorization order, unless FDA determines that the new tobacco product is substantially equivalent to a predicate tobacco product or is exempt from substantial equivalence. To legally market a new tobacco product with reduced risk claims or modify a legally marked tobacco product to make reduced risk claims, a manufacturer must receive an MRTP order. All tobacco products originally covered by the TCA are required to undergo premarket review, unless they are "grandfathered products." Following the 2016 deeming rule, all newly deemed tobacco products became subject to premarket review requirements as well. In July 2017, FDA announced its Comprehensive Plan for Tobacco and Nicotine Regulation (Comprehensive Plan). A s part of its Comprehensive Plan, FDA issued guidance that pushed back premarket review application deadlines to August 2021 for newly deemed combustible tobacco products (e.g., cigars) and August 2022 for newly deemed noncombustible tobacco products (e.g., ENDS) on the market as of August 8, 2016. This administrative action was subject to legal challenge , after several public health groups (e.g., A merican Academy of Pediatrics, Campaign for Tobacco-Free Kids) filed a lawsuit against FDA . In May 2019, the U.S. District Court for Maryland ruled in favor of the public health organizations, and in July 2019, imposed a 10-month deadline for application submissions for all newly deemed tobacco products (i.e., May 2020) and a one-year deadline for reviewing the applications (i.e., May 2021). As shown in Tab le 2 , since 2014, most new tobacco products have been legally marketed through the SE pathway. However, only requirements for the SE exemption pathway have been promulgated in regulations. This has posed some challenges for manufacturers when preparing application submissions for the PMTA, SE, and MRTP pathways. In April 2019, FDA issued a proposed rule on the content and format of SE reports, with public comment open until June 2019. Also in June 2019, FDA finalized its guidance on PMTA submissions specific to ENDS. In September 2019, FDA issued a proposed rule on the content and format of PMTA applications, with public comment open until November 2019. As of February 2020, FDA has not publicly indicated a timeline for issuance of a final rule. <3.4.1. Premarket Tobacco Product Applications (PMTA) Pathway> A manufacturer must submit a PMTA and receive a PMTA marketing authorization order to legally market a new tobacco product that is not substantially equivalent to a predicate tobacco product or exempt from substantial equivalence. To receive a PMTA order, the application must demonstrate that the product is "appropriate for the protection of public health." This determination is made based on the risks and benefits to the whole population of users and nonusers of the product, while taking into account the increased or decreased likelihood that existing users of tobacco products will stop using such products; and the increased or decreased likelihood that those who do not use tobacco products will start using such products. PMTA applications must include, among other things, full reports of health risk investigations; a full statement of what is in the product (e.g., components, additives); a full description of manufacturing and processing methods; compliance with tobacco product standards; samples and components of the product; and proposed labeling of the product. FDA has 180 days after receipt of the complete application to determine whether the product will receive a PMTA order. If marketing is authorized, FDA can require that the sale and distribution of the tobacco product is restricted. FDA can deny a PMTA application for various reasons. These include if the agency determines that marketing the new tobacco product would not be appropriate for the protection of public health; the methods used for manufacturing, processing, or packing the tobacco product do not align with good manufacturing practices; the proposed labeling of the tobacco product is false or misleading; or the tobacco product does not conform with regulations specifying tobacco product standards. FDA can withdraw or temporarily suspend a PMTA order if the agency finds that the continued marketing of the tobacco product is no longer appropriate for the protection of public health; the PMTA application contained false material; the applicant does not maintain records or create reports about its tobacco product; the labeling of the tobacco product becomes false or misleading; or the tobacco product does not conform to a tobacco product standard without appropriate justification. To determine if there are grounds to withdraw or temporarily suspend a PMTA order, FDA can require by regulation, or on an application-by-application basis, that applicants establish and maintain records, and provide postmarket surveillance reports to FDA following PMTA marketing authorization. <3.4.2. Substantial Equivalence (SE) Pathway> A new tobacco product is considered to be substantially equivalent to a predicate tobacco product if it has the same characteristics as the predicate tobacco product or if it has different characteristics that do not raise different questions of public health. A product may serve as a predicate tobacco product if it was commercially marketed as of February 15, 2007, or if it has previously been determined as substantially equivalent to another predicate tobacco product. A tobacco product may not serve as a predicate product if it has been removed from the market or has been determined to be adulterated or misbranded. If a new tobacco product is considered substantially equivalent to the predicate tobacco product, the manufacturer is required to submit an SE report to FDA justifying a substantial equivalence claim at least 90 days prior to the introduction of the new tobacco product into the market. To accommodate manufacturers following enactment of the TCA, a new tobacco product that was introduced after February 15, 2007, but before March 22, 2011, could stay on the market while FDA reviewed the manufacturer's SE report, provided the report was submitted before March 23, 2011. However, if a manufacturer did not submit the SE report before March 23, 2011, or if the new tobacco product has been on the market since March 22, 2011, the product is not permitted to be marketed without an SE order from FDA, even if FDA takes longer than 90 days to approve and issue the order. The contents of SE reports are not specified in statute or regulation, but FDA has provided content recommendations for SE reports in guidance. Among other things, SE reports should include a summary, listing of design features, ingredients and materials, a description of the heating source and composition, and health information. Upon acceptance of the SE report application and FDA's evaluation that the predicate tobacco product selected is eligible, FDA evaluates the scientific data and information in the SE report. FDA will then issue a SE order letter or not substantially equivalent order (NSE order) letter. <3.4.3. Substantial Equivalence (SE) Exemption Pathway> A new tobacco product that has been modified from a legally marketed tobacco product by either adding or removing a tobacco additive, or by increasing or decreasing the quantity of an existing tobacco additive, may be exempt from demonstrating substantial equivalence. For such a product to be exempt, FDA must determine that (1) the modification would be considered minor, (2) an SE report that demonstrates substantial equivalence would not be necessary to ensure that marketing the tobacco product would be appropriate for protection of public health, and (3) an "exemption is otherwise appropriate." Before the product can be legally marketed, FDA must first grant the product an exemption from demonstrating substantial equivalence. Following this, a manufacturer must submit a SE exemption report detailing the minor modification and establishing that FDA has determined that the product is exempt from demonstrating substantial equivalence to a predicate product. The content requirements for SE exemption reports are specified in regulation. Among other things, SE exemption reports must contain a detailed explanation of the purpose of the modification; a detailed description of the modification; a detailed explanation of why the modification is minor; a detailed explanation of why a SE report is not necessary; and a certification (i.e., signed statement by a responsible official of manufacturer) summarizing why the modification does not increase the tobacco product's appeal to or use by minors, toxicity, addictiveness, or abuse liability. <3.4.4. Modified Risk Tobacco Products (MRTP) Pathway> A modified risk tobacco product (MRTP) is defined as "any tobacco product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products." For example, some ENDS manufacturers may decide to submit an ENDS product through the MRTP pathway if the application can justify that the product reduces the risk of tobacco-related disease compared with other tobacco products (e.g., cigarettes). However, an MRTP may not be introduced or delivered into interstate commerce until FDA has issued an MRTP order, regardless if it was already legally on the market through another pathway (e.g., SE or SE exemption). Further, any manufacturer that has not received an MRTP order for its tobacco product may not market the product with a label, labeling, or advertising that implies the product has a reduced risk of harm or that uses the words "light," "mild," "low," or similar descriptions. Smokeless tobacco products that use certain descriptors, such as "does not produce smoke" or "smoke-free," are not automatically considered MRTPs unless a manufacturer receives MRTP orders for those products. In addition, products that are intended to treat tobacco dependence are not considered MRTPs if they have been approved as a drug or device. Manufacturers must include certain information in a MRTP application, including a description of the proposed product and any proposed advertising and labeling; the conditions for using the product; the formulation of the product; sample product labels and labeling; all documents (including underlying scientific information) relating to research findings conducted, supported, or possessed by the tobacco product manufacturer relating to the effect of the product on tobacco-related diseases and health-related conditions, including information both favorable and unfavorable to the ability of the product to reduce risk or exposure and relating to human health; data and information on how consumers actually use the tobacco product; and such other information as the Secretary [FDA] may require. FDA must refer all complete MRTP applications to TPSAC given the health claims that need to be evaluated and verified in applications for these products. TPSAC then has 60 days to provide recommendations on the application to FDA. FDA can issue an MRTP order for a specified period of time (but not more than five years at one time ) if, among other things, it determines that the tobacco product will significantly reduce harm and the risk of tobacco-related disease to individual tobacco users and benefit the health of the population as a whole by taking into account users and nonusers of tobacco products. To continue to market a MRTP after the order's set term, a manufacturer would need to seek renewal of the MRTP order. However, FDA may issue an order for certain tobacco products that may not meet the standard of significantly reducing harm to individual users and benefiting population health as a whole. This is possible if, among things, the manufacturer can demonstrate that the MRTP order for the tobacco product would be appropriate to promote public health; the label, labeling, and advertising for the tobacco product are limited to claims that the product presents less exposure to a substance; scientific evidence is not available and cannot be made available without conducting the long-term epidemiologic studies required to meet the MRTP standard; and the scientific evidence that is available demonstrates if future studies are conducted, they would likely demonstrate a measurable and substantial reduction in morbidity or mortality among users of the tobacco product. <3.4.4.1. MRTP Postmarket Requirements> To market a tobacco product that has received an MRTP order, the manufacturer must agree to certain postmarket surveillance and studies that examine consumer perception, behavior, and health pertaining to the product. Manufacturers required to conduct surveillance must submit the surveillance protocol to FDA within 30 days of receiving notice from FDA that such studies are required. Upon receipt of the protocol, FDA has 60 days to determine whether the protocol is sufficient to collect data that will allow FDA to determine if the MRTP order is necessary to protect public health. FDA can also require that labeling and advertising of the product enable the public to understand the significance of the presented information to the consumer's health. Further, FDA can impose conditions on the use of comparing claims between the tobacco product with an MRTP order and other tobacco products on the market, and require that the label of the product disclose substances in the tobacco product that could affect health. FDA must withdraw the MRTP order, after the opportunity for an informal hearing, under specified circumstances. Examples of such circumstances include if new information becomes available that no longer make an MRTP order permissible, if the product no longer reduces risk or exposure based on data from postmarket surveillance or studies, or if the applicant failed to conduct or submit postmarket surveillance or studies. <3.4.5. Cessation Products> FDA's Center for Drug Evaluation and Research (CDER) is generally responsible for regulating tobacco-derived products that make health or cessation (i.e., quitting) claims, such as nicotine replacement therapies (NRTs). NRTs contain nicotine as an active ingredient. Two types of prescription NRT products (nasal spray and nicotine inhaler) and three types of over-the-counter (OTC) NRT products have been approved by FDA through CDER, and most of these products have been approved for over 20 years. The three types of OTC products include a nicotine gum, a transdermal nicotine patch, and a nicotine lozenge. Prescription medications that do not have nicotine as an active ingredient have also been approved by CDER for smoking cessation. These medications include Chantix (varenicline tartrate) and Zyban (buproprion hydrochloride). In the future, ENDS manufacturers who make health or cessation claims for their products would likely need to receive approval for marketing from CDER (rather than marketing authorization from CTP). <4. Tobacco Product Regulation: Tobacco-Specific Requirements> Tobacco product manufacturers, importers, distributors, and retailers are required to comply with certain tobacco-specific requirements as a result of the unique harms that tobacco products pose to human health. Each of these requirements is described below, and most requirements apply to all tobacco products, with some specified exceptions. <4.1. Tobacco Product Standards> Prior to enactment of the TCA, Congress was concerned that the tobacco industry had the ability to design new tobacco products or modify existing ones that might appeal to children or increase exposure to harmful tobacco product constituents. The TCA gave FDA the authority to adopt tobacco product standards that it deems necessary to protect the public's health, but it explicitly prohibited FDA from creating a standard that bans cigarettes, smokeless tobacco products, cigars, pipe tobacco, or roll-your-own tobacco products. Congress could choose to amend this language at any time. A new tobacco product standard can set certain manufacturing, packaging, and distribution and sale requirements for tobacco products. For example, FDA can set requirements for ingredients, additives, components, or parts allowed in a tobacco product; testing of the tobacco product and test results demonstrating compliance with the standard; measurement of characteristics of the tobacco product; appropriate labeling of the tobacco product; and limited sale and distribution of the tobacco product. To adopt a tobacco product standard, FDA is required to consider scientific evidence on the risks and benefits to the population as a whole, including users and nonusers of tobacco products, of the proposed standard; the increased or decreased likelihood that existing users of tobacco products will stop using such products; and the increased or decreased likelihood that those who do not use tobacco products will start using such products. To propose a new tobacco product standard, FDA is required to publish a proposed rule in the Federal Register and allow for a public comment period of no less than 60 days. If FDA determines that the tobacco product standard is appropriate for the protection of public health based on an evaluation of public comments, a report from TPSAC (if the standard was referred to them), and other evidence, the agency must promulgate a final regulation to establish the standard. This regulation cannot take effect until at least one year after its publication, unless FDA determines that "an earlier effective date is necessary for the protection of public health." FDA is required to periodically reevaluate tobacco product standards to determine if new data need to be reflected. In addition, a tobacco product standard may be amended or revoked either on the initiative of FDA or an interested party via petition (i.e., citizen petition). If FDA or a citizen petition calls for an amendment to or revocation of an existing tobacco product standard, a proposed rule would be issued in the Federal Register for public comment. As with a new tobacco product standard, FDA would make a determination regarding the existing standard based on review of the public comments, a TPSAC report (if relevant), and other evidence. For FDA to revoke a standard, the agency must find that the standard is "no longer appropriate for the protection of public health." <4.1.1. Flavors> When enacting the TCA, Congress recognized that flavors, specifically, can make tobacco products more appealing to youth and expose tobacco users to additional carcinogens or other toxic constituents. Although FDA has the authority to establish new tobacco product standards (as previously described), Section 907 of the FFDCA establishes a tobacco product standard explicitly banning characterizing artificial or natural flavors (other than tobacco or menthol), herbs, or spices in any constituent, additive, and component or part of a cigarette. While tobacco and menthol flavors are not included in the prohibition on characterizing flavors in cigarettes, FDA may be able to establish a tobacco product standard addressing menthol in cigarettes. Within one year of its establishment, TPSAC was required to submit a report and recommendations to the Secretary of HHS regarding the impact of menthol cigarette use on public health, specifically addressing use among youth and racial and ethnic minorities. In its final report released in July 2011, TPSAC concluded that "removal of menthol cigarettes from the marketplace would benefit public health in the United States." In July 2013, FDA released an advance notice of public rulemaking (ANPRM) on a tobacco product standard for menthol in cigarettes, seeking comments, data, research, and any other relevant information. A final regulation has not yet been promulgated; however, Former Commissioner Gottlieb expressed interest in accelerating the promulgation of this tobacco product standard. FDA released an ANPRM in March 2018, "Regulation of Flavors in Tobacco Products," that requested public comments, data, research results, and other information related to the role of flavors generally in tobacco products, among other things. After one extension, the comment period closed in July 2018 and the agency had received over 500,000 comments. In January 2020, FDA stated its intention to issue a proposed rule that would "ban the use of characterizing flavors in cigars," but did not speak to characterizing flavors in other tobacco products. <4.1.2. Nicotine> Nicotine is the naturally occurring drug in tobacco that can cause addiction to the product. The FFDCA allows FDA to address nicotine yields of a tobacco product through development of a tobacco product standard, but it prohibits the agency from establishing a tobacco product standard that would require the reduction of nicotine yields to zero. A key feature of FDA's Comprehensive Plan is to implement regulatory policies on addiction, appeal, and cessation based on scientific evidence and public input. One stated goal was to lower nicotine in cigarettes to a minimally or non-addictive level to benefit the public's health. In March 2018, FDA released an ANPRM for development of a tobacco product standard that would set a maximum nicotine level for cigarettes. The ANPRM seeks public comment on whether a tobacco product standard should apply to other combusted tobacco products (e.g., cigars, pipe tobacco); what a non-addictive level of nicotine would be; and other feasibility issues if such a tobacco product standard is implemented. The comment period closed in July 2018, after an extension, with nearly 8,000 comments received. As of February 2020, FDA has not taken further regulatory action. <4.2. Testing and Reporting of Ingredients> FDA has the authority to conduct or to require testing, reporting, or disclosure of tobacco product constituents, including smoke constituents. Pursuant to FFDCA Section 915, FDA is required to promulgate regulations that require the testing and reporting of components or parts of a tobacco product to protect the public health. Because FDA has not yet promulgated these testing and reporting regulations, tobacco product manufacturers are not currently subject to these requirements. As part of these regulations, once they are promulgated, FDA may require tobacco product manufacturers to disclose the results of the testing of tar and nicotine through labels, advertising, or other means to protect public health and not mislead consumers about harms associated with use of the tobacco product. Small tobacco product manufacturers would be given additional time to comply, and FDA could additionally delay compliance on a case-by-case basis for small tobacco product manufacturers. <4.3. Health Information> Tobacco product manufacturers are required to submit specified health information to FDA. This health information includes a list of all ingredients, such as substances, compounds, and additives that are added to the tobacco product by the manufacturer. Health information also includes "a listing of all constituents, including smoke constituents as applicable, identified by the Secretary as harmful or potentially harmful to health in each tobacco product." Manufacturers must provide this information within each brand of the tobacco product, and the quantity included in each brand (e.g., Marlboro) and sub-brand (e.g., Marlboro Gold). FDA's compliance policy for ingredient listings, as specified in guidance, focuses on finished tobacco products (i.e., tobacco products packaged and ready for consumption), including cigarettes, cigarette tobacco, roll-your-own tobacco, smokeless tobacco, and newly deemed tobacco products (e.g., ENDS). Further, FDA is focusing on components or parts of finished tobacco products that are made or derived from tobacco or contain ingredients that are burned, aerosolized, or ingested while the tobacco product is being used. As an example, e-liquids of ENDS are currently subject to this ingredient listing requirement, while batteries of ENDS are not. <4.3.1. Harmful and Potentially Harmful Constituents> As interpreted by FDA in guidance, the phrase harmful and potentially harmful constituents (HPHCs) refers to any chemical or chemical compound in a tobacco product or in tobacco smoke that is, or potentially is, inhaled, ingested, or absorbed into the body, including as an aerosol (vapor) or any other emission; and causes or has the potential to cause direct or indirect harm to users or non-users of tobacco products. Examples of HPHCs include toxicants, carcinogens, and addictive chemicals and compounds. By 2012 (three years after enactment of the TCA), FDA was required to establish a list of HPHCs in each tobacco product and, as applicable, to identify HPHCs by brand and sub-brand of tobacco products. Based on TPSAC's recommendations and after receiving multiple rounds of public comment on these recommendations, FDA established a list of 93 HPHCs in tobacco products. This list specifies whether the HPHC is a carcinogen, respiratory toxicant, cardiovascular toxicant, reproductive or developmental toxicant, and/or addictive. Using FDA's list, manufacturers are required to report HPHCs by brand and quantity of HPHCs in each brand and sub-brand. Given potential monetary and feasibility challenges that were associated with reporting all 93 HPHCs on FDA's list, FDA released an accompanying 2012 draft guidance that provided an abbreviated list of HPHCs that manufacturers of cigarettes, smokeless tobacco, and roll-your-own tobacco would be required to report to FDA. FDA has not issued an update to the 2012 draft guidance. As a result, FDA does not intend to enforce this requirement for newly deemed tobacco products (e.g., ENDS) until after the publication date of the final guidance. However, in August 2019, FDA announced that, for the first time, it is seeking public comment on 19 additional HPHCs that can be found in ENDS products. The public comment period closed in October 2019. <4.3.2. Health Documents> Tobacco product manufacturers are required to submit to FDA all documents developed by the manufacturer or any other party on health, toxicological, behavioral, or physiologic effects of current or future tobacco products, including constituents, ingredients, components, and additives. FDA interprets these documents to include "cell-based, tissue-based, animal, or human studies, computational toxicology models, information on addiction, intentions to use, cognition, emotion, motivation, and other behavioral effects at both the population-level (epidemiology) as well as the individual level (such as abuse liability)." <4.4. Records and Reports on Tobacco Products> FDA has the authority to require, by regulation, tobacco product manufacturers and importers to establish and maintain records to ensure that tobacco products are not adulterated or misbranded and to otherwise protect public health. Through such regulations, FDA can also require manufacturers and importers to report if a tobacco product may have caused or contributed to a "serious unexpected adverse experience or any significant increase in the frequency of a serious, expected adverse product experience." Required reports cannot be overly burdensome and cannot disclose the identity of a patient, except under certain circumstances. FDA has not yet promulgated regulations specifying these requirements. However, FDA issued a proposed rule in April 2019 on the content of a SE report. The proposed rule would require applicants submitting an SE report and receiving an SE order to maintain all records supporting the SE report for at least 4 years. FDA also issued a proposed rule in September 2019 for PMTAs that, among other things, would require manufacturers to "keep records regarding the legal marketing of certain tobacco products without a PMTA." <4.5. Distribution and Promotion Requirements> Prior to 2009, restrictions on the distribution of tobacco products were largely enforced at the state level, and promotion of cigarettes and smokeless tobacco was largely overseen by the Federal Trade Commission (FTC). However, in 2009, the TCA explicitly gave FDA the authority to require, by regulation, restrictions on the sale and distribution of a tobacco product if such a regulation would be appropriate for the protection of public health. In addition, the FFDCA specifies that FDA can impose restrictions, by regulation, on the advertising and promotion of a tobacco product consistent with the First Amendment. In addition to authorizing FDA to regulate the sale and distribution of tobacco products, the TCA also directed FDA to reissue its 1996 Tobacco Rule. Among other things, the 1996 Tobacco Rule imposed requirements on the sale, labeling, and advertising of cigarettes and smokeless tobacco. The TCA provided that the final rule must be identical to the 1996 rule, with specified exceptions. FDA reissued the 1996 rule in March 2010, and the 2016 deeming rule extended the applicability of sale and distribution restrictions, as well as certain labeling and advertising requirements to newly deemed tobacco products (e.g., ENDS). In FY2020 appropriations, Congress amended the federal minimum age of tobacco product purchasing from 18 to 21. Current law and regulations restricting the sale and distribution of tobacco products will be discussed first, followed by current law and regulations on the labeling and advertising of tobacco products. <4.5.1. Restrictions on Sales and Distribution of Tobacco Products> The FFDCA pursuant to changes made by the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ) prohibits retailers from selling tobacco products to any person younger than 21 years of age and limits FDA's ability to promulgate regulations that restrict the sale of tobacco products to those over 21 years of age. FDA has stated that this new age sales restriction is currently in effect. Prior to this statutory change, the minimum age of sale of tobacco products under federal regulations was 18 years of age, and the FFDCA precluded FDA from promulgating regulations restricting the sale of tobacco products to those over 18. As such, current federal regulations, which were promulgated in 2016 prior to the enactment of P.L. 116-94 , prohibit retailers from selling cigarettes, smokeless tobacco products, and newly deemed tobacco products to anyone younger than 18, and require retailers to verify the age of persons purchasing these products who are younger than 27. To conform these regulations to changes made by P.L. 116-94 , FDA is required to update the regulations by June 20, 2020 to specify that retailers may not sell tobacco products to those under 21 years of age and that retailers are required to verify the age of individuals attempting to purchase tobacco products who are younger than 30. The final rule is to take effect not later than September 20, 2020. Regulations also specify that manufacturers, distributors, or retailers may not distribute free samples of cigarettes, smokeless tobacco products, and newly deemed tobacco products, with the exception of smokeless tobacco in qualified adult-only facilities. Vending machine sales of cigarettes, smokeless tobacco, and newly deemed tobacco products are prohibited, unless the vending machine is located in a qualified adult-only facility. Consistent with the limitations specified in statute, these regulations do not prohibit the sale of tobacco products in specific categories of retail outlets (e.g., pharmacies, specialty stores). <4.5.1.1. Synar Regulations> As mentioned, prior to the enactment of the TCA, restrictions on the sale and distribution of tobacco products were primarily enforced at the state level, and compliance with state laws prohibiting tobacco sales to minors varied. Evidence emerged about health problems associated with tobacco use by youth and about the ease with which youth could purchase tobacco products through retail sources. In 1992, the Alcohol, Drug Abuse, and Mental Health Administration (ADAHMA) Reorganization Act ( P.L. 102-321 ) was signed into law, and it included an amendment aimed at decreasing youth access to tobacco. More specifically, Section 1926 (known as the Synar amendment ) of the ADAHMA Reorganization Act required that the Substance Abuse and Mental Health Services Administration (SAMHSA) make available the full Substance Abuse Prevention and Treatment Block Grant (SABG) award funding to states and U.S. territories only if they had laws in effect that prohibit the sale or distribution of tobacco products to individuals younger than 18 years old. The SABG is a block grant program that distributes funds to 60 eligible states, U.S. territories, and freely associated states to plan, execute, and evaluate substance use prevention, treatment, and recovery support services for affected individuals, families, and communities. The SABG provides a consistent federal funding stream to states through formula grants, and it is one of SAMHSA's largest programs. The Synar regulations were promulgated by SAMHSA in 1996 to provide further guidance to states on implementation of the Synar amendment. The regulation requires, among other things, that states enact and enforce laws that prohibit the sale or distribution of tobacco products to individuals younger than 18; conduct annual inspections of retailers that are representative of retail outlets accessible to minors; and submit an annual report to SAMHSA on enforcement and compliance actions in order to receive their full SABG funding. As the term tobacco product , is not defined in the regulation, SAMHSA has indicated that each state may decide which tobacco products should be included in tobacco retailer inspections, but encourages states to include tobacco products being used most often by youth. In FY2020 appropriations, Congress further amended the Synar amendment to require states, as a condition of receiving SABG funding, to conduct annual, random inspections of retail outlets to ensure that such outlets are not selling tobacco products to those under age 21 and comply with annual reporting requirements to SAMHSA on enforcement and compliance actions. SAMSHA will be required to update the Synar regulations by June 20, 2020 to account for these changes. <4.5.2. Tobacco Product Labeling and Advertisement Requirements> The Federal Cigarette Labeling and Advertising Act of 1965 (FCLAA) and the Comprehensive Smokeless Tobacco Health Education Act of 1986 (CSTHEA) include certain labeling requirements and advertising restrictions on cigarettes and smokeless tobacco, respectively. FTC generally oversees these two acts. For example, one advertising restriction within these acts includes a ban on advertising cigarettes, little cigars, and smokeless tobacco products on radio, television, or other media subject to the jurisdiction of the Federal Communications Commission (FCC). In addition, manufacturers, distributors, and retailers may not sell or distribute tobacco products with labels, labeling, or advertising that are not in compliance with the FFDCA and accompanying FDA regulations. Certain labeling and advertising requirements specific to cigarettes and smokeless tobacco include: Manufacturers, distributors, and retailers may not sponsor any athletic, musical, or other social or cultural event with the brand name of a cigarette or smokeless tobacco product. Manufacturers and distributors of imported cigarettes and smokeless tobacco may not market, license, distribute, or sell any product that bears the brand name, logo, or any other identifying patterns associated with the brand name. Labeling and advertising in audio and video formats are limited. For example, audio formats cannot include music or sound effects. Tobacco product package labeling and advertisements must also include warning statements. Table 3 lists the different health warning statements required to be displayed on tobacco product package labeling and in tobacco product advertisements, by product. For example, all ENDS package labeling and advertising is required to include "WARNING: This product contains nicotine. Nicotine is an addictive chemical." <4.5.2.1. Cigarette Graphic Warning Labels> The TCA required FDA to promulgate regulations requiring color graphics depicting the negative health consequences of cigarette smoking. In 2011, FDA published a final rule requiring graphic warning labels on cigarette packaging in addition to nine new warning statements proposed in text that would take effect 15 months after it was promulgated. The final rule was challenged in court, and in 2012, an appeals court vacated the rule on First Amendment grounds and remanded the issue to the agency. Ultimately, FDA did not seek further judicial review. FDA planned to develop and propose a new graphic warning rule and has continued to conduct research for this rule since 2013. In 2016, multiple health organizations filed a suit against FDA to compel the agency to promulgate a final rule more quickly. In March 2019, FDA was ordered to issue a proposed rule by mid-August 2019 and a final rule by mid-March 2020. The proposed rule, issued on August 16, 2019, specifies requirements for new cigarette health warnings. Among other things, the warnings would occupy the top 50% of the front and rear panels of cigarette packages, and at least 20% of the top area of cigarette advertisements. However, it is to be determined whether this proposed rule will be subject to further litigation. <5. Compliance and Enforcement> If FDA finds that a retailer, manufacturer, importer, or distributor is not complying with FFDCA chapter IX requirements or FDA regulations, the agency can take corrective action. Such corrective actions include warning letters, civil money penalty (CMP) complaints, and no-tobacco-sale order (NTSO) complaints , as well as seizures, injunctions, and criminal prosecution (with the Department of Justice). <5.1. Adulterated and Misbranded Tobacco Products> The FFDCA prohibits the adulteration and misbranding of tobacco products, as well as the introduction, receipt, and delivery of adulterated or misbranded tobacco products into interstate commerce. <5.1.1. Adulterated Tobacco Products> In general, a tobacco product is deemed adulterated if it is contaminated by any substance that may render the product injurious to health; it has been prepared in unsanitary conditions that may have contaminated the product; its packaging is composed of any substance that could be harmful to health; and/or if a manufacturer does not comply with user fee, tobacco product standard, premarket review, and/or GMP requirements (when promulgated). <5.1.2. Misbranded Tobacco Products> A tobacco product is deemed misbranded if the labeling is false or misleading in any way; its package labeling does not include specified manufacturing information, statements, or warnings required by regulation, or does not comply with an established tobacco product standard; the labeling, packaging, and shipping containers of tobacco products do not contain the label "sale only allowed in the United States"; it was manufactured, prepared, propagated, compounded, or processed in a facility that was not registered with FDA; its advertising is false or misleading in any way; and/or it is sold by a retailer to an individual under 21 years of age or is sold in violation of regulations promulgated on the sale and distribution of tobacco products. FDA may, by regulation, require prior approval of statements made on labels of tobacco products to ensure that the tobacco product is not misbranded. However, such a regulation cannot require prior approval of an advertisement, except for MRTPs. To date, FDA has not issued such regulations. <5.2. Tobacco Retailer Compliance Check Inspections> FDA is required to contract with states and territories to carry out compliance check inspections of tobacco retailers. In some instances, FDA has awarded contracts to third-party entities that hire commissionable inspectors to conduct compliance check inspections of tobacco retailers in states and territories where FDA has not been able to contract with a state or territory agency. FDA personnel may also conduct their own investigations. FDA ensures that tobacco retailers are in compliance with federal law and regulations through undercover buy inspections. During these inspections, the retailer is unaware an inspection is taking place. A trained minor, in consultation with a commissioned FDA inspector, attempts to purchase a tobacco product. If a first-time violation is reported (e.g., sale to a minor, illegal advertising), a warning letter is sent to the tobacco retailer, and the addressee has 15 working days to respond to the letter, with no associated fines involved. When subsequent violations of tobacco regulations or requirements are detected during these undercover buy inspections, FDA files a CMP complaint. The associated fines vary based on the number of regulation violations and the time period in which the violations occurred. If retailers have repeated violations of the restrictions on the sale and distribution of tobacco products, FDA may seek a NTSO, which would prohibit sale of tobacco products at that retail outlet. A NTSO could be separate or combined with CMPs. According to FDA, as of June 2019, the agency has "conducted more than a million compliance check inspections and issued nearly 88,000 Warning Letters, 22,000 [CMPs], and 160 [NTSOs]." As mentioned, in FY2020 appropriations, Congress amended the federal minimum age of tobacco product purchasing from 18 to 21. FDA has stated that this new age sales restriction is currently in effect, but also recognizes that the agency and retailers will need to update current practices to account for these changes. As such, FDA has stated that "during this ramp-up period, FDA will continue to only use minors under the age of 18 in its compliance check program." <5.3. Notification and Recall> FDA has the authority to issue notifications and recalls of tobacco products once they are on the market. FDA can issue a notification through a public service announcement if the tobacco product "presents an unreasonable risk of substantial harm to the public health," provided that FDA determines there are no other practical means to eliminate such risk. A tobacco product manufacturer can initiate or FDA can request a (voluntary) recall if the tobacco product is thought to be in violation of the FFDCA. In addition, FDA has the authority to mandate a tobacco product recall under specified circumstances. If FDA determines that a tobacco product contains a manufacturing or other defect that would "cause serious, adverse health consequences or death," the agency can issue an order requiring the appropriate person (e.g., the manufacturer, retailer, importer, or distributor) to immediately stop distribution of the tobacco product. FDA is required to provide the person subject to the order an opportunity for an informal hearing not later than 10 days after the order is issued. Following the hearing, FDA is required to vacate the order if the agency determines that there is insufficient evidence to maintain the order. If after the informal hearing FDA determines that the order should be amended to include a recall of the tobacco product, FDA must amend the order to require such recall, specifying a timetable for and requiring periodic progress reports on the recall. <6. Issues for Congress and Policy Considerations> Although the TCA expanded FDA's authority to regulate tobacco products in 2009, stakeholders have recently identified several issues related to the regulation of these products that may be of interest to Congress: FDA and public health stakeholders remain concerned about the marked increase in use of ENDS among youth over the past few years, and many in the public health community argue that this increase is largely driven by the availability of youth-friendly flavors in these products. While the public health community generally views ENDS as a safer alternative for adult cigarette smokers, there is concern that increased use of ENDS among youth may undo the years of tobacco control efforts that have successfully reduced cigarette smoking among both youth and adults. The emergence of EVALI has further heightened concern among public health stakeholders, Congress, and the general public. Public health stakeholders have been concerned about youth access to tobacco products more broadly and expressed support for raising the minimum age of access for tobacco products from 18 to 21 years of age. Congress recently made this change legislatively, but some want Congress to take further action to address tobacco use among youth. The remote sales of tobacco products including ENDS may be an opportunity for youth to purchase tobacco products illegally, due to difficulties in enforcing purchasing restrictions through this medium. Generally separate from the aforementioned public health issues, another issue concerns FDA's authority to collect tobacco user fees. More specifically, FDA has determined that it currently does not have the authority to assess user fees from ENDS manufacturers and importers, despite these products being deemed subject to FDA regulation. These four issues are discussed in detail below, along with potential considerations for policymakers. <6.1. ENDS: Harm Reduction Potential among Adults vs. Use among Youth, Including Flavored ENDS Use> Since the emergence of ENDS in the tobacco marketplace, there has been ongoing debate regarding their public health impact. The public health community generally views them as a harm reduction tool for adults who specifically smoke cigarettes. Harm reduction refers to the replacement of a more harmful activity with a less harmful one when elimination of the activity is difficult or infeasible. ENDS have the potential to reduce harm among adult cigarette smokers who have experienced difficulty quitting, as the aerosol from ENDS "contains fewer numbers and lower levels of most toxicants than does smoke from combustible tobacco cigarettes." Yet the data are complex regarding the effectiveness of ENDS as a harm reduction or cessation tool for adults who smoke cigarettes. As of early 2018, the National Academies of Sciences, Engineering, and Medicine (NASEM) concluded that "there is general agreement that the number, size, and quality of studies for judging the effectiveness of e-cigarettes as cessation aids in comparison with cessation aids of proven efficacy are limited, and therefore there is insufficient evidence to permit a definitive conclusion at this time." Further, the long-term health effects associated with use of ENDS are still largely unknown, and FDA has not yet approved any ENDS products as cessation devices. In spite of these questions, many adult cigarette smokers have expressed an interest in ENDS as a way to quit cigarette smoking. Some argue that having adults completely switch from cigarettes to ENDS can generally be viewed as positive for the public's health, given the morbidity and mortality associated with cigarette smoking. However, many in the public health community are alarmed by the marked increase in use of ENDS products among youth, which are now the most popular tobacco product used among this age group. Research studies suggest that this change has occurred, in large part, as a result of access to flavored ENDS products. The availability of flavored ENDS products has created tension between industry and the public health community. Industry-funded research suggests that availability of flavored ENDS may be more appealing to adult cigarette smokers (in comparison to nonsmoking teens) and could help adult cigarette smokers quit cigarette smoking. Conversely, one systematic review of the literature found that both youth and adults enjoy flavors in e-cigarettes. However, the authors of this review stated that "in terms of whether flavored e-cigarettes assisted [adults] quitting smoking, we found inconclusive evidence." In combination, numerous studies have documented that flavors entice youth to initiate and continue using tobacco products, including ENDS. Further, the NASEM concluded that there is substantial evidence that ENDS use among youth increases the risk of such youth ever using cigarettes, leading to concern that tobacco control efforts that have successfully reduced cigarette smoking among both youth and adults will be diminished. The culmination of these factors raises questions about how to regulate ENDS products going forward and, specifically, how to address flavors in tobacco products (including ENDS). In March 2019, FDA released a draft guidance document specifying its intended enforcement activities related to flavored ENDS. This guidance specified that FDA would prioritize enforcement of premarket review, distribution, and sale requirements related to certain flavored ENDS products that may be most accessible to youth. For example, FDA would prioritize enforcement of distribution and sale requirements in retail locations where certain flavored ENDS products may be most accessible to youth, such as in convenience stores and gas stations that do not have adult-only sections. In September 2019, FDA announced that it would finalize this guidance document "in the coming weeks," with the intention of clearing "the market of flavored e-cigarettes to reverse the deeply concerning epidemic of youth e-cigarette use." Delays in guidance finalization led to a Congressional hearing on December 4, 2019 to investigate the cause for delay. In January 2020, FDA released the final guidance document, with some changes compared to the draft guidance. Specifically, the March 2019 draft guidance focused enforcement of premarket authorization requirements based on how and where ENDS products are sold, while the final guidance focuses enforcement of premarket authorization requirements based on ENDS product characteristics (e.g., cartridge-based products). Some public health stakeholders expressed concern that the final guidance does not go far enough to reduce ENDS use among youth. In response to concerns regarding youth access to ENDS products, including flavored ENDS products, Congress may consider further limiting when flavors can be used in ENDS. Congress may also choose to outright ban all flavors (including menthol) in ENDS as well as in other tobacco products as some legislation introduced in the 116 th Congress has proposed. Congress may consider proposals that reduce any tobacco product use, including ENDS, among youth while leaving the option of ENDS use open for adult cigarette smokers in order to benefit the public's health. Congress may also consider how availability of flavored tobacco products would fit into those proposals. <6.1.1. E-cigarette, or Vaping, Product Use-Associated Lung Injury (EVALI)> Amidst a rise in ENDS use among youth, the emergence of EVALI has raised concern among public health stakeholders, the general public, and Congress. According to CDC, data suggest that the outbreak began in June 2019. Emergency department (ED) visits reached a peak in September 2019, but have since declined. As of January 21, 2020, 60 deaths have been confirmed in 27 states and DC, and 2,711 hospitalized EVALI cases have been reported to CDC in all 50 states, DC, Puerto Rico, and the U.S. Virgin Islands. Among hospitalized EVALI patients with available data, 66% were male and 76% were under 35 years old. Further, among a subset of hospitalized EVALI patients, 82% reported using tetrahydrocannabinol (THC)-containing products. Although the causes of EVALI are still unknown, laboratory data suggest that vitamin E acetate an additive found in some THC-containing ENDS products is closely associated with EVALI. Vitamin E acetate is commonly used as a dietary supplement and in skin creams. While the ingestion and dermal use of vitamin E acetate is not generally associated with adverse health effects, the safety of inhaling vitamin E acetate has not been closely examined. FDA and CDC, along with state and local health departments, have been working together closely to investigate the issue. FDA, the Drug Enforcement Administration (DEA), and local and state authorities have also been investigating the supply chain of ENDS associated with EVALI. FDA and DEA announced that they have seized 44 websites that were advertising the sale of illicit THC-containing vape cartridges, although none of the products advertised on the websites have been linked to any cases of EVALI. Such THC-containing products may raise a larger question of federal oversight pertaining to these products that are available in states permitting the sale of marijuana for recreational or medicinal purposes. Marijuana including marijuana-derived compounds such as THC is an illicit substance at the federal level subject to DEA enforcement and regulatory control. However, some states have implemented their own laws on marijuana pertaining to recreational and medicinal use, and the DEA has largely focused resources on criminal networks involved in the illicit marijuana trade. Therefore, THC-containing ENDS products available for sale in states that are allowing recreational and medicinal marijuana may not be the focus of DEA's current enforcement efforts and regulation. Further, ENDS products that do not contain any components, parts, or accessories that are derived from tobacco (e.g., do not contain nicotine) and are not expected to be consumed like a tobacco product may not meet the definition of a tobacco product under the FFDCA. Therefore, such products may not be subject to FDA regulatory requirements pertaining to tobacco products. FDA has indicated that the agency would regulate such products on a "case-by-case basis, based on the totality of the circumstances." <6.2. Tobacco to 21> Many public health stakeholders have been concerned about youth access to tobacco products more broadly and expressed support for raising the minimum age of purchasing tobacco products from 18 to 21. Numerous scientific studies and Surgeon General Reports have documented that tobacco product use often begins before the age of 18. Nearly 90% of cigarette smokers have tried their first cigarette by age 18, and 98% have tried their first cigarette by age 26. The TCA required FDA to commission a report on the public health impact of raising the minimum age of tobacco product sales. FDA contracted with the Institute of Medicine (now known as the National Academy of Medicine), and concluded in a 2015 report that "increasing the minimum age of legal access to tobacco products will likely prevent or delay the initiation of tobacco use by adolescents and young adults." However, the report noted that "the impact on initiation of tobacco use of raising the minimum age of legal access to tobacco products to 21 will likely be substantially higher than raising it to 19, but the added effect of raising the minimum age of legal access beyond age 21 to age 25 will likely be considerably smaller." In FY2020 appropriations, Congress amended the FFDCA to raise the federal minimum age of tobacco product sales to 21. FDA is also required to update its regulations by June 20, 2020 to reflect the new federal minimum age of tobacco purchasing, as well as the federal minimum age verification requirement (age verification required for individuals less than 30 years of age). The final rule is required to take effect by September 20, 2020. While public health stakeholders view this development in a positive light, some are concerned that the tobacco industry supported this initiative to avoid other measures that could also curb tobacco use including ENDS use among youth. <6.3. Remote Sales> Related to the issue of youth access to tobacco products including ENDS some have identified remote sales (i.e., non-face-to-face sales) as an opportunity for minors to illegally purchase tobacco products, due to difficulties in enforcing purchasing restrictions through this medium. While the Prevent All Cigarette Trafficking (PACT) Act of 2009 ( P.L. 111-154 ) placed certain restrictions on remote sales of cigarettes and smokeless tobacco, it did not outright prohibit them. Further, the PACT Act limits the ability of states and local governments to regulate the delivery carriers involved in remote sales complicating enforcement efforts and did not place such restrictions on other tobacco products, such as ENDS. Section 906 of the FFDCA requires FDA to promulgate regulations on remote sales of tobacco products, including age verification requirements. In 2011, FDA issued an ANPRM regarding remote sales and distribution of tobacco products, but has not taken further regulatory action since that time. Legislation has been introduced in the 116 th Congress that would ban all tobacco product remote sales, including remote sales of ENDS. As has been proposed previously, Congress may also consider amending the PACT Act to extend its provisions to other tobacco products beyond cigarettes and smokeless tobacco, such as ENDS. <6.4. ENDS: User Fees> As mentioned, FDA does not collect user fees from ENDS manufacturers and importers. Given recent concerns around ENDS products, CTP has dedicated a portion of its user fees paid by other tobacco product manufacturers and importers to address ENDS-specific issues. Therefore, some stakeholders have suggested that manufacturers and importers of ENDS products be subject to tobacco user fees to offset costs associated with FDA's current and future ENDS-specific activities. However, FDA has determined that it currently does not have the authority to assess user fees from ENDS manufacturers and importers because Congress did not specify an enumerated class for ENDS products and did not provide a framework by which FDA could potentially assess user fees for ENDS products. Based on FDA's interpretation, in order for ENDS manufacturers to be subject to the tobacco product user fees, Congress would need to provide FDA with the statutory framework for doing so. For example, Congress may consider amending both the FETRA formula and Section 919 of the FFDCA. However, ENDS products are not currently subject to federal excise taxes, and such taxes are a critical component of the FETRA formula (see " User Fees "). Therefore, if Congress were to amend FETRA and the FFDCA to explicitly provide FDA the authority to assess user fees on ENDS manufacturers and importers, Congress would likely need to amend the Internal Revenue Code (IRC) to make ENDS products subject to federal excise taxes. Another option for Congress may be to create a new, separate ENDS user fee program. There has been recent congressional and executive branch interest in requiring ENDS manufacturers and importers to pay user fees. Legislation has been introduced in the 116 th Congress that would either amend the FFDCA's current user fee structure by striking the FETRA provisions to allow for assessment of ENDS user fees, or create a new, separate ENDS user fee program. The FY2021 President's budget request also proposes requiring ENDS manufacturers and importers (along with manufacturers and importers of certain other deemed products) to pay $100 million in user fees starting in FY2021. However, based on FDA's current interpretation, user fees could not be collected from ENDS manufacturers and importers without first enacting authorizing legislation. Appendix A. The IQOS Tobacco Heating System The IQOS Tobacco Heating System (IQOS) is commonly referred to as a "heat-not-burn" tobacco product. This new technology differs from ENDS technology because it aerosolizes the tobacco plant itself, rather than a tobacco-derived e-liquid. FDA has determined that the IQOS meets the definition of a cigarette and, as such, is subject to additional FFDCA requirements and regulations specific to cigarettes, such as advertising restrictions. The IQOS is composed of three main components: The IQOS Heatstick is a filtered, noncombusted cigarette. A Heatstick is designed to be electrically heated to release nicotine-containing aerosol. The nicotine is derived from a reconstituted tobacco sheet made from ground tobacco powder. The IQOS Holder is an electrically powered and rechargeable unit that holds and warms the Heatstick. The Holder is used for a single Heatstick for about six to seven minutes, after which the Holder needs to be charged and the used Heatstick is discarded. The IQOS Charger recharges and cleans the Holder after each use. Given the novel technology of the IQOS, some industry stakeholders see this product as a potential precedent for the premarket review process that ENDS products will eventually undergo. On May 15, 2017, FDA received PMTAs from Phillip Morris International (PMI) for the IQOS Tobacco Heating System (IQOS). PMI filed four PMTA applications for the IQOS. Three PMTA applications were for the Heatstick two of which were for menthol flavored heatsticks and one PMTA application was for the Holder and Charger. Nearly two years later, on April 30, 2019, FDA authorized the IQOS Tobacco Heating System for marketing through these PMTAs. Based on the substantial back and forth between PMI and FDA to elicit the information needed for the complete PMTA applications, there is concern that small ENDS manufacturers may not have the resources to engage in the PMTA process in the future. There is also concern that FDA may need additional resources to accommodate the inevitable influx of lengthy ENDS PMTA applications. Appendix B. Tobacco Master Settlement Agreement of 1998 On November 23, 1998, attorneys general from 46 states, the District of Columbia, and the U.S. territories signed a contractual agreement (the Master Settlement Agreement, or MSA) with the major cigarette companies to settle state lawsuits to recover the costs, borne by Medicaid and other public programs, of treating smoking-related illnesses. The remaining four states Mississippi, Florida, Texas, and Minnesota had settled individually with the companies prior to the MSA. Under the terms of the MSA, the companies agreed to make annual payments in perpetuity and accept certain restrictions on tobacco product advertising, marketing, and promotion. Specifically, the MSA: prohibited cigarette companies from targeting youth in the advertising, promotion, or marketing of their products; banned the use of cartoons in advertising; limited each company to brand-name sponsorship of one sporting or cultural event a year, excluding concerts, team sports, events with a significant youth audience, or events with underage contestants; banned public transit advertising; banned outdoor billboard advertising, excluding billboard advertising for brand-name sponsored events; limited advertising outside retail stores to signs no bigger than 14 sq. ft; banned company payments to promote cigarettes in various media, including movies and TV; banned non-cigarette apparel with brand-name logos except at brand-name sponsored events; banned gifts of non-cigarette items to youth in exchange for cigarettes; restricted the use of nationally recognized non-tobacco brand names for cigarettes; and limited free samples of cigarettes to adult-only facilities. Appendix C. Definitions of Terms Used in This Report Appendix D. Acronyms Used in This Report On November 23, 1998, attorneys general from 46 states, the District of Columbia, and the U.S. territories signed a contractual agreement (the Master Settlement Agreement, or MSA) with the major cigarette companies to settle state lawsuits to recover the costs, borne by Medicaid and other public programs, of treating smoking-related illnesses. The remaining four states Mississippi, Florida, Texas, and Minnesota had settled individually with the companies prior to the MSA. Under the terms of the MSA, the companies agreed to make annual payments in perpetuity and accept certain restrictions on tobacco product advertising, marketing, and promotion. Specifically, the MSA: prohibited cigarette companies from targeting youth in the advertising, promotion, or marketing of their products; banned the use of cartoons in advertising; limited each company to brand-name sponsorship of one sporting or cultural event a year, excluding concerts, team sports, events with a significant youth audience, or events with underage contestants; banned public transit advertising; banned outdoor billboard advertising, excluding billboard advertising for brand-name sponsored events; limited advertising outside retail stores to signs no bigger than 14 sq. ft; banned company payments to promote cigarettes in various media, including movies and TV; banned non-cigarette apparel with brand-name logos except at brand-name sponsored events; banned gifts of non-cigarette items to youth in exchange for cigarettes; restricted the use of nationally recognized non-tobacco brand names for cigarettes; and limited free samples of cigarettes to adult-only facilities.

Cigarette use remains the leading cause of preventable death in the United States, claiming an estimated 480,000 lives or more each year. Although cigarette use in the United States continues to decline, according to the Centers for Disease Control and Prevention (CDC), 34.2 million American adults smoked cigarettes every day or some days in 2018, and nearly 1.2 million American middle and high school students smoked cigarettes in the past 30 days in 2019. In recent years, electronic nicotine delivery systems (ENDS) have become increasingly popular. ENDS is an umbrella term for various types of electronic tobacco products, including electronic cigarettes (e-cigarettes). An e-cigarette is a battery-operated device typically containing nicotine, flavorings, and other chemicals that, when heated, creates inhalable vapor. According to CDC analyses, 8.1 million American adults used e-cigarettes every day or some days in 2018, and about 5.4 million American middle and high school students used an e-cigarette in the past 30 days in 2019. There has been debate in the public health community regarding the impact of ENDS on public health. Some view ENDS as a safer alternative for adult cigarette smokers, while others are alarmed by increased use among youth. Further, the emergence of e-cigarette, or vaping, product use-associated lung injury (EVALI) that has resulted in 60 deaths and the hospitalization of 2,711 individuals as of January 21, 2020 has raised further concern among public health stakeholders, Congress, and the general public. FDA Regulation of Tobacco Products The Food and Drug Administration (FDA), an agency within the Department of Health and Human Services (HHS), is responsible for regulating the manufacture, marketing, distribution, and sale of tobacco products. FDA's Center for Tobacco Products (CTP)—established in 2009 pursuant to the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA; P.L. 111-31 )—is primarily responsible for tobacco product regulation. The TCA amended the Federal Food, Drug, and Cosmetic Act (FFDCA) to establish a new chapter IX ("tobacco products"), which, as enacted, applied to cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. However, FDA has the broad authority to regulate any other tobacco products deemed by the agency to meet the definition of a tobacco product and thus to be subject to chapter IX of the FFDCA. In 2016, pursuant to this authority, FDA promulgated regulations (known as "the deeming rule") that extended the agency's authority over all tobacco products that were not already subject to the FFDCA, including ENDS. Because tobacco products have no reported health benefits, FDA's regulation of these products differs in certain respects from FDA's regulation of medical products (e.g., prescription drugs, medical devices). Similar to medical product manufacturers, tobacco product manufacturers are subject to manufacturer requirements, including payment of user fees and premarket review, among other requirements. However, while medical product manufacturers are generally required to meet a standard of safety and effectiveness to receive premarket approval from FDA, tobacco product manufacturers are instead generally required to meet a standard "appropriate for the protection of public health" to receive marketing authorization. Tobacco product manufacturers, importers, distributors, and retailers are also required to comply with tobacco-specific requirements as a result of the harm that tobacco products pose to human health. Examples of such requirements include the development of tobacco product standards, submission of health information to the agency, and distribution and promotion restrictions, among others. Policy Considerations Both FDA and Congress have taken steps to address regulation of ENDS in light of EVALI and the youth ENDS epidemic. FDA recently finalized a guidance document expressing its enforcement priorities pertaining to certain ENDS products. Some public health stakeholders contend that the policy will not effectively address youth use of ENDS. In parallel, legislation introduced in the 116 th Congress includes more stringent proposals than those planned by FDA to address youth ENDS use, such as banning all flavors in tobacco products (including ENDS). In FY2020 appropriations, Congress enacted provisions raising the federal age of tobacco purchasing from 18 to 21. To apply certain existing FFDCA requirements to tobacco product manufacturers and retailers, such as requiring ENDS manufacturers and importers to pay user fees, Congressional action would need to be taken.

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<1. Introduction> Federal aid to highways is provided through highway programs administered by the Federal Highway Administration (FHWA). These programs and activities are authorized as part of multiyear surface transportation reauthorization acts. The Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ) authorized federal highway spending from FY2016 through September 30, 2020. This report examines the major highway issues Congress will likely consider during reauthorization. <2. Background> There are over 4 million miles of public roads in the United States, of which roughly 25% are eligible for federal aid. These eligible roads, designated federal-aid highways, include all of the nation's major roads. Federal highway funds generally cannot be spent on local roads, neighborhood streets, or minor rural collectors. The federal government provides funds to the states and territories for the building and improvement of eligible roads under the Federal-Aid Highway Program. The major characteristics of this program have been constant since the early 1920s. Most funds are apportioned to the states by formulas established in law. State departments of transportation largely determine which projects are funded, award the contracts, and oversee project development and construction. The states are required to pay 20% of the cost of non-Interstate System road projects and 10% for Interstate System projects. Federal assistance is focused on construction, and may not be used to fund operating costs or routine maintenance activities. The five-year FAST Act authorized a total of $225 billion for highways from FY2016 to FY2020. It provided for modest annual increases in federal highway spending over that period ( Figure 1 ). <2.1. Apportioned (Formula) and Allocated (Discretionary) Programs> Apportionment is the distribution of funds among the states by statutory formula. Under the FAST Act, roughly 93% of federal highway funds were apportioned to the states ( Figure 2 ). The remaining sums were allocated for roads on federally owned lands or Indian reservations, for discretionary highway grants awarded by the U.S. Department of Transportation (DOT), and for FHWA administrative expenses. Historically, many discretionary programs were established by Congress to target specific policy objectives, such as promoting bridge construction. However, from the late 1990s until 2011, nearly all competitive grant program funds were earmarked, that is, directed to projects specified by Congress in authorization or appropriations acts. Earmarks have not been permitted since 2011. <2.1.1. Formulas and Apportionments> The apportioned programs within the Federal-Aid Highway Program include five "core" programs plus the Metropolitan Planning Program. The core programs are the National Highway Performance Program (NHPP), the Surface Transportation Block Grant Program (STBG), the Highway Safety Improvement Program (HSIP), the Congestion Mitigation and Air Quality Improvement Program (CMAQ), and the National Highway Freight Program (NHFP). The FAST Act does not use separate formulas to determine each state's apportionments under each core program. Instead, all the formula programs under the FAST Act are funded from a single annual authorization. From this amount, every state receives a single gross apportionment that is calculated based on the state's share of the FY2015 apportionments. Each state is then guaranteed that its apportionment represents at least a return of 95 cents for every dollar the state contributed to the highway account of the Highway Trust Fund (HTF), the mechanism through which formula funding is distributed to the states. Each state's total apportionment is then divided among the five formula programs and the Metropolitan Planning Program according to statute. Figure 3 charts the nationwide outcome of the distribution among the programs. <3. Selected Highway Reauthorization Issues> <3.1. Funding> The FAST Act provided an annual average of $45 billion for highways, about 10% more (unadjusted for inflation) than the annual average under the previous authorization bill, the two-year Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ).The America's Transportation Infrastructure Act of 2019 ( S. 2302 ), reported by the Senate Environment and Public Works Committee on August 1, 2019, would provide a roughly 27% increase above the FAST Act authorizations. With the United States building few entirely new highways, the condition of existing highway infrastructure is a key issue in determining funding needs. FHWA's most recent biennial Conditions and Performance (C&P) report, drawing on FY2014 data, showed a mixed picture of the federal-aid system: the share of vehicle miles traveled (VMT) on pavements with good ride quality rose from 44.2% in 2004 to 47.0% in 2014, but the share of VMT on pavements with poor ride quality also increased, from 15.1% to 17.3%, over that period. The Interstate Highways were the road category in the best condition. Based on FY2014 data, the C&P report found that annual spending, $105.4 billion on all public roads from all sources of government, was more than sufficient to sustain the system condition and performance at the current level through 2034. Given the subsequent spending increases under the FAST Act, highway and bridge conditions may be better today than reflected in the FY2014 data. The C&P report also estimated the cost of completing all proposed work on federal-aid highways for which the benefits are expected to exceed the costs. The report found that annual spending by all levels of government would need to be roughly 30% higher than the 2014 level through 2034 if all such improvements were to be funded. <3.2. Highway Trust Fund Issues> Rather than appropriating funds annually, Congress has funded federal-aid highway programs through the HTF. The HTF is able to receive revenue from dedicated taxes and spend it on highways and public transportation prior to an appropriation; a mechanism called the obligation limit, included in the authorization act and appropriations acts, caps the amount of highway funding FHWA can promise the states in any year. About 85%-90% of the tax revenues that flow into the HTF are from an 18.3 cents-per-gallon tax on gasoline and a 24.3 cents-per-gallon tax on diesel fuel, with the remainder coming mainly from taxes on sales of trucks and truck tires as well as a heavy vehicle use tax. The HTF has two separate accounts, one for highway programs and the other for public transportation. The highway account, which funds the Federal-Aid Highway Program, much of the budget of the National Highway Traffic Safety Administration, and the entire budget of the Federal Motor Carrier Safety Administration, receives 15.4 cents per gallon from the gasoline tax and 21.4 cents per gallon from the diesel fuel tax, as well as all of the revenue from the taxes imposed on trucks and truck use. The reliance of the HTF on the gasoline and diesel taxes has become problematic because tax receipts do not increase with inflation in highway construction costs or with the price of fuel. The rates have not been increased since 1993. In 2018 a gasoline tax of approximately 45 cents per gallon would have been needed to equal the purchasing power of the 18.3-cents-per-gallon gasoline tax in 1998. In addition, sluggish growth in vehicle travel and improved vehicle efficiency have depressed the growth of gallons consumed, further constraining revenues. Since 2008, Congress has transferred nearly $144 billion to the HTF ($114.7 billion to the highway account alone) from the Treasury general fund and other sources in order to fill the gap between the tax revenue flowing into the fund and the outlays Congress has authorized. Despite these transfers, without a reduction in the size of the surface transportation programs, an increase in revenues, or further general fund transfers, the highway account balance in the HTF is projected to be close to zero in the first month of FY2022. At that point, FHWA would likely have to delay payments to state departments of transportation for completed work. The closures and stay-at-home orders implemented in response to the COVID-19 pandemic may make the HTF's funding shortfall more severe. As many employers closed or shifted to telework and fewer Americans drove to work, gasoline tax revenues will likely fall below projections. If states continue road projects as planned, the highway account balance could approach zero sooner than previously expected unless Congress provides additional funds. The Congressional Budget Office (CBO) projects that HTF highway account outlays (spending) will continue to outpace revenues through F2026 ( Figure 4 ) under current law. This projection, made prior to the COVID-19-related shutdowns, estimates that in funding a five five-year reauthorization beginning in FY2021 Congress faces a projected highway account shortfall of $46.5 billion. This is the amount of additional revenue Congress would need to provide to the HTF, whether from increased taxes, transfers from the general fund, or other sources, in order to avoid reducing the scope of the highway program. These are the amounts that the Senate Finance Committee and the House Ways and Means Committee would have to deal with if Congress decides to fund reauthorization at current levels plus expected inflation. CBO's March 2020 projection did not consider the impact of COVID-19 on HTF revenues and spending. Consequently, a major reauthorization issue is assuring that the HTF has sufficient resources over the life of the act to pay for the authorizations Congress provides. The options include the following: <3.2.1. Continue Transfers from the General Fund> Since 2008 Congress has had a de facto policy of dealing with the HTF shortfall via transfers, mostly from the Treasury general fund, weakening the long-standing link between highway user revenues and the construction and maintenance of highways. Congress could continue this policy in a reauthorization act or make the policy permanent. In the recent past, a rule of the House of Representatives has required Congress to identify "offsets" in the form of other revenues or spending reductions equal to the amounts transferred from the general fund to the HTF. This requirement has not been a House rule since January 2019. <3.2.2. Reduce Spending from the HTF> Congress could reduce spending on the Federal-Aid Highway Program. To bring outlays into line with anticipated revenues, the needed reduction would be roughly 25%. Rather than reducing highway outlays, Congress could eliminate the HTF's mass transit account and use all HTF revenues for highway purposes only, leaving public transportation to be funded entirely from the general fund. However, even if all HTF revenues were dedicated to highways, the HTF is projected to face annual shortfalls beginning in FY2024. According to CBO, annual HTF revenue is projected to be almost $20 billion less than the cost of maintaining the present level of highway spending, adjusted for inflation, in FY2026, even if no HTF money goes to public transportation. Congress could make a major reduction in federal funding by devolving responsibility for highways to the states and reducing federal motor fuel and truck taxes accordingly. States could then raise their own highway revenues or reduce spending as they see fit. The challenge of making these adjustments would vary greatly from state to state. Devolution would have significant federal front-end costs, as the federal government would remain obligated to reimburse the states for highway projects committed to in previous years. <3.2.3. Increase Tax Revenue Dedicated to the HTF> Although there is a wide variety of revenue sources that could be used to provide revenues to the HTF, the four that have received significant interest in Congress in recent years are: raising the gasoline and diesel tax rates; imposing a vehicle miles traveled (VMT) charge; imposing a carbon tax; and taxing electric vehicles. The gasoline and diesel taxes could be raised enough to make up for loss of purchasing power and then be adjusted annually for inflation and fuel efficiency. Based upon the current level of fuel consumption, an initial increase of fuel taxes in the range of 10 cents to 15 cents per gallon would be required to fund highway and public transportation programs at their current levels, adjusted for anticipated inflation. Electric vehicles (EVs), which currently do not contribute to the HTF, could be charged for road use. Finding an efficient way for the federal government to tax EVs presents a challenge, as it does not collect information about their ownership or use. Some recent proposals would use the personal income tax to reach EV owners, rather than taxing the vehicles based on use. Approximately 1.5 million EVs are currently in use, according to the Edison Electric Institute, so an annual fee approximating the roughly $80 in federal fuel taxes paid for the average passenger vehicle each year would raise comparatively little revenue over the life of a five-year reauthorization act. Charging vehicle owners for each mile of travel has been discussed for many years as an alternative to the motor fuel taxes. However, a VMT charge would have relatively high collection and enforcement costs (estimates range from 5% to 13% of collections) and the administrative challenge of collecting the charge from roughly 268 million vehicles. Setting and adjusting VMT rates would likely be as controversial as increasing motor fuel taxes. Imposing a VMT on heavy trucks only, as has been done in Germany, might be less onerous to implement because it would involve a much smaller number of collection points. A truck-only VMT concept has already run into stiff opposition from trucking interests. A national VMT on heavy trucks could also face tax administrative issues. The payments to Toll Collect, the contractor that collects Germany's truck VMT charge, are estimated to be as high as 13% of annual revenues. A carbon tax could be assessed on emissions of carbon dioxide and other greenhouse gases, with a share of the revenue dedicated to federal transportation programs. In December 2019, CBO estimated that a carbon tax of $25 per metric ton would increase federal revenues by $1.1 trillion between 2019 and 2028.The effect on the HTF would depend on the design of the tax and how much of the revenue would be reserved for the HTF. <3.2.4. Tolling> Federal law permits the vast majority of roads in the United States to be converted to toll roads. However, the law bans the tolling of existing Interstate System highway lane capacity. For an existing road or bridge to be converted to a toll facility, it must be reconstructed or replaced. FHWA does not regulate toll rates, but it does enforce statutory limitations on the use of toll revenues. In general, these limitations require that a toll facility's revenues be spent on the toll facility. All revenue from tolls flows to the state or local agencies or private entities that operate tolled facilities; the federal government does not collect any revenue from tolls. While tolls may be an effective way of financing specific facilities especially major roads, bridges, or tunnels that are located such that the tolls are difficult to evade they may not be cost-effective in areas with low population densities. However, a major expansion of tolling might reduce the need for federal expenditures on roads. Within the context of surface transportation reauthorization, there are several approaches to tolling that Congress could consider: allowing states to toll existing Interstate Highway lane capacity under certain circumstances, such as following major capacity expansion; permitting or prohibiting toll schedules that favor in-state vehicles or that toll only trucks; regulating rate setting under certain or all conditions; and expanding or restricting states' ability to use toll revenue to substitute for the non-federal share of federal-aid highway projects. <3.3. State Versus Congressional Discretion> A perennial question in highway reauthorization is how much of the funding should be distributed by formula to the states and how much should be distributed at the discretion of DOT. Prior to the ban on congressional earmarking in FY2011 virtually all of the discretionary program funding was earmarked by Congress. This, in effect, meant that the project spending decisions for the discretionary funds were under the direct control of Members of Congress. Under the earmarking ban, discretionary program project awards are selected by DOT under criteria set in the legislative language establishing the program. Although this congressional influence over project selection is not as direct as earmarking, Congress exercises more control over the use of discretionary funds than over the core program formula funds, which are under the control of the states. In reauthorization, Congress could increase the share of highway funding that is distributed by formula, diminishing the role of discretionary programs, or expand discretionary programs rather than formula funding. Recent surface transportation bills have reduced the number of discretionary programs, but Congress could choose to create new ones to address specific issues, for example, bridge conditions. <3.3.1. Maintenance of Effort> Studies have indicated that large increases in federal highway spending can lead to a substitution of federal funds for state spending on highways. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), the stimulus bill enacted in the midst of the 2007-2009 financial crisis, contained a "maintenance of effort" provision requiring the governor of a state receiving stimulus funds to certify that the state would maintain its spending for specific purposes, including transportation infrastructure, in return for greater federal funding. A maintenance of effort requirement could be included in FAST Act reauthorization, especially if the bill provides a large increase in highway funding. However, declines in states' revenue resulting from employer closures due to the COVID-19 pandemic could make it more challenging for states to maintain spending levels. <3.4. Formula Distribution/State Equity Issues> Because the formula distributions in both the FAST Act and MAP-21 were based on the apportionment of the federal-aid highway formula programs to the states in the last year of the previous authorization bill, the relative distribution of funds among the states is basically the same as it was in 2009. It has not been adjusted for population growth, internal migration, highway and bridge infrastructure growth, or traffic growth. Defining the formula in this way carries over the "equity" adjustments made in the Safe, Accountable, Flexible, Efficient Transportation Equity Act A Legacy for Users (SAFETEA; P.L. 109-59 ), enacted in 2005. These adjustments ensured that each state received formula funds equal to at least a specified percentage of the amount of motor fuel taxes its drivers paid into the highway account of the HTF. By effectively carrying over the equity redistribution, the current funding formula minimizes debates over the fairness of the distribution to individual states. In reauthorization, Congress could continue to retain a formula based on the previous distribution, or could replace it with a new formula paradigm that might incorporate factors intended to achieve specific policy goals. In the past, funding for individual highway programs was apportioned to the states using such formula factors as the ratio of federal-aid highway lane miles or vehicle miles traveled to the national total. <3.5. Highway Bridge Improvement> The FAST Act did not authorize a stand-alone highway bridge program. Instead, bridge improvements under the Fast Act are funded primarily via the NHPP and STBG based on states' priorities. As of December 31, 2018, of the 616,096 bridges in the U.S. National Bridge Inventory, 47,045 (7.6%) were in poor condition. This number has been declining for many years, but there is still a significant backlog of bridges awaiting major repairs or replacement. Should Congress wish to accelerate the reduction in the number of bridges in poor condition through the reauthorization process it could create a stand-alone bridge program. If this were a formula program, the states would select the projects; if it were a discretionary program, project choices would likely be made by DOT. Another highway bridge issue is how much federal bridge spending should be dedicated to bridges off the federal-aid highway network. Many of these are rural county-owned bridges. Under the FAST Act, each state must devote at least 15% of the amounts it received under the Highway Bridge Program in FY2009 to bridges. This amount is taken from the state's STBG funds. If it wishes to give priority to repairing rural bridges, Congress could raise the states' minimum spending level or could dedicate a specific amount to rural bridge projects. Current law penalizes states whose structurally deficient bridge deck area on the National Highway System, a network of 220,169 road-miles, exceeds 10% of its total National Highway System bridge deck area for three years in a row. In such a case, the state must devote NHPP funds equal to 50% of the state's FY2009 Highway Bridge Program apportionment to improve bridge conditions until the deck area of structurally deficient bridges falls to 10% or below. Congress could increase the penalty to encourage more spending of NHPP funds on bridges or eliminate the penalty and leave the bridge spending of NHPP funds entirely up to the states. When state officials determine that a bridge is unsafe, they are to close it to traffic immediately. The actual closing of a bridge is usually done by the state, but in some states closures are under the authority of county commissioners. The recent failure of local officials in Mississippi to close unsafe bridges until the state was threatened with the withholding of federal funds suggests that unsafe bridge closures do not always happen immediately. Congress may wish to consider the safety of bridges not directly under the control of the states in reauthorization. <3.6. Freight Issues> The FAST Act created two new programs to facilitate highway freight movement. The National Highway Freight Program (NHFP) is a formula program that provided up to $1.5 billion annually to the states for highway components designated as being especially important to freight movement. Having a separate freight formula program helps states concentrate funding for projects on freight routes. The FAST Act also created a discretionary grant program, the Nationally Significant Freight and Highway Projects Program, now called Infrastructure for Rebuilding America (INFRA), with funding of $1 billion in FY2020. INFRA discretionary grants are mostly for relatively large projects to enhance freight movement. They may be applied for by virtually any government entity. The program has received applications for far more funding than has been authorized. Despite the program's popularity, DOT has been criticized for a lack of transparency in the selection process and for selecting projects that do not have the highest cost/benefit ratios. Given the popularity of these programs, the likely reauthorization issues are the funding levels, eligibility changes, and, in the case of INFRA, oversight of the project selection process. If Congress wishes to allocate additional funding to improve freight movement, it would need to determine the share that would be distributed under the NHFP formula for spending at the discretion of the states versus the funding dedicated to INFRA and administered by DOT. Although the National Freight Network is vast, the worst congestion on freight routes occurs in a limited number of locations, mostly around Interstate Highway junctions in major urban areas. <3.7. Climate Change and Adaptation> Highway transportation is a major source of atmospheric carbon dioxide (CO 2 ), the main human-related greenhouse gas (GHG) contributing to climate change. Highway infrastructure will also bear the effects of climate change, such as extreme heat, sea level rise, and stronger storms. Highway policy responses to climate change can involve mitigation provisions that aim to reduce GHG emissions or adaptation provisions that aim to make the highway infrastructure more resilient to a changing climate. The federal-aid highway program already includes some programs that can be seen as being mitigation programs. The Congestion Mitigation and Air Quality Improvement program (CMAQ), for example, although not designed to address climate change, typically funds projects that reduce pollutant emissions from cars and trucks that also co-emit CO 2 . Other surface transportation programs that may contribute indirectly to the reduction of GHG emissions include the Transportation Alternatives program, which funds bicycle and pedestrian infrastructure, as well as core formula program eligibility and funding transfer provisions that allow highway funds to support mass transit. Congress may wish to consider mitigation options that encourage or support activities such as ride sharing, truck stop electrification, alternative fuel fueling stations, the use of hybrid electric and electric vehicles, and congestion relief policies. Adaptation is action to reduce the vulnerabilities and increase the resilience of the transportation system to the effects of climate change. Adaptation options for highways and bridges include structural and nature-based engineering and policy-based activities. For example, highway bridges can be engineered structurally to withstand the threats of stronger winds, higher storm surges, and increased flooding. Although currently there is no dedicated highway funding for adaptation projects, federal-aid highway funds can be used to assess the potential impacts of climate change and to apply adaptation strategies. Congress could add programs or program provisions to encourage or pay for adaptation and resiliency measures. The federal matching share could be increased for protective features and disaster relief definitions could be expanded to include resiliency measures. <3.8. Emergency Relief Program> The Emergency Relief program provides federal assistance to state departments of transportation for emergency repairs and restoration of federal-aid highway facilities following a natural disaster or catastrophic failure. Congress has long authorized $100 million per year to be spent from the HTF for Emergency Relief, but spending exceeds this amount virtually every year. Additional funding is provided via appropriations on a "such sums as needed" basis, usually following major disasters. These additional funds both pay for both quick release funds dispersed immediately following a disaster that are in excess of the annual $100 million authorization and pay for permanent repairs for damage from both recent disasters and the repair backlog from previous disasters. This situation raises two policy questions: whether to raise the annual authorization to reduce the reliance on supplemental disaster appropriations and how to resolve the repair backlog. States seeking Emergency Relief funds now must consider resilience to climate change in designing and constructing highway and bridge repairs. Resilience is broadly defined as "the capability to anticipate, prepare for, respond to and recover from significant multi-hazard threats with minimum damage to social well-being, the economy and the environment." Using risk-based analyses, this approach is designed to reduce the potential for future losses. However, states may be tempted to use Emergency Relief funding, which requires no state match, to make improvements that might otherwise have been made with federal formula funds or state funds. Emergency Relief is a basically a reactive program, and is not designed to fund resilience measures in advance of disasters. Congress could consider expanding the scope of the program to allow for the funding of resilience measures to some undamaged facilities that are at high risk, or could establish a separate resilience program while leaving Emergency Relief to retain its focus on disaster response and repair. <3.9. Federal Lands and Tribal Transportation Programs> Congress has established three separate programs to fund highways on federal and tribal lands. Their total funding under the FAST Act has averaged about $1.1 billion per year. The Federal Lands Transportation Program's average annual authorization is $355 million under the FAST Act. Most of this amount is for the National Park Service, the Fish and Wildlife Service, and the Forest Service. The Federal Lands Access Program supports projects that are on, adjacent to, or provide access to federal lands. Funding is allocated among the states by a formula. The Tribal Transportation Program distributes funds among tribes, mainly under a statutory formula based on road mileage, tribal population, and relative need. In addition, the FAST Act established the Nationally Significant Federal Lands and Tribal Projects Program to support large projects on federal and tribal lands. Projects must have an estimated cost of at least $25 million, with priority given to projects costing over $50 million. The program is authorized at $100 million annually, but requires an appropriation to make funds available. It has received appropriations of $300 million for FY2018, $25 million for FY2019, and $70 million for FY2020. Funding for all of these programs is likely to be an issue in reauthorization. The National Park Service, for example, has a considerable backlog of road repairs, but repairs to the agency-owned Memorial Bridge in Washington, DC, which cost 80% of the Park Service's average annual allocation under the FAST Act, made it difficult for the Park Service to address other repair needs. In addition, some states and Indian tribes have called for revising the formulas used to allocate Federal Lands Access Program and Tribal Transportation Program funds. <3.10. TIFIA> Although the majority of highway funds are awarded as grants, the federal government also supports highway infrastructure financing under the Transportation Infrastructure Finance and Innovation Act (TIFIA). The TIFIA program provides secured loans, loan guarantees, and lines of credit for major surface transportation projects. Loans must be repaid with a dedicated revenue stream; for highway projects this is typically a toll. TIFIA is funded at $300 million for FY2020. Assuming an average subsidy cost of 7%, this funding may allow lending of roughly $4.3 billion in the year. States may use their funds from two formula programs, NHPP and STBG, to pay the administrative and subsidy costs of the program. Additionally, the FAST Act allows project sponsors to use discretionary INFRA grants to pay these costs, although this has not occurred. The main issue in reauthorization is the funding level. Despite the program's popularity, DOT calculated that it had $1.65 billion unobligated budget authority at September 30, 2018. Congress could encourage greater use of TIFIA funds by increasing the federal project share allowable, broadening eligibility, and accelerating the processing of applications. Should Congress wish to increase the availability of TIFIA financing without increasing the program authorization, it could also change the subsidy calculation. A less conservative calculation by DOT and the Office of Management and Budget (OMB) could allow DOT to lend a greater amount with the same amount of budget authority, although this would increase the level of risk to the federal government. Congress could also lower TIFIA funding to eliminate the unobligated balances. TIFIA is one means of financing projects without relying on pay-as-you-go funding, thereby accelerating construction. Other financing proposals, such as creation of a National Infrastructure Bank and expanded funding of state infrastructure banks, might also be considered in reauthorization. In the past, such proposals have faltered, in part due to their apparent duplication of intent with the TIFIA program. <3.11. Accelerating Project Delivery> The length of time between project inception and completion has long been a concern of Congress. The many reasons for delays include difficulty in achieving agreement on the commitment of funds, public opposition, litigation, public comment requirements, contractor and materials delays, and the environmental review process. The FAST Act included 18 provisions intended to accelerate project delivery, mainly directing changes in how the environmental review process is implemented. In highway reauthorization, Congress may want to require studies evaluating the impacts of the FAST Act changes and FHWA's implementation actions. <3.12. Highway Data Issues> A number of highway data and study issues have emerged recently that could be considered in reauthorization. FHWA's Highway Statistics series is designed to provide a broad range of annual statistical tables and charts on the extent, condition, funding, and other attributes of U.S. highways. However, in recent years some of the tables have not been produced, while others are produced years after the fiscal year they describe, lessening their value to policymakers. Congress could request an explanation from FHWA or request the Government Accountability Office to review the FHWA's data collection and publication procedures. FHWA is dependent on the states for much of the underlying data. The recently released 23 rd edition of the biennial Status of the Nation's Highways, Bridges, and Transit: Conditions and Performance; Report to Congress was released two years late and based on FY2014 data. The report contains the most comprehensive information about the condition of U.S. highway and mass transit infrastructure conditions, along with estimates of the future funding needed to maintain or improve the conditions and transportation system performance. The most recent report does not reflect the increased funding authorized in the FAST Act or recent transportation appropriations bills, so it is difficult to judge the impact of these spending increases. Congress could consider requiring a study of why DOT relies on five-year-old data to prepare the report. FHWA formerly produced Highway Cost Allocation Studies (HCASs) to estimate the cost, in terms of wear and tear, imposed by different types of vehicles (including trucks categorized by weight) using U.S. highways. In these studies, highway taxes per mile paid into the HTF by different types of vehicles were compared to the cost per mile of pavement, bridge, and other highway-related damage caused by each vehicle type. The last FHWA Highway Cost Allocation Study was the 2000 supplement to the 1997 study. Without a congressional directive and funding to complete a new study, the FHWA has chosen not to conduct one. Congress could consider funding and requesting a new study, which might be helpful in judging whether the current rates of highway-related taxes paid by various users adequately reflect the damage their vehicles cause to highway infrastructure. Because freight infrastructure decisions are often made at the state or local level, it would be helpful for transportation planners to know the characteristics of the trucks traveling particular highway segments. DOT's Bureau of Transportation Statistics and the Census Bureau conduct a survey of shippers every five years that provides information on shipments leaving factories, warehouses, and ports. However, the sample size is not sufficient to provide reliable data for any specific urban area, and the survey is too infrequent to identify recent trends. The survey was designed more to provide a national picture of freight transport than to meet local or regional needs. A policy question for Congress is whether the federal government should be responsible for providing more robust and tim ely freight data for state and local transportation planners. <3.13. Highway Safety> Measures to improve the safety of roadway infrastructure are funded primarily through the FHWA Highway Safety Improvement Program (HSIP). Measures related to vehicles and to driver behavior are handled by the National Highway Traffic Safety Administration (NHTSA) and, in the case of commercial vehicles and drivers, the Federal Motor Carrier Safety Administration (FMCSA). HSIP is the largest safety program up for reauthorization. HSIP primarily funds infrastructure improvements, such as rumble strips, roadway striping, intersection redesign, and safety-related technologies. HSIP is one of the few highway programs that allows for spending on any public road, not just federal-aid highways. Reauthorization issues include funding amounts and eligibility changes. Driver behavior is the primary factor in the vast majority of fatal crashes. However, driver behavior is generally a state matter and not under federal control. When Congress wishes to change driver behavior, it typically does so by providing grants to states or by withholding grants if states fail to implement federal policies. For example, states that fail to establish 21 as the minimum age to purchase alcoholic beverages can be subject to funding reductions. A review of the effectiveness of such penalties could be part of the reauthorization process. Past issues in driver behavior that could emerge in reauthorization include restrictions on federal funding of automated devices to enforce speed limits, motorcycle helmet laws, and state measures concerning impaired driving. NHTSA also establishes minimum standards for passenger vehicles. The time it takes NHTSA to update these standards has been an issue. NHTSA also tests vehicles for compliance with safety standards, rates the crashworthiness of vehicles, and monitors consumer complaints about vehicles for evidence of safety defects that may necessitate a vehicle recall. A study of the effectiveness of NHTSA's early warning reporting (EWR) system could be of interest to Congress. Unlike the behavior of ordinary drivers whose behavior is regulated by the state and local governments, the behavior of commercial drivers who engage in interstate commerce is a federal matter under the auspices of FMCSA. Issues that could be considered in reauthorization include the regulation of hours of service for commercial drivers and the related mandate for use of electronic logging devices, the roadside safety examination of intercity buses, specific driver health requirements, and possible modification of age restrictions on commercial drivers.

Federal highway construction and safety programs are currently authorized through September 30, 2020, under the five-year Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ). For the 1,027,849-mile system of federal-aid highways, the FAST Act provided an average of $45 billion annually. Although there are exceptions, federally funded projects are generally limited to this system that includes roughly 25% of all U.S. public road mileage. Of these funds, nearly 93% are distributed to the states via formula. The states have nearly complete control over the use of these funds, within the limits of federal planning, eligibility, and oversight rules. Money is not provided up front. A state is reimbursed after work is started, costs are incurred, and the state submits a voucher to the Federal Highway Administration (FHWA). The highway program focuses on highway construction and planning, and does not support operations or routine maintenance. The federal share of project costs is generally 80%, but 90% for Interstate System projects. Nearly all highway funding comes from the Highway Trust Fund (HTF). The excise taxes on gasoline and diesel, which are the main support of the HTF, are fixed in terms of cents per gallon (18.3 cents for gasoline and 24.3 cents for diesel), and do not adjust for inflation or change with fuel prices. The rates were last raised in 1993. These taxes no longer raise enough money to support the programs Congress has authorized. Congressional Budget Office (CBO) projections estimate that the HTF shortfall for a five-year reauthorization bill, FY2021-FY2025, will be $68.8 billion, of which the highway portion will be $46.5 billion. The funding shortfall is a major issue framing the reauthorization debate. The FAST Act transferred $70 billion in general Treasury funds to the HTF, $51.9 billion of which were for highways. Congress could deal with the shortfall that is projected to persist over the coming years in three ways: again transfer money from the Treasury general fund; cut spending by roughly 25%; and raise revenue dedicated to the HTF. Widely discussed revenue options include increasing the rates of existing gasoline, diesel, and truck taxes or imposing new charges such as a vehicle miles traveled (VMT) charge. Other issues likely to be considered by Congress include the following: Whether any additional federal spending for highways should be distributed by formula, giving the states greater control, or through discretionary programs that distribute funds based on Administration or congressional priorities. Whether to retain the current highway funding formula, which links states' annual apportionments to their funding shares in past years, or to introduce such formula factors as each state's lane miles, population growth, or VMT. Whether to create stand-alone programs to address issues such as bridge conditions or climate change mitigation and adaptation. Whether the stand-alone National Highway Freight Program, a formula program that has been highly popular with the states, should be funded at a higher level relative to the other formula programs. Whether the Emergency Relief program should be expanded to cover a wider range of resilience needs. Whether states should be permitted to place tolls on free Interstate Highway lanes, and whether to regulate the use of tolls. The Senate Environment and Public Works Committee (EPW) reported the America ' s Transportation Infrastructure Act of 2019 (ATIA; S. 2302 ) on August 1, 2019 . The bill includes the highway elements of surface transport ation reauthorization under EPW' s jurisdiction. It is the only active FAST Act reauthorization bill to date.

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<1. Introduction> This report provides context for Congress about the U.S. teen birth rate or the number of births per 1,000 females aged 15 to 19 each year and its changes since the 1950s. Over this period, the teen birth rate has generally been in decline. This decline has been most significant in recent years, with the rate reaching a record low in 2018. Multiple factors have likely contributed to the decrease, though the influence of any single factor is not fully known. Reduced teen sexual activity, particularly among younger adolescents, could be one explanation. Increases in use of contraceptives, including highly effective and multiple methods, among sexually active teens could be another. Other factors, such as broader social and economic trends, may also be at play. Despite the decline in the teen birth rate, Congress continues to be interested in the issue of teen birth because of its high social and economic costs for both individual families and society more generally. Further, disparities persist in teen birth rates among racial and ethnic subgroups and across states. This report accompanies CRS Report R45183, Teen Pregnancy: Federal Prevention Programs , which discusses Congress's current approach of supporting programs that seek to prevent pregnancy among teens. <2. Teen Births in the United States> Data on births are distinct from data on pregnancies. The teen birth rate refers to the number of live births per 1,000 teen girls aged 15 through 19. The teen pregnancy rate includes the number of pregnancies per 1,000 teen girls aged 15 through 19, which encompasses live births, abortions, and fetal losses . Birth data account for nearly every birth in the United States, whereas pregnancy data are based on estimates of miscarriages and abortion numbers that draw on various reporting systems and surveys. The Centers for Disease Control and Prevention (CDC), the federal government's lead public health agency, reports birth data on an annual basis (most recently for 2018). The CDC and the Guttmacher Institute publish teen pregnancy rates. These rates are usually published a year or two after birth data because of the time required to incorporate data from the various data sources. This report focuses on the teen birth rate. The CDC tracks birth rates by age and other characteristics of birth mothers. In 2018, there were approximately 3.8 million births in the United States. About 180,000 of these births (4.7%) were to teenagers aged 15 to 19. Figure 1 shows the U.S. teen birth rate from 1950 through 2018 (the rate excludes the territories). The rate ticked up in the baby boom era of the 1950s, peaking in 1957 at 96.3. It then decreased in most years from the 1960s through the 1980s. From 1991 onward, the teen birth rate declined except in two years, 2006 and 2007. The rate dropped by 72% from 1991 (61.8) to 2018 (17.4). In other words, about 6% of teens aged 15 to 19 gave birth in 1991 compared to less than 2% in 2018. The greatest decline in the teen birth rate occurred in recent years. For example, from 2007 to 2018, the rate declined by about 58%. The 2018 teen birth rate of 17.4 was a historical low since CDC began collecting and reporting birth data in the 1940s. The CDC began tracking subgroup data for teens in 1960, when the teen birth rate was highest for both teens aged 15 to 17 (43.9 per 1,000) and teens aged 18 to 19 (166.7 per 1,000). Figure 1 indicates that the birth rate was higher in each year for the older teens compared to the younger teens. The 2018 birth rates for 15- to 17-year-olds (7.2 per 1,000) and 18- to 19-year-olds (32.3 per 1,000) were the lowest on record. Repeat teen births have also declined over time. CDC found the number of subsequent teen births among youth aged 15 to 19 declined nationally by nearly 54% from 2004 to 2015 (the most recent analysis available). The prevalence of teen births that were repeat births was highest among Hispanic youth, followed by non-Hispanic black and non-Hispanic white youth. Over this same period, the largest declines in the number of repeat births were among black teens (21.8%), followed by Hispanic (16.8%) and white (13.9%) teens. Teen mothers have also been less likely to be married than in previous years. In 2018, the birth rate for unmarried teens aged 15 to 19 was 16.0 per 1,000. This is compared to 31.0 per 1,000 in 2010. Despite the overall decline in the teen birth rate, the rates for certain racial and ethnic groups remain relatively high. Teen birth rates in 2018 varied based on race and ethnicity, with three groups Hispanic (26.7), non-Hispanic black (26.2), and non-Hispanic American Indian/Alaska Native (29.4) teens having more than double the teen birth rate for non-Hispanic white (12.2) and non-Hispanic Asian or Pacific Islander (4.0) teens. Figure 2 shows the teen birth rate by race and Hispanic origin over three key years: 1991, when the teen birth rate started a long-term decline; 2007, the most recent year when the teen birth rate had ticked back up slightly; and 2018, the most recent year for which CDC compiled historical teen birth rate data by race and ethnicity. In nearly each year from 1991 through the recent period, the teen birth rate decreased for all racial and ethnic groups; however, the rates declined more for certain groups compared to others. From 2007 to 2018, birth rates fell by 55% for non-Hispanic white teens, 40% for non-Hispanic American Indian/Alaska Native teens, 58% for non-Hispanic black teens, 73% for non-Hispanic Asian/Pacific Islander teens, and 65% for Hispanic teens. While the birth rates for two groups (non-Hispanic black and Hispanic) had a greater decline than the rate for white teens, their birth rates remained higher. In 2018, the birth rate for teens aged 15 to 19 varied considerably by state and territory. The state with the lowest reported rate was Massachusetts (7.2); the state with the highest reported rate was Arkansas (30.4). Figure 3 shows a map with 2018 teen births rates in four data categories for the 50 states, the District of Columbia, and three of the territories. Eighteen states had rates of less than 15 per 1,000 teens aged 15 to 19: California, Colorado, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, and Wisconsin. Ten states had the highest teen birth rates (25 or higher): Alabama, Arkansas, Kentucky, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas, and West Virginia. The rates for the territories ranged from 19.3 in Puerto Rico to 34.4 in Guam. From 2007 (when the birth rate last ticked up) to 2018, the teen birth rate decreased in each state or territory by between 19% and 67%. Teen birth rates have also declined in rural areas over time but remain relatively higher than rates in urban areas. While the U.S. teen birth rate has decreased over time, it has been higher than that of most other industrialized countries. For comparison, the U.S. teen birth rate of 18.8 was about 50% higher than the rate of the United Kingdom, 12.6, in 2017 (based on the most recent international data available). The reasons for the high teen birth rate in the United States relative to other industrial countries have not been fully explored. Economic conditions and income inequality within and between countries may play a role. Further, the research literature, which is somewhat dated and limited, indicates that use of contraceptives among teens appears to be greater in other developed countries compared to the United States. <3. Factors Likely Contributing to the Declining Risk of Teen Pregnancy> Researchers suggest that multiple trends have driven down U.S. teen pregnancy and teen birth rates. They point to certain factors as the reason for declines over the 1990s through 2007. Research indicates that over this period, the risk of teen pregnancy decreased primarily because of improved contraceptive use, including an increase in the use of certain contraception methods (e.g., condoms), an increase in the use of multiple methods of contraception, and substantial declines in foregoing contraception. In addition, some of the risk of pregnancy decreased among younger teens, those ages 15 to 17, because of decreased sexual activity. A primary factor for more recent declines in the risk of teen pregnancy has also been the increasing use of contraceptives among sexually active teens. From 2007 through 2014, teens increased their contraceptive use, including the use of any method, the use of long-acting reversible contraceptives (LARCs; e.g., intrauterine devices, or IUDs, and birth control implants), and the use of the withdrawal method along with another method. Broad economic and social variables may influence teen behaviors, such as whether they will abstain from sex or use contraceptives. Behavioral changes may have been driven by a confluence of factors, such as expanded educational and labor market opportunities for women and improvements in contraceptive technology. Some observers theorize that the long-term downward trend in teen birth rates is attributable to the recession that began in 2007. They contend that during economic downturns the decrease in teen births like the decrease in overall births is partly due to teenagers being more careful as they witness the economic difficulties faced by their families. Despite this rationale, the teen birth rate continued to diminish after the recession (as well as during periods of economic expansion in the 1990s). Another possible explanation for the decline is the role of social media and increased use of the internet in teens' knowledge about sex and birth control. One analysis found that there were more rapid declines in rates of teen childbearing in places where the MTV show 16 and Pregnant was more widely viewed. The study extrapolated that teens changed their behavior (e.g., increasing the use of contraceptives) after viewing the show. Still, teen birth rates declined even after ratings for the show peaked. Some observers contend that teen pregnancy prevention programs, such as those supported with federal funding, could potentially play a role in the declining birth rate for teenagers. However, the extent to which these programs have caused a decline in the teen birth rate is not fully known. <4. Financial and Social Costs of Teen Births> Teen pregnancy has high costs for the families of teen parents and society more generally. Teenage mothers and fathers tend to have less education and are more likely to live in poverty than their peers who are not teen parents. For example, nearly one-third of teen girls who have dropped out of high school cite pregnancy or parenthood as a reason, about 7 out of 10 teen mothers who have moved out of their family's household live below the poverty level, and more than 60% of teen mothers receive some type of public benefits within the first year after their children are born. Lower levels of education reduce teen parents' potential for economic self-sufficiency. At the same time, being impoverished and having less education can also increase the likelihood of teens becoming pregnant in the first place. These poorer outcomes may be explained in part by underlying differences between those who give birth as teens and those who delay childbearing: teen mothers often come from more disadvantaged backgrounds (e.g., family more likely to receive public welfare benefits, parents have lower levels of education) than their counterparts who have children at a later age. In addition, teen sexual activity even among those who do not become pregnant can increase the risk of sexually transmitted infections (STIs), which can led to long-term health issues. Adolescents aged 15 to 19 have certain STIs at a rate that is among the highest of sexually active individuals. Further, teen childbearing can also affect the offspring of teen parents. Children of teenage mothers have poorer outcomes than children of mothers who give birth in their early 20s or later. They are generally more likely to (1) have chronic medical conditions, (2) use public health care, (3) have lower school readiness scores, (4) do poorly in school, (5) give birth during their teen years (females), and (6) be incarcerated (males). In addition to the consequences for teens and their families, teen childbearing has societal impacts. One study examined these societal impacts, specifically estimating the cost savings to public programs that were associated with avoiding unintended pregnancies during the teen years. The Power to Decide did a simulation analysis to estimate the number of births to teenagers that had been averted due to the decrease in teen fertility rates from 1991 to 2015. The analysis then estimated total savings of $4.4 billion for this period, taking into consideration the cost savings to Medicaid that would have been associated with labor and delivery, postpartum care for the mother, and infant care; and receipt of Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) benefits. Additional research of decreased or delayed teenage pregnancy and childbearing could help to inform the impacts for teen parents, their children, and society more generally. <4.1. Appendix. Additional Data on Teen Pregnancy>

The Centers for Disease Control and Prevention (CDC), the federal government's lead public health agency, has identified teen pregnancy as a major public health issue because of its high cost for families of teenage parents and society more broadly. The CDC highlights that the teen pregnancy rate has decreased steadily, dropping below CDC's target goal of 30.3 per 1,000 females aged 15 to 17 by 2015; however, the CDC also raises the concern that the United States has one of the highest rates of teen births of all industrialized countries. This report discusses trends in teen birth rates—or the number of births per 1,000 females aged 15 to 19 each year—since the 1950s. The rate of teens births peaked in 1957 at 96.3. It then decreased in most years from the 1960s through the 1980s. From 1991 onward, the rate declined except in two years, 2006 and 2007. The greatest decline in teen birth rates has occurred in recent years. For example, from 2007 to 2018, the rate declined by approximately 58%. The 2018 teen birth rate of 17.4 was a historical low since CDC began collecting and reporting birth data in the 1940s. In nearly each year from 1991 through the recent period, the teen birth rate decreased for all racial and ethnic groups; however, the rates declined more for certain groups than others. While the birth rates for two groups (non-Hispanic blacks and Hispanics) declined more than the rate for white teens, their birth rates remained higher overall. In 2018, Hispanic (26.7), non-Hispanic black (26.2), and non-Hispanic American Indian/Alaska Native (29.4) teens had more than double the teen birth rate for non-Hispanic white (12.2) and non-Hispanic Asian or Pacific Islander (4.0) teens. Teen birth rates have varied considerably by state and territory. In 2018, the state with the lowest reported rate was Massachusetts (7.2); the state with the highest reported rate was Arkansas (30.4). Teen birth rates have declined in rural areas over time but remain relatively higher than rates in urban areas. Research suggests that multiple trends have led to lower U.S. teen pregnancy and birth rates. From the 1990s through 2007, the risk of teen pregnancy decreased primarily because of improved contraceptive use, including an increase in the use of certain contraception methods (e.g., condoms), an increase in the use of multiple methods of contraception, and substantial declines in foregoing the use of contraception altogether. Some of the risk of pregnancy decreased among younger teens because of decreased sexual activity. A primary factor for more recent declines in the risk of teen pregnancy has been the increasing use of contraceptives among sexually active teens. Broad economic and social variables may influence teen behaviors, such as whether they will abstain from sex or use contraceptives. Teen pregnancy has high costs for teen parents, their children, and society more generally. Teenage mothers and fathers tend to have less education and are more likely to live in poverty than their peers who are not parents. Moreover, lower levels of education reduce teen parents' potential for economic self-sufficiency. Some analysis has looked at these societal impacts and the benefits of avoiding pregnancy during the teen years. This report accompanies CRS Report R45183, Teen Pregnancy: Federal Prevention Programs , which discusses Congress's current approach of supporting programs that seek to prevent pregnancy among teens; and CRS In Focus IF10877, Federal Teen Pregnancy Prevention Programs , which includes summary information about the programs.

crs_R45876

crs_R45876_0

<1. Background> Personal property management is a complex undertaking, as federal agencies must track, evaluate, dispose of, and replace a vast array of items. Personal property is defined as any property that is not real property (land, buildings, and structures), with the exception of certain naval vessels (battleships, cruisers, aircraft carriers, destroyers, and submarines). Everything else that an agency owns is considered personal property: Desks, computers, vehicles, and laboratory equipment are common examples. Given the size and distribution of the federal workforce more than 4 million federal civilian and military full-time equivalents are housed at thousands of locations across the country and overseas the acquisition and maintenance of personal property has required sustained investment by the government. In FY2017, federal agencies reported $1.3 trillion in personal property assets. Effective management of federal personal property is necessary to prevent waste, fraud, and loss. Each agency is responsible for implementing policies and procedures known as internal controls that mitigate risk and promote the efficient use of federal assets. Internal controls help an agency answer fundamental questions about its personal property inventory, such as: Does the agency know what it owns? Does the agency need everything it has? Is the agency disposing of unneeded assets so that other agencies or the public may make use of them? Is the agency getting the best price on replacement items? What safeguards are in place to make it difficult to steal or misuse personal property? The Office of Management and Budget (OMB) provides agencies with broad guidance on establishing internal controls via Circular A-123. Specific guidance for agency personal property policies and procedures is primarily located in the Federal Management Regulation, which is promulgated by the General Services Administration (GSA). In addition, Appendix B of Circular A-123 establishes requirements for internal controls over the management of federal charge cards, which includes safeguards for the receipt of personal property acquired with purchase cards. Personal property management is a relatively decentralized process, and there is no government-wide source of data on agency inventories. Policymakers and federal auditors have shown particular interest in the disposal of personal property, as recent assessments demonstrate that agencies fail to identify and dispose of items they no longer need. Agencies must continually survey their property holdings, identify items that are not needed, and dispose of any unneeded property by transferring it at no cost to other federal agencies, donating it to state or local entities, selling it to the public, or abandoning or destroying it. Executive agencies use this process to dispose of tens of thousands of items a year. When agencies do not efficiently track, inventory, and dispose of unneeded (excess) property, agencies increase federal expenditures and waste the unused value of personal property assets. For example, an agency may purchase items they could have obtained at no cost from another agency's excess inventory, and property that is lost or stolen when not properly inventoried may need to be replaced. When federal agencies do not follow a sound property management process, state and local entities may lose the opportunity to acquire excess federal property at no charge, resulting in higher costs for them when serving the public. The federal government also incurs greater storage expenses when agencies hold onto excess property and loses revenue from potential sales. To address these concerns, Congress passed the Federal Personal Property Management Act of 2018 (Personal Property Act; P.L. 115-419 ), which establishes new inventory tracking and assessment requirements for federal agencies. This report begins with a discussion of federal personal property management guidance, then examines weaknesses in agency policies and procedures. Next, the report analyzes the Personal Property Act and how it may address weaknesses in the personal property disposal process. The report concludes with observations on the intersection of real property and personal property. <2. The Personal Property Disposal Process> The personal property disposal process begins when an agency determines it no longer needs certain items. To ensure that agencies are able to identify unneeded or "excess" personal property in a timely manner, they are required to maintain adequate property controls and continually survey their inventories to determine the utility of each item. When an agency identifies excess property, it has the option to transfer an item directly to another federal agency, provided the item had an acquisition cost of less than $10,000. Excess property with an acquisition cost of $10,000 or more may be transferred directly to another federal agency with verbal approval from the appropriate GSA regional office. Generally, direct transfers are made at no charge for the property itself, but the requesting agency is responsible for transportation and shipping costs. Agencies may also perform a direct transfer of computers or peripheral tools (e.g., modems and printers) to schools or educational nonprofits through the Computers for Learning Program, which was established pursuant to Executive Order 12999, "Educational Technology: Ensuring Opportunities for All Children in the Next Century," and encompasses educational institutions for children in pre-kindergarten through secondary school. If an agency does not perform a direct transfer of excess personal property, it must promptly report the property to GSA. Excess property may be reported online through the GSAXcess system, electronic batch, or hard copy. Once excess property is reported to GSA, it undergoes a 21-day screening process, during which the property may be viewed online (if it was entered into GSAXcess by the reporting agency) or inspected onsite (at the agency). During the 21-day period, excess personal property may be transferred to other federal agencies as well as to the Senate, the House of Representatives, the Architect of the Capitol, the District of Columbia government, and certain mixed-ownership government corporations. If no federal agency requests the excess property, then it is declared "surplus," and GSA has five days to donate it at no charge to eligible recipients. Such recipients include state and local governments; municipal agencies; and nonprofits that provide support for education, public health, or veterans groups. The surplus personal property is not transferred directly to the recipients. Rather, each state has a State Agency for Surplus Property (SASP), which receives the property and distributes it to qualified agencies and organizations. Surplus personal property that is not donated within the five-day period may be sold to the general public. GSA makes surplus property for sale available on its public auction website and may also sell property through live auctions, fixed price or negotiated sales, sealed bids, or spot bids. Generally, proceeds from the sale of surplus property are deposited into the U.S. Treasury, less the cost of disposition. Items that do not sell may be recycled, abandoned, or destroyed if they have no value or the estimated cost of their continued care and handling exceeds the estimated proceeds from sale. <2.1. Disposal by Sale or Exchange to Purchase Replacement Items> At times, agencies may need to replace personal property that is not excess or surplus. This occurs when an agency still needs a certain category of property to achieve its mission, but some items are no longer able to adequately perform the job, perhaps due to their age or lack of needed functionality. Vehicles that are near the end of their useful lives fit into this category, as does aging medical equipment. In this instance, executive branch agencies have the authority to exchange (trade in) or sell the old property and apply the exchange allowance or sales proceeds toward the purchase of similar items. The purpose of this authority is to reduce the cost of acquisition, and agencies are required to choose the option exchange or sale that results in the greatest savings. An agency that opts to sell personal property must use the proceeds to purchase a new similar item within one year. Federal agencies generated $3.1 billion in exchange allowances and sales proceeds that were applied to new purchases between FY2013 and FY2017. Of this total, sales accounted for $2.9 billion and exchanges accounted for $275 million. GSA accounted for 60% of the total allowances and sales proceeds ($1.9 billion), while four other agencies the Departments of Homeland Security, Agriculture, Defense, and the Interior together accounted for $934 million. Vehicle sales were the primary source of exchange allowances and sales proceeds, accounting for 71% ($2.6 billion) of the total. <3. Weaknesses in the Disposal Process> While GSA plays a central role in screening and transferring excess personal property, each executive agency is responsible for continually surveying its own inventory and declaring unneeded property "excess" in a timely manner. When agencies do not fulfill these duties, government resources are not used efficiently, and public funds may be expended unnecessarily. A federal agency may purchase items that could have been obtained at no charge from another agency's excess inventory, for example, or a state government may expend public funds to acquire equipment it could have obtained for free from a federal warehouse. In addition, agencies did not always obtain the maximum exchange allowance or sales price when replacement items were needed. The variance in agency disposal policies and practices likely contributes to wasteful and inefficient use of federal personal property. <3.1. Lack of Accountability> Generally, agencies designate officials, known as property custodians, who are responsible for personal property management and disposal. A 2018 report by the Government Accountability Office (GAO) examined the personal property policies of five agencies and found that while all five had broad policies that required ongoing surveys of personal property, only one specified that their custodians were responsible for doing so. A separate audit of the Environmental Protection Agency (EPA) found that while EPA's policies required annual inventories, the agency did not provide adequate oversight of the contractors hired to perform them. As a consequence, the annual inventories were inaccurate and incomplete. When surveys are performed irregularly, or records are of poor quality, an agency is at risk of holding onto excess property that could be better used elsewhere. An audit of the Federal Aviation Administration (FAA) found that the agency's organizational structure created problems for implementing the continual survey requirement. Personal property policies at FAA were developed by the Aviation Logistics Organization, but the custodians who were supposed to follow those policies were not subject to the organization's authority. Moreover, auditors found that custodians were not evaluated by their direct supervisor on how well they performed their personal property duties. This lack of oversight may have contributed to the auditor's findings that FAA property custodians did not perform required inventories or maintain accurate records of equipment. Of the FAA's 2,330 cost centers (subdivisions with personal property), nearly 8% had never been inventoried, resulting in thousands of items worth tens of millions of dollars being retained by the agency regardless of FAA's need for them. The misalignment of policies and internal structure resulted in the agency potentially holding onto property it did not need, thereby limiting opportunities for other entities to access these assets and driving up storage costs unnecessarily. <3.2. Lack of Adequate Guidance> In some cases, agencies did not provide sufficiently detailed guidance on the types of personal property to survey. Agencies typically divide their inventories into three accounting categories: 1. Capitalized property generally has the highest original acquisition cost. Property in this category has the longest useful expected life and is depreciated and reported as an asset in an agency's annual financial statement. An example would be equipment with an original acquisition cost above the capitalization threshold. 2. Accountable property is nonexpendable personal property with an expected useful life of two years or longer that an agency decides should be tracked in its property records based on its original acquisition cost and sensitivity. Agencies typically record capitalized property as accountable property because of its high acquisition costs, while laptops are considered accountable because of the sensitive information they may contain, regardless of original cost. Agency vehicles that fall below the capitalization threshold are typically considered accountable property. 3. Non-accountable property falls below the accountable property threshold and is not considered sensitive. Desks and chairs are common examples of non-accountable property, provided they fall below the accountability threshold. Agencies are allowed to set their own personal property capitalization and accountability thresholds, which vary across the government. EPA, for example, set its capitalization threshold at $25,000, while the FAA set its capitalization threshold at $100,000. Similarly, the Department of Housing and Urban Development set its threshold for accountable property at $5,000, while GSA set its accountable property threshold at $10,000. The variation in thresholds leads to a variation in inventory management, particularly as it relates to disposal: Agencies often do not track or assess the need for non-accountable items. Some agencies argue that the amount of manpower needed to track low-value items is too high to make it cost-effective, while others say it is not required by law, so they choose not to do so. OMB has taken the position that assessing non-accountable property is necessary for effective internal controls. For example, tracking non-accountable property may prevent unnecessary purchases. After an audit of EPA's Landover warehouse determined that the property stored there had not been fully assessed for need, the agency inventoried thousands of items of non-accountable personal property and transferred $90,000 in excess furniture and carpet to its Research Triangle Park campus and $137,000 in property to another federal agency. Additional cost savings may result from the reduced need for warehouse space. Auditors estimated that disposing of excess non-accountable property at EPA's Landover and Cincinnati warehouses could save $5.8 million in warehouse lease costs over a five-year period. Agencies may also lack policies that provide custodians with criteria for determining whether personal property is excess, which can result in inconsistent practices across the government. One exception is the Internal Revenue Service, which provides guidance on assessing need, such as whether an item is still needed in its current location and, if not, whether it would be cost-effective to transport the item to another location. Without clear criteria, it is possible that custodians have deemed property as non-excess that may, in fact, be unneeded by the agency thereby reducing disposals and increasing the likelihood that agencies will make unnecessary purchases and rent more warehouse space than they would have if the inventory had been performed with more specific guidance. <3.3. Lack of Timely Reporting> One consequence of failing to regularly survey accountable and non-accountable property is that agencies do not report excess property in a timely manner. Some unneeded property may sit in warehouses for long periods of time. EPA, for example, kept multiple refrigerators in storage at its Landover warehouse for seven years. During that time, the agency expended funds unnecessarily on storage space for the refrigerators and lost the opportunity to dispose of them to another government agency or nonprofit that serves the public. In many cases, agencies do not report excess property until a "triggering event" forces the issue, such as an office relocation, consolidation, or renovation. Typically, agencies try establish a plan to dispose of items such as unneeded furniture or computers during a triggering event to make the transition easier and to make space for new property that may be part of the move. A disposal plan sets milestones, identifies the staff and other resources needed, and gives specific directions on what needs to be done to complete disposition in a timely manner. The amount of excess personal property identified during a triggering event may grow as some agencies implement OMB's Reduce the Footprint (RTF) initiative. In an effort to decrease the amount of space federal agencies own and lease, RTF requires each agency subject to the Chief Financial Officers Act to submit an annual Real Property Efficiency Plan. The plan must include new design standards for employee workstations. GSA, for example, reduced its standard for usable square feet in new or renovated offices from 150 per person to 136. (Agencies do not have to retrofit existing buildings under RTF. ) When agencies relocate or renovate, their existing furniture may not fit the reduced space allotments, thereby rendering hundreds or thousands of items of personal property excess at one time. Without careful planning, agencies may find it challenging to dispose of their existing furniture and acquire new furniture during a transition. <3.4. Exchange/Sale Authority> As noted, executive agencies have the authority to exchange (trade in) or sell used property and apply the exchange allowance or sales proceeds to the cost of acquiring replacement items. According to federal auditors, not all agencies use this authority to maximize the benefits it affords, and many agencies use the authority sparingly, if at all. Knowledge of how to use the exchange/sale authority varies across and within agencies especially when an agency has a decentralized disposal process. Each of the 172 medical centers of the Department of Veterans Affairs (VA), for example, monitors its needs and orders replacement equipment, but VA officials reported that the exchange/sale process was not well understood in some centers. As a consequence, some medical centers opted to exchange equipment that would have generated a greater monetary return had it been sold, while others were not clear on whether they were permitted to sell equipment when exchange was also an option. Some agencies may need additional guidance or training to facilitate greater use of the exchange/sale authority. GAO found that of the 27 agencies that reported exchange/sale transactions from FY2013 through FY2017, a subset of 10 agencies used the authority on a limited basis. While these agencies may not use the authority because they do not have suitable property to sell or exchange, GSA officials said they believe that a primary factor is lack of knowledge. Similarly, a VA official stated that if VA medical centers had better guidance, their use of the exchange/sale authority might increase. Auditors have found that some agencies, notably GSA and VA, have not monitored and reported their exchange/sale transactions correctly. GSA officials said they do not know the extent to which internal offices have, or should be using, the authority. Officials stated that the lack of monitoring has been due to the low level of priority that GSA has placed on personal property management in general. VA officials conducted limited monitoring of their use of the authority, and audits found widespread reporting errors. One medical center reported about 1,000 sales transactions under the exchange/sale authority all of which were incorrect. The medical center had mistaken sales of surplus property for sales of needed (non-excess, non-surplus) property that was being replaced. Another medical center reported no exchange transaction, but auditors found several, including one valued at $500,000. It may be difficult to assess the effectiveness of the authority including the savings it generates when monitoring is limited and reporting is inaccurate. <4. Personal Property Legislation> The Personal Property Act ( P.L. 115-419 ) was written to address the inconsistent standards in agency inventory practices and thresholds. To that end, Section 2 of the legislation requires the GSA administrator to issue guidance that will direct agencies to conduct an annual inventory and assessment of capitalized personal property to identify which items, if any, are no longer needed and should be declared excess. The guidance also requires agencies to regularly inventory and assess their accountable personal property. The evaluation of need for both capitalized and accountable personal property must consider: the age and condition of the personal property, the extent to which the executive agency uses the personal property, the extent to which the mission of the executive agency is dependent on the personal property, and any other aspect of the personal property that the administrator determines is useful or necessary for the executive agency to evaluate. Section 2 further requires agencies to establish capitalization and accountability thresholds for acquisitions of personal property. Agencies are also required to establish and maintain records of accountable property in a centralized system. The Personal Property Act was enacted in January 2019. GSA has not issued the required guidance as of the date of this report. <4.1. Analysis> The Personal Property Act is designed to address several weaknesses in the property disposal process. It requires GSA to give better guidance to agencies for inventorying and assessing their capitalized and accountable property. A concern repeatedly voiced by agency officials and auditors was the lack of clear direction on how to set up an effective property oversight program, particularly with regard to assessing items for continued need. The determination that property is in excess initiates the disposal process, so improving agency assessment policies and practices may reduce the amount of unneeded property that agencies store and result in cost savings for warehouse space. By moving more excess property through the screening process, federal agencies, state and local governments, and nonprofits may have more opportunities to acquire personal property items at no cost, thereby reducing their expenditures as well. While the new guidance requirements do not extend to non-accountable property, they focus on the highest-value items in an agency's inventory. Given that some agencies may lack the manpower to perform ongoing surveys of all of their property, emphasizing management of capitalized and accountable property may be seen as a cost-effective use of limited resources. The Personal Property Act also requires GSA to set capitalization and accountability thresholds. Currently, agency thresholds may vary widely. As a result, agencies may treat the same property differently. An item that cost $7,500 might be above the accountability threshold at one agency and be subject to more stringent inventory and assessment rules of the Personal Property Act but below the threshold at another. Similarly, capitalized property must be recorded on an agency's balance sheet as an asset. The higher the capitalization threshold, the fewer assets are reported, which in turn affects the representation of the agency's financial position. Capitalized assets must also be depreciated that is, the cost of an asset must be allocated to the programs and operating periods benefitting from use of the asset. By understating the number of assets an agency owns, high capitalization thresholds also reduce depreciation data, and the full cost of programs and operations may not be captured. Standardizing capitalization thresholds may improve agency financial reporting and program management by capturing a larger number of personal property assets. Standardizing accountability thresholds may also result in more consistent treatment of items with the same acquisition cost. Agencies with accountability thresholds above the level that GSA establishes may be required to expand the scope of their inventory surveys. If so, they may increase the number of items determined to be excess, resulting in reduced expenditures for storage, among other potential benefits. <5. Personal Property Disposal and the Federal Assets Sale and Transfer Act> The disposal of excess personal property is often initiated by "triggering events," such as relocation, reconfiguration, or consolidation. In such cases, agencies appear to be unaware of the full scope of excess property in their inventories until they are tasked with moving or replacing it. If an agency is unprepared to manage the disposal of excess property during a transition to new space, whether temporary or permanent, it may cause delays or increase the costs associated with the move. In August 2017, for example, GSA began the process of reconfiguring federally leased space at 26 Federal Plaza in New York City. The project, which has an estimated completion date of February 2020, required GSA to relocate several federal agencies to One World Trade Center during the reconfiguration. GSA did not have a plan to dispose of the excess personal property left behind at 26 Federal Plaza. Without a disposal plan in place, GSA did not ensure that sufficient staff were available to adequately manage the disposition of so many items. Moreover, GSA did not follow the required screening process in which unneeded property is first offered to federal agencies for 21 days, then offered to SASPs, then for put up for sale to the public, then considered for abandonment or destruction. Instead, GSA primarily relied on informal "word of mouth" communication with other federal agencies for disposition. The disposal process was further delayed by inadequate personal property records, which forced the relocated agencies to reassess their inventories. One year after the relocation was complete, "a large volume of excess personal property" remained at 26 Federal Plaza. This may delay the reconfiguration and increase the costs associated with the project. The issues observed during the 26 Federal Plaza reconfiguration may be experienced on a broader scale during implementation of the Federal Assets Sale and Transfer Act of 2016 (FASTA, P.L. 114-287 ), a sweeping piece of real property management legislation. FASTA requires federal landholding agencies to submit recommendations for the sale, transfer, conveyance, renovation, reconfiguration, or consolidation of unneeded real property. These recommendations are submitted to the GSA administrator, who reviews and edits them and then passes a government-wide list of proposals on to a newly established Public Buildings Reform Board. The board examines GSA's list of proposals, holds hearings on them, solicits additional proposals from the public, and compiles a revised list of recommendations to send to the director of OMB, who may approve or reject the board's recommendations in whole. If they are rejected, the board may resubmit its recommendations after reviewing the OMB director's explanation for the rejection. If the OMB Director approves either the initial or revised list, agencies must begin planning the implementation of all of the recommendations. Initial steps toward implementation must begin within two years and be completed within six years. The FASTA process could result in dozens perhaps hundreds of real property transitions taking place during the same time period. Many executive agencies may not have accurate inventories of their personal property, may not know the volume of excess inventory they may be required to dispose of, or may lack the resources to manage the disposal of excess personal property at multiple locations. Without adequate preparation, agencies may not be able to dispose of excess personal property in a timely manner, thereby disrupting the transition schedule. One possible way to mitigate these concerns would be for OMB and GSA to develop implementation guidance specific to managing personal property. The guidance might require agencies to prioritize property inventories at sites included in their FASTA recommendations and incorporate personal property disposal into their transition plans. In addition, the guidance might require agencies to request assistance from GSA if they lack the expertise or manpower to effectively dispose of excess property at given sites. In the future, policymakers might examine the potential benefits of expanding the Federal Real Property Profile (FRPP) to include personal property as well. The FRPP is a comprehensive, publicly accessible database of federally owned and leased buildings, structures, and land. Among other things, it provides data on the size and status of each property, such as square footage and whether it is needed, excess, or surplus. When populated with accurate data, the FRPP enhances the transparency of the federal real property inventory, facilitates policy analysis, and enables the public to search for information about properties that are currently or may become available for conveyance or purchase. Arguably, adding personal property data to the FRPP may provide similar benefits. An expanded FRPP could include agency inventories of capitalized property, thereby giving the public and policymakers a single source for data on much of the government's most expensive plant, property, and equipment investments. The Personal Property Act requires agencies to have complete inventories of accountable property. Typically, accountable property (e.g., cars, medical equipment) has a shorter useful life than capitalized property and becomes excess sooner. By including data on accountable property, an expanded FRPP might enable policymakers to better evaluate the funding needs of agencies that face aging assets. It might also assist certain government agencies and nonprofits, as they may use the information to estimate when accountable federal property might be declared excess and therefore become available to them. The expanded FRPP might also include information on excess property, although it would need to be updated regularly to reflect the movement of property through the disposal process. Publishing data on excess property in this manner might help hold agencies accountable for completing their inventories and ensuring that disposal is completed in a timely manner.

Federal personal property is generally defined as anything the government owns that is not real property. Common examples of personal property include furniture, cars, laptops, scientific equipment, and machinery. Sound management of the government's personal property inventory—which is valued at more than $1 trillion—is necessary to mitigate the risk of waste, fraud, and loss. Federal statutes and regulations require agencies to regularly survey their personal property inventories and dispose of items they no longer need (excess personal property). When an agency identifies excess property, it must first offer it at no charge to other federal agencies. If excess property is not transferred to another federal agency, it is then declared "surplus" and may be transferred to a State Agency for Surplus Property (SASP) for distribution to state and local governments and nonprofits. Surplus personal property that is not donated may be sold to the public. Unsold surplus property may be abandoned or destroyed (including through recycling). Personal property surveys may identify items that are still needed, are near the end of their useful lives, and need to be replaced. Agencies have the authority to exchange (trade in) or sell the items that need to be replaced and apply the credit (from an exchange) or sales proceeds to the acquisition of similar items. The method of replacement chosen—exchange or sale—should maximize the potential offset to the cost of acquiring new items. The government may realize cost savings when agencies regularly survey their inventories and dispose of excess and surplus property in a timely manner. Federal expenditures may be reduced when one agency's excess personal property is used to fill another agency's need and when replacement items are acquired in the most cost-effective manner. Federal expenditures may be further reduced if, as a result of disposing of unneeded items, agencies are able to decrease the amount of space needed to store personal property. Similarly, state and local governments and nonprofits may be able to reduce their expenditures if they obtain surplus federal personal property at no charge. According to federal auditors, agencies do not consistently fulfill the government's personal property disposal requirements. Some agencies do not regularly survey their inventories—often because they have not identified who is responsible for implementing the surveys. Agencies have been allowed to establish their own threshold for accountable personal property—items with longer useful lives and higher acquisition costs—below which items are not tracked. As a consequence, some agencies have set accountability thresholds higher than others, thereby excluding more items from regular monitoring and disposition. Agencies have also been able to set their own thresholds for capitalized personal property, which are the items with the longest lives and highest acquisition costs. Capitalized personal property is subject to additional reporting and evaluation requirements, so higher thresholds reduce the scope of oversight. Similarly, some agencies do not identify and dispose of unneeded personal property on an ongoing basis. Rather, they may wait until they face a "triggering event," such as an office relocation or other real property transition. Without adequate planning for these events, the disposal of unneeded personal property could potentially delay the project and increase costs. Many agencies are unclear on how to use their exchange/sale authorities and often do not choose the option that would provide the greatest potential financial benefits to the government. The Federal Personal Property Management Act of 2018 ( P.L. 115-419 ) seeks to address these inconsistent policies and practices. The legislation requires the General Services Administration (GSA) to establish government-wide capitalization and accountability thresholds. It also requires GSA to issue guidance that directs agencies to conduct an annual inventory and assessment of capitalized personal property to identify which items, if any, are no longer needed and should be declared excess. The guidance must also require agencies to regularly inventory and assess their accountable personal property. Implementation of the Federal Assets Sale and Transfer Act of 2017 (FASTA; P.L. 114-287 ) may result in the disposal of dozens or hundreds of government buildings within the same time frame. FASTA requires agencies to work with GSA to develop a list of recommended real property projects, including the sale, conveyance, consolidation, and reconfiguration of space. GSA submits the recommendations to a newly established Public Buildings Reform Board, which reviews them and submits a revised list to the Office of Management and Budget (OMB) director. If the OMB director approves of the list in its entirety, then all of the recommendations must be implemented within six years. Incorporating personal property plans into the FASTA process may mitigate the risk of delays resulting from the disposition of excess items.

crs_R46335

crs_R46335_0

<1. Introduction> The Saltonstall-Kennedy (S-K) Act of 1954 (15 U.S.C. 713c-3) established a fund (known as the S-K fund) to support U.S. fisheries development and research. Funding originates from a transfer by the Secretary of Agriculture into the Promote and Develop American Fisheries Products and Research Pertaining to American Fisheries Fund (P&D account). The P&D account is administered by the National Marine Fisheries Service (NMFS) of the National Oceanic and Atmospheric Administration (NOAA) in the Department of Commerce. Transfers of revenue into the P&D account have grown steadily from $26.7 million in 1980 to $182.8 million in 2020. Currently, the bulk of P&D account revenue is transferred into the Operations, Research, and Faculties (ORF) account, which supports fisheries science and management administered by NMFS. The remaining funds support the Saltonstall-Kennedy Grant Program (S-K Grant Program) and sometimes the National Program, which focus on fishing industry research and development projects. Historically, the use of the S-K fund has evolved with changing fisheries management institutions and changing needs of U.S. fisheries. Congress is continuing to consider whether current funding from the P&D account meets the needs of U.S. fisheries and the U.S. fishing industry. Some have questioned whether the U.S. commercial fishing industry receives sufficient opportunities to provide input into the S-K competitive grant process. Due in part to what they perceive as a lack of industry input, some critics assert that NMFS has not distributed funding in accordance with the primary purposes of the S-K Act, such as supporting projects related to the marketing of fish. Another concern is the allocation of funds, and specifically whether there is a need for more financial support of S-K competitive grants than for funding NMFS fisheries science and management activities in the ORF account. However, if funding were reallocated to provide greater support of the S-K Grant Program, Congress may need to consider implications of the likely decrease in funds that would be transferred to ORF from the P&D account to support NMFS fishery research and management activities. Figure 1 summarizes the flow of funding from the P&D account into NOAA and the S-K program. <2. The Saltonstall-Kennedy Act> <2.1. Current Provisions> The S-K Act requires the Secretary of Agriculture to transfer 30% of duties on marine products collected under the so-called Section 32 Program to the Secretary of Commerce. These funds are transferred into the P&D account and made available to NMFS. Currently, the uses of S-K funds as specified in 15 U.S.C. 713c-3 include the following: providing grants in support of fisheries research and development projects under subsection (c), implementing a national fisheries research and development program under subsection (d), implementing the Northwest Atlantic Ocean Fisheries Reinvestment Program, and funding the federal share of a fisheries capacity reduction fund. The S-K Act requires the Secretary of Commerce to use no less than 60% of funds to make direct industry-assistance grants pursuant to subsection (c). Subsection (c) refers to topics that may be addressed by research and development grants, including but not limited to harvesting, processing, marketing, and associated infrastructures. Subsection (c) also identifies the terms and conditions of grant awards. The S-K Act requires the balance of S-K funds to be allocated to finance NMFS activities that support development of U.S. fisheries pursuant to subsection (d). Subsection (d) refers to a national fisheries research and development program (including but not limited to harvesting, processing, marketing, and associated infrastructures), if not adequately covered by projects assisted under subsection (c) of this section or as the Secretary deems appropriate. <2.2. History of the Saltonstall-Kennedy Act> In 1935, Congress passed legislation to provide financial support for domestic agricultural commodity markets. Section 32 of the Act of August 24, 1935, provided a permanent appropriation equal to 30% of gross receipts from all duties collected under customs laws. The act authorized the Secretary of Agriculture to use these funds to support exports and domestic consumption of agricultural commodities. The Act of August 11, 1939, authorized the Secretary of Agriculture to transfer up to $1.5 million from funds collected under Section 32 to support the fishing industry. Funds were transferred to the Federal Surplus Commodities Corporation to purchase and distribute surplus fishery products and to the Secretary of the Interior to promote markets for fishery products of domestic origin. Table 1 provides a history of legislative changes to the S-K Act. In 1954, the S-K Act amended the Act of August 11, 1939, to provide additional funding from Section 32 funds to support the U.S. fishing industry. The S-K Act authorized the transfer from the Secretary of Agriculture to the Secretary of the Interior, from the larger Section 32 account's funding, an amount equal to 30% of gross receipts from duties collected on fishery products. These funds were maintained in a separate account for use by the Secretary of the Interior to support the flow of fishery products in commerce, develop and increase markets for fishery products, and conduct research. Annual expenditures from the fund were limited to $3 million, and the balance of the fund was not allowed to exceed $5 million at the end of any year. In 1956, the S-K Act was amended to remove the limit on annual expenditures from the fund. The S-K Act also authorized the Secretary of the Interior to appoint a fishing industry advisory committee to provide guidance on the formulation of policy, rules, and regulations pertaining to requests for assistance, and other matters. In 1976, the Fishery Conservation and Management Act (FCMA; P.L. 94-265 ) established a 200-nautical mile fishery conservation zone (FCZ) and brought marine fisheries within the FCZ under domestic control. Foreign fishing was allowed to continue in the FCZ, but the domestic fishing industry was granted priority fishing rights under the FCMA. In the following years, U.S. policy emphasized development of domestic fisheries and replacement of foreign fishing with domestic fishing in the FCZ. According to the Government Accountability Office, until 1979, NMFS used nearly all S-K funds to support fisheries management and development activities; it granted only small amounts to the fishing industry for development projects. In 1979, likely because of growing industry support of domestic fisheries development, NMFS made available approximately $5.3 million of S-K funds to regional fisheries development foundations, universities, private industry, and state and local governments. In 1980, Congress formally authorized the current competitive S-K Grant Program in Section 210 of the American Fisheries Promotion Act (AFPA; P.L. 96-561 ). The AFPA directed the Secretary of Commerce to use at least 50% of S-K funds for the S-K Grant Program and the balance of funds for a National Program. Both programs supported research and development efforts to address areas such as harvesting, processing, marketing, and related infrastructures. By 1980, the transfer from the U.S. Department of Agriculture (USDA) had grown to $26.7 million ( Table A-1 ). The AFPA also formally transferred responsibility for administering the fund from the Secretary of the Interior to the Secretary of Commerce. The House committee report accompanying the AFPA noted that the definition of fishery includes recreational fishing and that recreational projects would be eligible for grants. The AFPA also removed a section that established the S-K fishing industry advisory committee; the advisory committee had been previously terminated pursuant to the Federal Advisory Committee Act (P.L. 92-463). In subsequent years, Congress made additional changes to the allocation and use of the S-K fund ( Table 1 ). The Highway Improvement Act of 1982 ( P.L. 97-424 ) increased the share of funds used for the competitive grant program from 50% to 60%. In the following years, potential uses of the fund were broadened to include the Fisheries Promotion Fund ( P.L. 99-659 ), the Northwest Atlantic Ocean Fisheries Reinvestment Fund ( P.L. 102-567 ), and the federal share of a fishing capacity reduction program ( P.L. 104-297 ). Congress established the Fisheries Promotion Fund to support domestic and international markets for domestically produced seafood. A portion of S-K funds was transferred to the fund from FY1987 to FY1991 for this purpose ( Table A-1 ). <2.3. Revenue> The revenues that are transferred into the P&D account from USDA are derived from duties on fishery products, "including fish, shellfish, mollusks, crustaceans, aquatic plants and animals, and any products thereof, including processed and manufactured products." The P&D account is a mandatory fund that requires no periodic reauthorization or appropriation. Transfers from USDA to NOAA's P&D account have steadily increased from $26.7 million in 1980 to $182.8 million in 2020 ( Figure 2 ). In CY2017, approximately 77% of revenues were from duties collected on imports of nonedible marine products, including jewelry, ink, various chemicals, and skins. The remaining 23% of revenues were from duties on imports of edible seafood products. Tariffs on edible fish products have been reduced or eliminated for many seafood products, and most remaining duties are collected on canned products such as tuna or processed products such as fish sticks. In CY2017, most duties were collected on imports from India ($89.9 million), China ($86.2 million), Thailand ($79.8 million), Italy ($53.2 million), and France ($36.2 million). <2.4. Use of Funds> <2.4.1. Operations, Research, and Facilities Account> Congress has allocated a growing portion of revenue in the P&D account to the ORF account rather than funding the S-K Grant Program as prescribed by the S-K Act. The transfer to the ORF account has ranged from $5 million, or 29% of the P&D account in 1979, to over $130 million in the five most recent years (FY2016-FY2020), which is more than 90% of the annual transfer into the P&D account ( Table 2 ). ORF funds are used "to support fisheries research and management activities including the analysis and decision-making that supports ecosystem approaches to management." Often the allocation of most funds to the OFR account limits the funding that is available for the specified purposes of the S-K Act. In the last three fiscal years (FY2018-FY2020), the NOAA budget request proposed that all P&D account funding be transferred to the ORF account in support of NMFS activities. However, the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ), restricted the use of P&D funds that are transferred into the ORF account. It limited this funding to fisheries activities related to cooperative research, annual stock assessments, survey and monitoring projects, interjurisdictional fisheries grants, and fish information networks. In subsequent years, agency budget requests have reflected this intent by identifying similar areas, and Congress has continued to include similar language in appropriations laws and accompanying Senate committee reports. <2.4.2. Remaining Funding> In most years, the majority of the funds that remain in the P&D account after the transfer into the ORF account have been used for the competitive S-K Grant Program as described in subsection (c) of the S-K Act and the National Program as described in subsection (d) ( Table 2 ). The amount of remaining funding for the S-K Grant Program has varied considerably from year to year, ranging from no funding in FY2011 and FY2012, when Congress did not leave any remaining funding for S-K program, to its highest level of $29.5 million in FY2009 ( Table 2 ). The S-K Act directs the Secretary of Commerce to use no less than 60% of funds for fisheries research and development grants pursuant to subsection (c). The Secretary also is required to use the remaining funds to finance NMFS activities directly related to U.S. fisheries development, as outlined in subsection (d). Since 1982, S-K grant funding has been less than 30% of total transfers from USDA, and it has been significantly lower in most years. In many years, Congress did not fund the National Program or provided a small portion of the remaining funds for that purpose. Historically, financial support also was provided for the Fisheries Promotion Fund, which was funded between $750,000 and $3 million from FY1987 to FY1990. ( Table A-1 ). No funding has been provided for the Fisheries Promotion Fund since 1991. From FY2003 to FY2006, most funding remaining after the ORF transfer was used for congressionally directed projects that supported several regional seafood marketing initiatives ( Table A-1 ). Annual S-K reports and other sources indicate that S-K funds have not been used for either the Northwest Atlantic Ocean Fisheries Reinvestment fund or the fishing capacity reduction program. <2.4.3. Saltonstall-Kennedy Grant Program> According to NMFS, the S-K program's general goals are to fund projects that address the needs of fishing communities, optimize economic benefits by building and maintaining sustainable fisheries, and increase other opportunities to keep working waterfronts viable. Historically, examples of areas funded by the S-K Grant Program have included enhancing markets for fishery products, examining fishery management options, and developing more efficient and selective fishing gear. Projects often have focused on both state and federal marine commercial fisheries, but other sectors such as aquaculture and recreational fishing also have been eligible for and received support. NMFS solicits proposals as a federal funding opportunity on the federal grants website, which includes funding priorities, application requirements, and proposal evaluation criteria. Funding priorities are developed in coordination with regional fishery management councils, interstate fishery commissions, NMFS science centers, and NMFS regional offices. For example in 2020, S-K program priorities are seafood promotion, development, and marketing, and science or technology that promotes sustainable U.S. seafood production and harvesting. The review process includes (1) pre-proposal review, (2) technical review and ranking, (3) panel review and ranking, and (4) grant selection. Pre-proposals undergo an administrative review by NOAA staff, a review by subject matter experts, and S-K program evaluation. Full review includes administrative screening; technical review by federal, public, and private sector experts; and funding recommendations by program and NMFS leadership. NMFS also may solicit comments and evaluation from a constituent review panel composed of three or more representatives chosen by the NMFS assistant administrator of fisheries. Funding of proposals is recommended by the S-K program manager; constituent panel ranking (if applicable); and input from NMFS regional directors, science center directors, and office directors. The agency selecting official, the NMFS assistant administrator, determines which proposals will be funded. The decision is based on the order of the proposals' ranking and other considerations, such as availability of funding, balance and distribution of funds, and duplication. Recently, NMFS has been considering whether the program and fishing industry would benefit from placing greater emphasis on monitoring approved projects and disseminating results. During 2019, feedback sessions were arranged with regional fishery management councils to solicit constituents' views on how to improve the dissemination and use of results from funded projects. <3. Issues for Congress> Some fishing industry representatives have questioned whether the U.S. commercial fishing industry and fishing communities could benefit from greater direct support from S-K funding. Two of the main concerns have been whether the competitive grant process should include greater fishing industry input and whether a greater portion of P&D funds should be allocated to the annual S-K Grant Program. Some assert that NMFS decides by its own criteria which programs receive grants and that in some cases the fishing industry's priorities do not match those of NMFS. They contend that broader, more direct fishing industry participation is needed to inform the process of identifying the needs and priorities of grant funding. Another concern has been whether a greater portion of P&D funding should be allocated to the S-K Grant Program. Some contend that Congress, as reflected in statute, intended to provide at least 60% of funds to the S-K Grant Program and remaining funding to the National Program for fishing industry research and development. However, shifting significant funding from current NMFS activities may prompt questions about whether additional discretionary funding would be forthcoming to support other NMFS functions, such as data collection and fish population assessments. <3.1. Congressional Actions> <3.1.1. Funding Allocation> Several bills were introduced during the 112 th , 113 th , and 114 th Congresses that would have significantly changed the allocation of P&D funding. Similar versions of the Fisheries Investment and Regulatory Relief Act in each of these Congresses would have allocated funding to fisheries management regions and would have established a regional fisheries grant program. Under these bills, each regional fishery management council would have established a fishery investment committee, which would focus resources on strengthening regional fisheries management. Each fishery investment committee would have developed a regional fishery investment plan; reviewed grant applications and projects to implement regional fishery investment plans; and made recommendations on grant applications. The regional fishery investment plans would have identified research, conservation, and management needs, as well as corresponding actions to rebuild and maintain fish populations and associated fisheries. Each regional investment plan would have been required to include topics related to supporting stock surveys, stock assessments, and cooperative fishery research; improving the collection and accuracy of recreational and commercial data; analyzing social and economic impacts of fishery management decisions; providing financial assistance and investment for fishermen and fishing communities; developing methods or technologies to improve the quality and value of landings; researching and developing conservation engineering technologies; and restoring and protecting fish habitat. Investment plans would have been reviewed by the Secretary of Commerce to ensure consistency with the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1801 et seq.). Limited funding also would have been provided for administrative costs of the grant program and for the development and implementation of investment plans. Under these versions of the Fisheries Investment and Regulatory Relief Act, the Secretary of Commerce also would have established a regional fisheries grant program to provide funds to advance the regional priorities identified in the regional fishery investment plans. The Secretary would have awarded grants only to projects that would implement regional fishery investment plans and to projects recommended by respective regional fishery investment committees and approved by each regional fishery management council. The Secretary would have been required to allocate 70% of funds from the P&D account to the eight council regions. Half of this funding would have been allocated equally among the councils, and half would have been distributed according to the combined economic impact of recreational and commercial fisheries in each region. The Secretary also would have been required to allocate 20% of funds for a national fisheries investment program that would support rebuilding and maintaining fish populations and promote sustainable fisheries. Funding would have been divided equally among five general areas: (1) regional fisheries commissions; (2) seafood promotion; (3) fisheries management; (4) fisheries disasters; and (5) other needs, including highly migratory species and international fisheries. Each of the bills would have limited the transfer of ORF funding from the P&D account to 10% of receipts. The legislation also included a provision to provide funding to review regulations and procedures used to implement management under the Magnuson-Stevens Fishery Conservation and Management Act and to make recommendations to streamline regulations and incorporate new information into the management process. <3.1.2. Stopping the Transfer to the Operations, Research, and Facilities Account> In the 114 th Congress, a section of the Magnuson-Stevens Fishery Conservation and Management Reauthorization Act of 2014 ( S. 2991 ) would have attempted to stop the transfer of P&D funds to the ORF account. According to Section 205 of S. 2991 , it would not be in order in the Senate or in the House of Representatives to consider any bill, resolution, amendment, or conference report that would reduce any amount in the fund (P&D account). This change in the Senate and House rules would have allowed any Senator or Representative to stop the transfer of P&D funds to the ORF discretionary account by making a point of order that a rule is being violated. No further action was taken following the introduction of S. 2991 . <3.2. American Fisheries Advisory Committee Act> In the 116 th Congress, identical versions of the American Fisheries Advisory Committee Act ( S. 494 and H.R. 1218 ) were reported or ordered reported from the committees of jurisdiction in the Senate and the House. The bills would establish an American fisheries advisory committee and would change the process for awarding S-K competitive grants. The committee would identify the needs of the seafood industry; develop requests for proposals; review grant applications; and select grant applications for approval. Currently, NMFS is responsible for these functions, and NMFS considers industry input during the selection process. Both bills also would expand the specified purposes of fisheries research and development projects by explicitly including projects that focus on fisheries science and recreational fishing. The committee would be composed of representatives from six geographic regions of the United States. The Secretary of Commerce would appoint three members from each region, including (1) an individual with experience as a seafood harvester or processor, (2) an individual with experience in recreational or commercial fishing or growing seafood, and (3) an individual who represents the fisheries science community or the relevant regional fishery management council. The Secretary also would appoint four at-large members, including (1) an individual who has experience in food distribution, marketing, retail, or service; (2) an individual with experience in the recreational fishing industry supply chain; (3) an individual with experience in the commercial fishing industry supply chain; and (4) an individual who is an employee of NMFS with expertise in fisheries research. The committee members would meet twice annually, and meetings would rotate among the six regions. The Secretary of Commerce would identify three or more experts to undertake technical review of grant applications, which would occur prior to committee review. The Secretary also would be required to develop guidance related to technical review, including criteria for elimination of applications that fail to meet a minimum level of technical merit. A grant would not be approved unless the Secretary was satisfied with the applicant's technical and financial capability. Based on the committee's recommendations, the Secretary would evaluate the proposed project according to listed criteria and other criteria the Secretary may require. If the Secretary fails to provide funds to a grant selected by the committee, the Secretary would be required to send a written document to the committee justifying the decision. <3.2.1. Appendix. History of Financing Under the Saltonstall-Kennedy Act>

The Saltonstall-Kennedy (S-K) Act of 1954 (15 U.S.C. §713c-3) established a program to provide financial support for research and development of commercial fisheries. The S-K Act created a fund (known as the S-K fund) that is financed by a permanent appropriation of a portion of import duties on marine products. S-K funds are distributed by the Secretary of Commerce as grants and cooperative agreements to address needs of the U.S. fishing industry, including but not limited to harvesting, processing, marketing, and associated infrastructure. However, Congress allocates most funding to the National Marine Fisheries Service (NMFS) to fund agency activities related to marine fisheries research and management. Some have questioned whether the allocation of S-K funds reflects the original intent of the S-K Act and whether the S-K Grant Program addresses the needs and priorities of the fishing industry. Since its creation, the S-K fund's authorizing language and priorities have evolved with changes to the fishing industry, new or amended federal laws governing fisheries management, and changing federal agency responsibilities. In 1980, the American Fisheries Promotion Act (AFPA) amended the S-K Act to authorize a competitive grant program, known as the Saltonstall-Kennedy Grant Program (S-K Grant Program) and the National Program to support fishing industry research and development projects. Both programs are administered by NMFS, part of the National Oceanic and Atmospheric Administration (NOAA). In the 1980s, the S-K Grant Program focused on fisheries development, but in subsequent years, as U.S. fisheries became fully or overexploited, priorities generally shifted to resource conservation and management. The S-K Grant Program has supported a variety of different projects, such as gear technology research, seafood marketing, aquaculture, and others. The S-K Grant Program is funded by a permanent appropriation of 30% of the previous calendar year's customs receipts from imports of fish and fish products. These funds are transferred into NOAA's Promote and Develop American Fisheries Products and Research Pertaining to American Fisheries Fund (P&D account). Transfers of revenue into the P&D account have grown steadily from $26.7 million in 1980 to $182.8 million in 2020. Congress subsequently transfers most funds into the Operations, Research, and Facilities (ORF) account within NOAA. Congress has directed NMFS to use funds allocated to the ORF account for specific activities including stock assessments, fishing information networks, survey and monitoring projects, cooperative research, and interjurisdictional fisheries. The remaining funds are available for supporting the annual competitive S-K Grant Program and in some cases the National Program. Since the early 1980s, Congress has transferred most P&D account funds into the ORF discretionary account, sometimes leaving little or no funding for the specified purposes of the S-K Act. Some critics have questioned whether funds from the P&D account could be used more effectively by targeting fishing industry needs, as Congress originally intended. For example, in the 112 th , 113 th , and 114 th Congresses, bills were introduced that would have used most S-K funds to establish a regional fisheries grant program. By contrast, some have expressed concerns that if significant funding is shifted away from NMFS fisheries management programs, additional funds would need to be appropriated or activities such as data collection and fish population assessments could be compromised. These NMFS activities provide information and analyses used to manage and conserve fish populations. Some also have questioned whether the S-K Grant Program could be modified to provide the fishing industry with more direct input into the S-K grant process. Currently, NMFS, in consultation with the fishing industry, identifies S-K Grant Program priorities and selects the recipients of S-K grants. Over the last several Congresses, bills have been introduced that would change the procedure for screening, evaluating, and awarding S-K grants. In the 116 th Congress, the American Fisheries Advisory Committee Act ( H.R. 1218 and S. 494 ) would establish an industry advisory committee to identify the needs of the fishing industry, develop requests for proposals, review grant applications, and select grant applications for approval. S. 494 was reported on August 16, 2019, by the Senate Committee on Commerce, Science, and Transportation; on September 18, 2019, H.R. 1218 was ordered to be reported by the House Committee on Natural Resources.

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<1. Introduction> In total, 59 major disasters were declared in calendar year 2018 under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq., henceforth the Stafford Act). As of May 23, 27 major disasters have been declared in calendar year 2019. In addition to these specifically declared disasters, other situations arose that caused disruption to lives, economic resources, and infrastructure. In some of these cases, a Stafford Act declaration may not have been provided or even sought. Together, these incidents, and ongoing recovery efforts from previous disasters, drove a demand for additional federal budgetary resources beyond those provided in regular annual appropriations. This demand is usually reflected in one or more requests by the Administration for supplemental appropriations after the incident (or incidents) have occurred and the need for funding is apparent. The Trump Administration did not make a formal request for supplemental appropriations for disaster assistance for FY2019. However, congressional leadership in both the House and Senate chose to initiate consideration of disaster-related supplemental appropriations at the end of the 115 th Congress. Consideration continued into the 116 th Congress, until a $19.19 billion supplemental appropriations measure was enacted in June 2019. This report provides a legislative history of the Additional Supplemental Appropriations for Disaster Relief Act, 2019 ( P.L. 116-20 ), and provides an overview of some of the issues that often arise with consideration of supplemental disaster assistance appropriations. <2. FY2019 Disaster Supplemental Appropriations> <2.1. 115th Congress> At the beginning of FY2019, several annual appropriations bills remained unresolved. By December 2018, five regular appropriations measures had become law; the activities funded under the remaining seven regular appropriations bills were instead funded under two continuing resolutions (CRs) lasting through December 7, 2018, and December 21, 2018, respectively. Although there had been discussions in some quarters about the need for supplemental appropriations for disaster assistance, no request for such appropriations had been forthcoming from the Administration. The debate on continuing appropriations would provide the first attempted floor vehicle for FY2019 disaster supplemental appropriations. In the Senate, a third CR for FY2019, lasting until February 8, 2019 ( H.R. 695 ) was passed by voice vote on December 19, 2018. The House subsequently considered and amended the bill the following day, adding additional funding, including $7.8 billion for disaster assistance. The amended measure passed the House by a vote of 217-185, and was sent back to the Senate for further consideration. On December 21, the Senate agreed to a motion to proceed to the consideration of the House-passed bill by a vote of 48-47, with Vice President Pence casting the tie-breaking vote. In the absence of a 60-vote majority to invoke cloture, H.R. 695 was not considered further, and the House and Senate adjourned later that day. When the second CR, providing funding for the agencies, programs, and activities covered by the remaining seven appropriations bills, expired at midnight on December 21, funding lapsed and a partial government shutdown ensued. The 115 th Congress subsequently adjourned sine die on January 3, 2019, and the 116 th Congress took office the same day. <2.2. 116th Congress> On January 8, 2019, House Appropriations Committee Chairwoman Nita Lowey introduced H.R. 268 , a measure that would have provided disaster relief supplemental funding and would have temporarily resolved the partial government shutdown by providing for a continuing resolution through February 8. The House took up the bill on January 16, 2019, and after adopting several amendments, passed the bill by a vote of 237-187 that same day. CBO estimated the discretionary spending in the supplemental appropriations proposal for FY2019 as $14.19 billion. The Senate proceeded to consideration of the bill on January 22, 2019, by unanimous consent. Amendments were offered by Majority Leader McConnell for Senate Appropriations Committee Chairman Richard Shelby ( S.Amdt. 5 ) and Senate Minority Leader Chuck Schumer ( S.Amdt. 6 ) that same day. On January 24, 2019, separate attempts to invoke cloture on both of these alternatives were unsuccessful. The partial government shutdown was subsequently ended through the enactment of a separate measure ( H.J.Res. 28 , providing for continuing appropriations through February 15). On March 14, the Senate returned to consideration of H.R. 268 . Cloture on the motion to proceed to consideration of the measure was invoked in the Senate, 90-10, on March 26, and the measure was laid before the Senate on March 28. On the same day, Chairman Shelby offered a substitute amendment ( S.Amdt. 201 ), providing $13.45 billion for disaster relief. Attempts to invoke cloture on both S.Amdt. 201 and H.R. 268 on April 1, 2019, were unsuccessful. On April 9, 2019, Chairwoman Lowey introduced H.R. 2157 , a supplemental appropriations bill, to provide funding for previous disasters as well as additional disasters that had occurred since the earlier House passage of H.R. 268 . CBO estimated the bill as introduced included $17.31 billion in discretionary spending, a figure which grew to $19.26 billion through floor action. The bill passed the House on May 10, 2019, by a vote of 257-150. A bipartisan, bicameral agreement on FY2019 disaster funding was negotiated prior to Senate consideration. After the Senate agreed to proceed to the consideration of H.R. 268 on May 23, Senator McConnell offered S.Amdt. 250 to H.R. 2157 as a substitute on behalf of Senator Shelby. The amendment was agreed to by unanimous consent, and the amended bill was passed, 85-8. Three attempts to approve the amended bill by unanimous consent were blocked in the House of Representatives while the body was in pro forma session during the Memorial Day recess. The House subsequently considered the bill under suspension of the rules on June 3, and voted 354-58 to approve the measure. The bill was signed into law as P.L. 116-20 on June 6, 2019. Congressional clients seeking further insight into specific programs and provisions in P.L. 116-20 may consult the analysts and background reports listed in CRS Report R45714, FY2019 Disaster Supplemental Appropriations: CRS Experts . <3. Evolution of FY2019 Disaster Supplemental Appropriations> Table 1 details the disaster supplemental appropriations proposed by senior party leadership or enacted for FY2019, organized by appropriations subcommittee of jurisdiction. The table only displays amounts for which an appropriations level was specified in bill text. It does not display amounts for which an indefinite or unspecified amount was appropriated. In addition, the table does not display the amount appropriated to Medicaid in P.L. 116-20 , because a portion of that appropriation was unspecified. Many appropriations provided in P.L. 116-20 are available until expended, which is not uncommon for disaster assistance. However, a number of supplemental appropriations in the measure have a limited term of availability, including Grant funding through the Department of Agriculture in general provisions for several purposes (available through FY2020); National Oceanic and Atmospheric Administration appropriations for "Operations, Research, and Facilities" (through FY2020) and "Procurement, Acquisition and Construction" (through FY2021); U.S. Coast Guard appropriations for "Operations and Support" (through FY2020) and "Procurement, Construction and Improvements" (through FY2023); National Park Service "Historic Preservation Fund" appropriations (through FY2022); Forest Service "Wildland Fire Management" appropriations (through FY2022); Department of Labor Employment and Training Administration "Training and Employment Services" appropriations (through FY2020); Department of Health and Human Services appropriations (through FY2021, except for the "Public Health and Social Services Emergency Fund" which is available through FY2020); Department of Education "Hurricane Education Recovery" appropriations (through FY2020); Military Construction appropriations (through FY2023); and Department of Veterans Affairs "Medical Facilities" appropriations (through FY2023). The last line of Table 1 references CBO's total discretionary score of the bill for FY2019, rather than a total of the elements in the table. <4. Issues in Disaster Relief Appropriations> Since the mid-20 th century, federal law has established a role for the federal government in supporting state and local governments in disaster response and recovery. Congress has the constitutional responsibility to exercise the "power of the purse" in making decisions on funding this role in regular annual appropriations, and through supplemental appropriations when necessary. Traditionally, such funding is requested by the Administration. The development of P.L. 116-20 was uncommon, in that the House and Senate developed this measure in the absence of a formal supplemental appropriations request from the Administration for disaster funding. In the process of exercising this constitutional authority, a number of issues frequently reemerge in congressional debate: The relative timeliness of supplemental appropriations; The proper scope of a supplemental appropriations measure; How exemptions from discretionary budget limits enable investments in disaster relief, and whether such exemptions are properly structured; Proposals to offset some or all of the proposed disaster relief spending; How quickly relief and recovery funding will be made available; How Congress can ensure that the funding provided is not spent on wasteful or fraudulent endeavors. <4.1. Relative Timeliness of Supplemental Appropriations> Congressional offices often express an interest in the average time it has taken for past supplemental disaster assistance appropriations to be enacted after a significant disaster. This seemingly simple question lacks a meaningful answer for a variety of reasons. There are significantly fewer supplemental appropriations measures than declared disasters disaster response and recovery efforts do not always require federal funding beyond regular annual appropriations. Appropriations for recovery from a disaster may come in multiple appropriations measures over the course of several years. Furthermore, a single supplemental appropriations act may meet response or recovery needs generated by multiple disasters. Table 2 illustrates this situation, showing information on Stafford Act major disaster declarations and public laws with supplemental disaster assistance appropriations, by calendar year. From the beginning of 2011 through 2018, there were 977 declarations under the Stafford Act, including 461 major disasters. Of those major disaster declarations, 76 were associated with 17 catastrophic events. In that same time period, there have been 12 public laws enacted with supplemental appropriations expressly for disaster assistance four of which were enacted in calendar years 2017 and 2018. As Table 2 shows, there are many more disaster declarations than supplemental measures. Given the lack of one-to-one alignment, the time from a single incident to a single supplemental appropriations measure does not provide meaningful data for calculating an average of how long it takes after a specific disaster to get a supplemental appropriations measure enacted. The 2017 hurricane season provides an example of how the comparative rarity of supplemental measures as opposed to disasters complicates calculating the time from a disaster to supplemental appropriations, and can generate meaningless results for developing an average: The first of the three supplemental appropriations measures that directly supported response and recovery for Hurricanes Harvey, Irma, and Maria, P.L. 115-56 , included funding for the Disaster Relief Fund (DRF), Small Business Administration disaster loans, and the Department of Housing and Urban Development's (HUD's) Community Development Block Grant Disaster Recovery program (CDBG-DR). This initial measure was enacted on September 8, 2017, 14 days after Harvey made landfall, 2 days after Irma affected Puerto Rico and the U.S. Virgin Islands, and 12 days before Maria struck Puerto Rico. The second, P.L. 115-72 , was enacted on October 26, 2017, seven weeks after the first. The third, P.L. 115-123 , was enacted on February 9, 2018, five months after the initial measure. Each of these acts included a different range of programs, with the third addressing the largest range of programs. This scenario leaves some questions without definitive answers such as, which supplemental appropriations bills should be associated with which disasters for calculating the speed of congressional response? It also demonstrates that comparison of these lengths of time has limited meaning in some cases. For example, the shorter time between Hurricane Irma and the supplemental appropriations as opposed to Hurricane Harvey and the supplemental appropriations is happenstance, rather than a meaningful difference in how Congress and the Administration approached the relief process. <4.1.1. Legislative Factors in the Timing of Supplemental Appropriations> The development and enactment of supplemental appropriations legislation is also affected by the same legislative rhythms that affect the timing of other legislation. Disaster assistance supplemental appropriations may move more quickly at some times than others, given the legislative environment. They may move on their own or they may be included in a variety of legislative vehicles. Continuing appropriations measures and consolidated appropriations measures (which include multiple appropriations bills) frequently serve as vehicles for supplemental appropriations toward the end of the fiscal year or soon after. For example, P.L. 114-223 , a continuing resolution for FY2017 in a consolidated appropriations act, included a $500 million supplemental appropriation for HUD's Community Development Block Grant-Disaster Recovery (CDBG-DR) program targeting major disasters declared prior to the enactment of the measure in calendar 2016. High-priority authorizing legislation may also prove to be a convenient vehicle. For example, Division I of the FAA Reauthorization Act ( P.L. 115-254 ) included a $1.68 billion supplemental appropriation for CDBG-DR, targeting areas impacted by major disasters declared in calendar 2018. An Administration request for supplemental disaster assistance can be an additional factor in the timing of the congressional consideration of supplemental appropriations. In the wake of a significant disaster, individual Members of Congress or state or regional delegations with affected constituencies may put forward supplemental appropriations legislation independent of a request from the Administration. However, unless they are crafted in consultation with majority party leadership, these measures are rarely taken up. The development of a supplemental appropriations measure destined for enactment usually begins with a supplemental appropriations request from the Administration, and a response from the Appropriations Committee or leadership. The request provides a starting point for congressional deliberations, framing the stated needs of the federal government at large for Congress to consider. For disasters that occurred in 2017, a series of three requests came from the Administration, and in each case, a supplemental appropriations measure was initiated and subsequently enacted. In contrast, as was noted above, P.L. 116-20 was enacted without a formal request by the Administration for supplemental disaster assistance appropriations for FY2019. <4.2. Adjustments to Spending Limits Under the Budget Control Act for Disaster Relief> The Budget Control Act of 2011 (BCA; P.L. 112-25 ), passed in the first session of the 112 th Congress as part of a deal to raise the debt limit, placed statutory limits on discretionary spending. The BCA also provided exceptions to those limits for a number of purposes. One such exception was a reiteration of a long-standing exception for funding designated as an emergency requirement. <4.2.1. Emergencies> The Budget Enforcement Act of 1990 (BEA; Title XIII of P.L. 101-508 ), and its extensions, established statutory limits on discretionary spending between FY1991 and FY2002. The BEA also provided for an adjustment to these discretionary spending limits to accommodate spending that both the President and Congress designated as an emergency requirement. During this period, this adjustment was frequently used to provide funding for disaster response and recovery. However, it was also used for a broad variety of other purposes, some instances of which sparked debate over whether the designated funding was truly for unanticipated "emergency" needs, stoking controversy in some quarters over the potential for abuse. <4.2.2. Disaster Relief> While the BCA included a similar mechanism, it also included a more limited, but specifically defined, adjustment for disaster relief, distinct from emergency funding. The BCA defined "disaster relief" as federal government assistance provided pursuant to a major disaster declared under the Stafford Act. Spending limits could be adjusted upward to accommodate funding provided in future spending bills. The allowable adjustment for disaster relief, however, is limited to an amount based on a modified 10-year rolling average of designated major disaster costs. Division O of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) modified the calculation to incorporate disaster relief appropriations designated as an emergency requirement, which had previously been excluded from the calculation. The allowable adjustment for disaster relief does not act as a limit on federal appropriations for disaster assistance only on the amount of additional budget authority that can be provided pursuant to that provision. When Congress provides more funding for disaster relief than can be covered by the disaster relief adjustment in a given fiscal year, such as was the case for Hurricane Sandy and the 2017 disasters, the emergency designation may be used for such funding. Congress is not unanimous in its support of the disaster relief designation. On March 28, 2019, Senator Mitt Romney introduced an amendment to the Senate majority leadership's substitute for H.R. 268 . The Romney amendment would have eliminated the adjustment for disaster relief in FY2021. In a press statement from his office, Senator Romney said "It's time for Congress to start planning ahead for natural disasters by including funding for them in the annual budget process, instead of busting our spending limits and adding to our skyrocketing national debt." <4.2.3. Adjustments and P.L. 116-20> Congress may also choose to provide disaster recovery and relief funding with an emergency designation regardless of the amount of funding provided with a disaster relief designation. For example, all of the funding provided in P.L. 116-20 carried an emergency designation rather than being designated as disaster relief pursuant to the BCA, even though, according to OMB, almost $3 billion of the disaster relief allowable adjustment remained available for use in FY2019 when the bill was enacted. <4.3. Offsetting Disaster Relief and Recovery> Periodically, Congress has weighed whether some or all of the costs associated with disaster relief and recovery should be offset by cuts to other spending. Historically, this debate has focused on whether disaster relief and recovery funding should be accounted for in the same fashion as other "on-budget" discretionary budget authority in general discussions of the budget. Since the passage of the BCA in 2011, the debate has a new aspect, as discretionary spending is constrained by statutory limits. If disaster relief and recovery spending is treated like regular appropriations with respect to the BCA spending caps not designated as either an emergency or disaster relief, and thus not triggering an upward adjustment of the caps such spending would potentially require an offset to prevent the cap from being breached and triggering sequestration. In most cases between 1990 and 2017, FEMA's DRF generally has been given a priority status for prompt funding in times of need, without offsetting spending reductions. Disaster assistance from other agencies has at times been funded through shifting resources from one program to another through appropriations language, but such activity is relatively rare. The largest single occurrence of this was in the wake of Hurricane Katrina. Nearly four months after $60 billion had been provided to the DRF in the ten days after the storm, P.L. 104-148 rescinded $23.4 billion from the account while simultaneously appropriating a similar amount to other agencies to meet disaster response and recovery needs. On April 4, 2019, during morning business, Senate Budget Committee Chairman Michael Enzi raised the issue of disaster offsets in comments on the Senate floor concerning Senator Romney's amendment to eliminate the disaster relief adjustment: I want to applaud my friend from Utah, Senator Romney, for offering an amendment that recognizes the challenge of budgeting for disasters and emergencies. Disaster relief funding must be built into our base budgets, which is why I have incorporated these costs in recent budget resolutions, including the one that passed through our Budget Committee last week. While there is no silver bullet to this problem, I am willing and eager to work with any of my colleagues who believe there is a better way to anticipate these costs. The Senate Budget Committee recently held a hearing that partially touched on ideas to better budget for disaster funding. One option is to offset emergency spending increases with spending reductions in other areas. Another option could require a dedicated fund for emergencies, similar to how some States budget for these events. I have also considered whether a new actuarially sound insurance program could appropriately assess the risk for such disasters while maintaining affordable premiums. Budgeting for emergencies and disasters is not a precise science, but I believe Congress can do a lot better than just calling an emergency and adding to the debt. <4.3.1. Recent Consideration of Offsets> <4.3.1.1. Hurricane Sandy Relief> Beginning in November 2012 there were calls for supplemental appropriations for Hurricane Sandy relief efforts, as well as calls for offsets. On December 7, 2012, the Obama Administration requested $60.4 billion in supplemental appropriations in connection with Hurricane Sandy, including $11.5 billion for the DRF. The preamble to the request specifically opposed offsetting the cost of the legislation, and although amendments to offset the cost of the legislation were considered in the House and Senate, they were not agreed to. During Senate debate on a supplemental appropriations bill after Hurricane Sandy, a point of order was raised against the emergency designation for $3.4 billion in Army Corps of Engineers Construction appropriation for disaster mitigation projects. A motion to waive the point of order failed to achieve the necessary majority of three-fifths of all Senators, 57-34, so the point of order was sustained, eliminating the emergency designation for that particular appropriation. This meant that the $3.4 billion for the mitigation projects would count against the discretionary spending limits imposed by the BCA, limiting the amount available for other discretionary appropriations. At the time, some observers critical of the move considered this as setting a precedent by effectively requiring an offset for disaster assistance. Others considered this as including part of the cost of disaster preparedness (as opposed to disaster relief) within the regular discretionary budget. <4.3.1.2. 2017 Disasters> All three of the Trump Administration's disaster supplemental appropriations requests have sought an emergency designation for the funding that would be provided in the legislation. However, unlike the Trump Administration's first two requests for supplemental disaster relief funding, the November 2017 request sought to offset some of the additional spending as well, suggesting $14.8 billion in rescissions and spending cuts and $44.4 billion in potential future savings by extending the nondefense discretionary spending limits for two additional years. Many of the rescissions and spending cuts had previously been proposed in the Administration's FY2018 budget request. No offsets were included in any of the three supplemental appropriations measures enacted after the 2017 disasters. <4.4. The "Appropriate" Scope of Supplemental Appropriations> One of the most frequent criticisms of supplemental appropriations measures, especially those containing disaster assistance, is that the measures include "unrelated" spending. Any attempt to make a nonpartisan determination regarding what appropriations may be considered "unrelated" in a measure that is typically responsive to a range of unmet needs presents significant methodological challenges. Long-standing colloquial naming practices have associated supplemental appropriations legislation with a particular event or problem that has drawn congressional and public attention, but the content of these measures typically goes beyond the message-friendly colloquial name. The scope, purpose, and size of a supplemental appropriations measure can be driven by one or more events, the unfunded needs such events generate, and the associated political support for considering and enacting the legislation. In the case of supplemental appropriations measures for disaster relief and recovery, these drivers often include a series of events over time. For example, in the case of P.L. 116-20 , it also incorporated responses to events occurring as the legislation was being developed and considered. <4.4.1. Controlling Language and Supplemental Appropriations> At times, "controlling language" has been included in supplemental appropriations measures to clarify the intent of specific appropriations, and counter the unrelated spending charge. This language is often included with appropriations for accounts that also have nondisaster-related purposes, in order to link the provided resources to specific activities. P.L. 115-123 , the largest and broadest of the three supplemental appropriations acts signed into law after the 2017 disasters, included a range of forms of controlling language, the most common limiting the availability of funds to "necessary expenses related to the consequences of Hurricanes Harvey, Irma, and Maria." Other controlling language of varying specificity targeted subsets of the disaster-related needs across the United States, including the following: Natural disasters Natural disasters occurring in 2017 Damage reduction in flood and storm damage in states with more than one flood-related major disaster in calendar years 2014-2017 Hurricanes Harvey, Irma, Maria, and 2017 wildfires Hurricanes occurring in 2017 Hurricane Harvey Hurricanes Irma and Maria Major disasters Oversight of funds provided in the measure <4.4.1.1. Appropriations Without Controlling Language> Such language generally has not been applied to accounts that have a primary mission of providing disaster assistance, such as the SBA Disaster Loan Program Account and FEMA's Disaster Relief Fund. For example, in P.L. 116-20 , the $1.65 billion supplemental appropriation for the Department of Transportation's Emergency Relief Program under the Federal Highway Administration has no specific controlling language. The absence of such specific controlling language allows agencies greater flexibility to ensure that resources are directed to meet evolving needs on short notice. Appropriations for FEMA's DRF are regularly obligated to relief and recovery efforts from multiple disasters across many fiscal years, regardless of the legislative vehicle that provided them. For example, before passage of P.L. 113-2 the "Sandy Supplemental" FEMA had already obligated almost $3.4 billion from the DRF for declarations linked to Hurricane Sandy from prior appropriations. Had language been included in those prior appropriations limiting the use of the budget authority provided following past disasters, FEMA's ability to respond would have been more limited. By the end of 2017, almost twice the amount provided for the DRF in P.L. 113-2 had been obligated pursuant to disaster declarations from the storm aid that might not have been available, had appropriations for the DRF been statutorily limited in their application. <4.4.2. Controlling Language in P.L. 116-20> Almost all of the appropriations provided in P.L. 116-20 include controlling language. The most common references are to Hurricanes Michael and Florence, although many other incident types are cited as well. The controlling language for some of the appropriations in this measure evolved significantly over time since consideration of supplemental appropriations for disaster relief and recovery were first initiated late in the 115 th Congress. For example, as additional disaster needs arose, the appropriation provided for the Office of the Secretary for the U.S. Department of Agriculture that was proposed in Division C of H.R. 695 grew from $1.1 billion to more than $3 billion in P.L. 116-20 . The controlling language changed to broaden the potential application of the assistance as well (additions are shown in bold ): "for necessary expenses related to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes ), trees, bushes, and vines, as a consequence of Hurricanes Michael and Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019 under such terms and conditions as determined by the Secretary." <4.5. Timelines for Obligation> Once Congress appropriates funding for disaster relief and recovery costs, the timeline for when that funding is used varies significantly from program to program. Comparison of these timelines in an effort to assess program efficiency requires an understanding of differences in mission and program structure to ensure assessments are made in context. For example, within relief provided through the DRF, some costs are borne up front, such as emergency protective measures and much of the individual assistance program, and funding is obligated and expended relatively quickly. Other costs incurred by state and local governments are reimbursed by the federal government after the work is complete projects to restore major infrastructure often follow this model and can take longer to obligate and expend the appropriated funding (e.g., FEMA's Public Assistance Grant Program). Other redevelopment funds may take time to be obligated as eligible state and local governments must develop a plan and have it approved this process cannot begin until the funds are provided to the program and official announcements of the grant competition process are made (e.g., HUD's Community Development Block Grant Program). Because of these varying and extended timelines, disaster recovery funding is often provided without an expiration date. However, appropriations provided for operational costs, damage to facilities, and specifically targeted grant programs with a limited purpose may be provided with a limited term of availability. <4.6. Oversight of Spending> Concerns about waste, fraud, and abuse exist for a variety of federal programs, but supplemental disaster relief often receives special attention due to the fact that it is unusual, highly visible, provided in chaotic situations, and meant to address pressing needs. The 2019 disaster supplemental appropriations include more than $27 million in appropriations specifically for audits and oversight efforts, including $10 million for the Government Accountability Office (GAO), as well as transfers and set-asides of more than $21 million. The federal government has encountered challenges in effectively tracking some federal disaster relief spending. In September 2016, GAO released a report on disaster assistance provided by the federal government over the 10-year period from FY2005 through FY2014. GAO analysts attempted to survey disaster relief provided by 17 federal departments and agencies, and although they were able to identify over $277 billion in obligations for disaster relief provided over that period, obligations were not separately tracked for all disaster-applicable programs and activities. GAO noted in the report that At least 5 federal departments and agencies reported that some disaster assistance programs or activities are not separately tracked because spending related to these activities is generally subsumed by a department's general operating budget or mission-related costs. For example, U.S. Coast Guard officials stated that most of the agency's disaster-related costs are associated with maintaining a constant state of readiness to immediately respond to disaster and emergency incidents, which is funded from the U.S. Coast Guard search and rescue appropriation and is not separately tracked. Similarly, the Army has deployed personnel in anticipation of a possible disaster event, even when FEMA has not requested the support. If a disaster does not occur or the activity does not result in a FEMA mission assignment, the Army will not be reimbursed for prepositioning personnel or assets in anticipation of an event and therefore may categorize the expenditure as training in the event of a disaster. Another 4 federal departments and agencies reported that obligations and expenditures specific to disaster assistance activities are not tracked or cannot be reliably estimated because there is no requirement for state or other recipients of the financial support to indicate whether or how much of the funding or assistance is used for disasters. Placing consistent reporting requirements on agencies providing assistance through disaster-applicable programs would be one way to obtain a clearer picture of precisely how much the federal government is spending on disaster relief and recovery. Such reporting requirements could include pass-through requirements to state and local governments that receive the funds to provide contract and subcontract data to the providing federal agency. This could help inform budgeting decisions, and determine if a particular program is providing fewer resources than anticipated to its nondisaster missions. On its own, however, such information cannot provide an answer to questions of whether such funds are subject to waste, fraud, or abuse. Answering such questions requires detailed analysis of the individual programs and activities funded, how they complement or duplicate other assistance programs, and whether they are providing the assistance Congress intended. On February 2, 2018, OMB issued a memorandum to all federal chief financial officers and budget officers about new Administration guidelines for tracking emergency funding and disaster relief funding. Under these guidelines, agencies will be required to track these resources, starting with the first of the three 2017 disaster supplemental appropriations, by applying a special accounting code to those resources. It remains to be seen if the FY2019 supplemental appropriations will be monitored in a similar fashion. <4.6.1. Tracking Hurricane Sandy Funding> Prior to 2017, the last time Congress attempted to track the use of a large amount of supplemental appropriations was in the wake of Hurricane Sandy. At that time, a provision of P.L. 113-2 specifically authorized the Recovery and Transparency Board (RATB) to "develop and use information technology resources and oversight mechanisms to detect and remediate waste, fraud, and abuse in the obligation and expenditure of funds" provided in the act. Pursuant to this authority, the RATB developed a website containing quarterly financial reports, a map of where contracts had been awarded, and other spending summaries under the Disaster Relief Appropriations Act, 2013. The RATB had its mission extended and funded by Congress for FY2015, but its authority lapsed at the end of that year and it shut down. The Department of Housing and Urban Development (HUD) established a Program Management Office (PMO) in February 2013 to monitor funding flows for Hurricane Sandy Recovery. The office coordinated its efforts with the RATB and provided public information on the status of funding as reported by the agencies. As of November 2014, the responsibilities of the HUD Sandy PMO were transferred to FEMA's Office of Federal Disaster Coordination (OFDC). One potential issue is that it is not always straightforward to compare the information provided by different agencies. The conclusions that might be drawn from data gathered by the RATB and the PMO were potentially limited by the fact that the agencies reporting their data did not use a consistent methodology. For example, while some agencies reported specifically on the resources provided by P.L. 113-2 , FEMA provided information on all obligations for Hurricane Sandy response and recovery those funded by previous appropriations as well as those funded by P.L. 113-2 . This difference meant the FEMA-reported data were not comparable with those of other agencies or departments.

This report provides a legislative history of the Additional Supplemental Appropriations for Disaster Relief Act, 2019 ( P.L. 116-20 ), and provides an overview of some of the issues that often arise with consideration of supplemental disaster assistance appropriations. In total, 59 major disasters were declared in calendar year 2018, and 27 major disasters were declared in 2019 up to the date the compromise on the disaster supplemental was announced. In addition to these specifically declared incidents, other situations arose that caused disruption to lives, economic resources, and infrastructure. Together, these incidents and ongoing recovery efforts from previous disasters drove a demand for additional federal budgetary resources beyond those provided through regular annual appropriations. This kind of demand is usually reflected in a request by the Administration for supplemental appropriations after the need for funding is recognized. Despite the absence of such a request by the Trump Administration, congressional leadership in both the House and the Senate chose to consider disaster-related supplemental appropriations at the end of the 115 th Congress. An initial $7.8 billion proposal that passed the House in the 115 th Congress as part of a consolidated appropriations bill did not advance in the Senate. In the 116 th Congress, H.R. 268 passed the House. This measure included $14.19 billion in disaster relief appropriations, as well as continuing appropriations intended to resolve an ongoing lapse in annual appropriations that had caused a partial government shutdown. The Senate was unable to get cloture on proposed amendments to the measure, and consideration of the bill stalled. After the lapse in appropriations was resolved, Senate Appropriations Chairman Richard Shelby introduced a $13.45 billion supplemental appropriations measure structured as a substitute to H.R. 268 . Again, the Senate could not achieve cloture on the proposal. On April 9, House Appropriations Chairwoman Nita Lowey introduced H.R. 2157 , a supplemental appropriations bill, which covered the same disasters addressed in H.R. 268 , as well as additional disasters that had occurred since the earlier measure had been passed by the House. CBO estimated the new bill, as introduced, would provide $17.31 billion in discretionary spending, which grew to $19.26 billion through floor action. The bill passed the House May 10, 2019, by a vote of 257-150. A $19.19 billion bipartisan, bicameral agreement on FY2019 disaster funding was negotiated, and offered in the Senate as S.Amdt. 250 to H.R. 2157 on May 23, 2019. The bill, as amended, was passed by the Senate, 85-8. Three attempts to approve the amended bill by unanimous consent were blocked in the House of Representatives while the body was in pro forma session during the Memorial Day recess. The House subsequently considered the amended bill under suspension of the rules on June 3, 2019, and voted 354-58 to approve the measure. The bill was signed into law as P.L. 116-20 on June 6, 2019. This report includes a more detailed legislative history and a tabular comparison that shows how the funding in these different approaches evolved. Congressional clients seeking further insight into specific programs and provisions in P.L. 116-20 may consult the analysts and background reports listed in CRS Report R45714, FY2019 Disaster Supplemental Appropriations: CRS Experts . The report also includes a discussion of issues that commonly arise during debate on supplemental appropriations, including the relative timeliness of supplemental appropriations; adjustments to spending limits that are often applied to them; offsets for disaster relief and recovery appropriations; the appropriate scope of supplemental appropriations; timelines for obligation of funding; and oversight of supplemental spending. This report will not be updated.

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<1. Introduction> According to a 2019 study, 2 million Americans lack access to running water, indoor plumbing, or wastewater services. Many of the communities with inadequate water supply infrastructure are in rural areas or on tribal lands. Over time, Congress has authorized projects and programs through various federal agencies to address rural water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other federal agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands. Reclamation was established to implement the Reclamation Act of 1902, which authorized the construction of water works to provide water for irrigation in arid western states. Reclamation owns and manages 491 dams and 338 reservoirs, which are capable of storing a combined 140 million acre-feet of water. Reclamation has incorporated M&I water resource projects into larger projects that serve various other authorized purposes (e.g., irrigation, power). Reclamation-funded M&I water deliveries total approximately 10 trillion gallons of water per year. As part of Reclamation's M&I responsibilities, Congress has expressly authorized the agency to undertake the design and construction of rural water supply projects intended to deliver potable water supplies to defined rural communities. From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and in some cases the operations and maintenance (O&M), of specific projects intended to deliver potable water supplies to rural communities in western Reclamation states. These projects were largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities include tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scope taking water from one location and moving it long distances to tie to existing systems. M&I portions of Reclamation water supply facilities typically require 100% repayment of construction costs to the federal treasury with interest. Congress also has authorized rural water projects that receive funding from the federal government for some or all costs on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of the cost of tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%. The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending rural water supply projects. This program was to replace the previous process of authorizing projects individually often without the level of analysis and review (e.g., feasibility studies) consistent with Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific projects for construction in legislation. Ultimately, Congress did not authorize any projects for construction through this process, and the authority for the program expired in 2016. Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) that were authorized and initiated outside of the Rural Water Supply Program. In 2012, Reclamation developed prioritization criteria for budgeting these projects: inclusion of tribal components amount of financial resources committed urgency and severity of need financial need and potential economic impact regional and watershed approach water, energy, and other priority objectives According to Reclamation, the criteria aim to reflect both the priorities identified in the statutes that authorized individual projects and the goals of the Rural Water Supply Act of 2006. For FY2020, Congress appropriated $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. As of early 2020, Reclamation reported that $1.2 billion was still needed to construct authorized, ongoing rural water projects. For FY2021, the Administration requested $30.3 million for Reclamation rural water activities, of which $8.1 million is for construction. This report provides an overview of Reclamation rural water projects, including completed and ongoing rural projects and efforts under Reclamation's Rural Water Supply Program. The report also discusses considerations for Congress (e.g., funding prioritization, potential nexus with other federal programs) and presents recent legislation relating to authorizing additional projects and reauthorizing the Rural Water Supply Program. <2. Rural Water Projects> Congress has funded water supply projects in rural areas for more than four decades. Reclamation first became involved in these efforts beginning with authorization of the WEB Rural Water Supply Project in 1980 ( P.L. 96-355 ). Since that time, Congress has authorized Reclamation to fund the construction of several other rural water supply projects (see Table 1 ). These projects have individual authorizations and generally aim to provide water exclusively for M&I water uses in rural areas a departure from the historical mission of providing water for irrigation, with M&I water use as an incidental project purpose. According to a U.S. Government Accountability Office (GAO) report, Reclamation became involved in such projects because communities proposed projects directly to Congress and, in response, Congress created specific authorizations for these rural water supply projects, with Reclamation overseeing funding and construction. In addition to projects authorized only in Reclamation states, Congress specifically authorized Reclamation's involvement in the Lewis and Clark Rural Water Supply Project located in South Dakota, Iowa, and Minnesota. Reclamation reported that, prior to authorization, some rural water projects did not go through the level of analysis and review that is consistent with Reclamation's other projects and did not meet the economic, environmental, and design standards that are required to determine the feasibility of federal water resources development projects. In these instances, following authorization, Reclamation was to complete the analysis that was necessary to execute the project while adhering to the project configuration and designs specified by the authorizing statutes and in accordance with other laws (e.g., Clean Water Act [33 U.S.C. 1251-1387], National Environmental Policy Act [42 U.S.C. 4321 et seq.]). Critics have sometimes expressed concerns over this approach specifically, whether the authorized project would have emerged as the most cost-effective preferred alternative had a feasibility study been performed prior to authorization. Each rural water project authorization required that the cost ceilings authorized in the legislation be indexed to adjust for inflation to include the rising cost of materials and labor, which was estimated to be 4% annually. The result of these indexing requirements is that the overall cost of authorized rural water projects has risen and continues to rise due in part to actual federal appropriations for projects falling short of the optimal funding scenarios that were assumed under planning projections. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects. For FY2021, the Administration's budget proposal requested $30.3 million: $8.1 million for ongoing construction at four authorized rural water projects and $22.2 million for O&M of tribal systems (e.g., $14.5 million for the Mni Wiconi Project, $7.7 million for the Garrison Diversion Unit M&I, and $20,000 for the Mid-Dakota Rural Water System). The FY2021 request is $114.8 million less than FY2020 enacted funding of $145.1 million. The FY2021 request continues a trend since FY2014 in which the President's budget requested reduced funding for rural water projects from prior-year enacted levels. Reclamation also has emphasized its authority to accept nonfederal contributions in excess of cost-sharing requirements as one way to expedite projects in the absence of increased federal funding. In the FY2021 budget request, Reclamation noted that nonfederal parties have the ability to move forward with important investments in water resources infrastructure by contributing amounts in excess of minimum contributions. <2.1. Rural Water Projects Under Construction in FY2020> In FY2020, Reclamation funded $125.4 million in construction work at five projects ( Table 2 ). Reclamation's FY2020 budget request included $8.0 million in construction for four projects, but Congress provided $117.4 million in appropriations above the President's budget request. The Administration distributed the funds above the request among five authorized projects, as described in Reclamation's additional funding spend plan. The following briefly describes the projects under construction in FY2020 based on Reclamation budget documents. <2.1.1. Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program> The Garrison Diversion Unit of the Pick-Sloan Missouri-Basin Program was authorized in 1965 (P.L. 89-108) and was amended in 1986 by the Garrison Diversion Unit Reformulation Act ( P.L. 99-294 ) to include rural water services. Garrison Diversion Unit water supply facilities are associated with Garrison Dam of the Pick-Sloan Missouri Basin Program. They are located in eight counties in the central and eastern part of North Dakota and serve four tribal reservations (Spirit Lake, Fort Berthold, Turtle Mountain, and Standing Rock Indian Reservations). The multipurpose project principally provides tribal and nontribal M&I water, along with fish and wildlife, recreation, and flood control benefits. <2.1.2. Fort Peck Reservation/Dry Prairie Rural Water System> The Fort Peck Reservation Rural Water System Act of 2000 ( P.L. 106-382 ), as amended, authorized rural water projects in northeastern Montana for the Fort Peck Reservation, serving the Assiniboine and Sioux Tribes, and for the Dry Prairie Rural Water Authority, serving towns outside of the reservation. The total service area population is around 25,000 people; rural water use is also available for commercial users and livestock. Currently, groundwater from shallow alluvial aquifers is the primary water source for the municipal systems, but groundwater quality is generally poor. The regional rural water project is to provide for a single water treatment plant located on the Missouri River, which is to distribute up to 13.6 million gallons of treated water per day through 3,200 miles of pipeline. <2.1.3. Lewis and Clark Rural Water System> The Lewis and Clark Rural Water System Act of 2000 (Division B, Title IV of P.L. 106-246 ) authorized the Lewis and Clark Rural Water System to serve over 300,000 people in southeast South Dakota, southwest Minnesota, and northwest Iowa. The project aims to address concerns regarding low water quality, contamination, and insufficient supplies of existing drinking water sources throughout the project area. The water source for the Lewis and Clark Rural Water System is the sand and gravel aquifers of the Missouri River near Vermillion, SD. The project is to collect, treat, and distribute water through a network of wells, pipelines, pump stations, and storage reservoirs to each of 15 municipalities (including the city of Sioux Falls) and five rural systems. As of February 2020, completed facilities delivered water to the first 14 of 20 members, serving more than 200,000 individuals in Iowa, Minnesota, and South Dakota. <2.1.4. Rocky Boy's/North Central Montana Rural Water System> The Rocky Boy's/North Central Montana Regional Water System Act of 2002 (Title IX of P.L. 107-331 ) authorized a rural water system to serve the Rocky Boy's Indian Reservation (Chippewa Cree Tribe) and surrounding communities in northern Montana. The system is designed to serve a total projected population of 43,000 (14,000 on reservation and 29,000 off reservation) by providing infrastructure to ensure existing water systems within the project service area comply with federal Safe Drinking Water Act (42 U.S.C. 300f-300j-26) regulations. A core pipeline is to provide potable water from Tiber Reservoir to the Rocky Boy's Reservation, and non-core pipelines are to serve 21 surrounding towns and rural water districts. A $20 million trust fund established with Bureau of Indian Affairs appropriations is to fund O&M and replacement for the core and on-reservation systems initially; eventually, water users are expected to entirely fund the project. Reclamation states that the current authorization is not adequate to cover the project. <2.1.5. Eastern New Mexico Water Supply> Section 9103 of the Omnibus Public Land Management Act of 2009 ( P.L. 111-11 ) authorized the Eastern New Mexico Water Supply project to deliver water from Ute Reservoir on the Canadian River to eight member communities. The use of Ute Reservoir water aims to provide long-term water supply and reduce the eight communities' dependence on groundwater in the Ogallala Aquifer. Current funding is for planning, design, and construction of interim projects to deliver groundwater to the communities before treated surface water is delivered from the Ute Reservoir Pipeline. <3. Rural Water Supply Act of 2006> The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) authorized the Rural Water Supply Program and directed the Secretary of the Interior to undertake certain activities to implement the program. Specifically, the act directed Reclamation to conduct appraisal investigations and feasibility studies (or to ensure that nonfederal entities conducted such studies) and to recommend proposed projects to Congress for construction authorization and subsequent funding. In 2008, Reclamation published an interim final rule (43 C.F.R. 404) that established operating criteria for the program and defined the criteria for the prioritization, eligibility, and evaluation of appraisal investigations and feasibility studies, in accordance with the act. To be eligible under the rule, a rural community must have a population under 50,000. The rule prioritized domestic, residential, and municipal uses and prohibited the use of water for commercial irrigation purposes. Interested entities (e.g., Reclamation states and western tribes) may request that either (1) Reclamation complete an appraisal investigation or feasibility study or (2) Reclamation provide financial assistance so the entity can conduct an appraisal investigation or feasibility study. Reclamation began to implement the Rural Water Supply Program in FY2010 on a pilot basis, providing assistance to nonfederal entities to conduct appraisal investigations and feasibility studies. Between FY2009 and FY2012, Congress provided Reclamation a total of $7.9 million for the program. After FY2012, Reclamation no longer requested funding for the program and Congress did not appropriate funds for it. Overall, Reclamation reported using this authority to study approximately 22 projects to varying extents (see Appendix ). Twelve were located in the Reclamation's Great Plains region, five in the Upper Colorado region, four in the Lower Colorado region, and one in the Pacific Northwest region. Of these, Reclamation finalized and approved two feasibility reports: the Musselshell-Judith Rural Water System Feasibility Report (Montana) and the Payson-Cragin Reservoir Water Supply Project Feasibility Report (Arizona). Reclamation did not recommend these or any other projects for authorization, and Congress did not authorize any projects. In justifying its lack of construction recommendations, Reclamation pointed to existing rural water construction obligations, which it argued precluded recommendation of new projects with completed feasibility studies. The authority for the Rural Water Supply Program expired at the end of FY2016 and has not been renewed. Members of Congress have introduced legislation in the 116 th Congress that would reauthorize both the Rural Water Supply Program and particular projects and studies previously considered through the expired program (see " Legislation in the 116th Congress "). <4. Issues for Congress> Congress continues to fund construction and O&M (only required for tribal components) of authorized rural water projects; however, since the FY2016 expiration of the Rural Water Supply Program, Reclamation has for the most part ceased activities relating to new project study and authorization. Congress may consider conducting oversight or legislating changes to Reclamation's rural water activities, including those related to existing or new program and project authorizations, funding prioritization criteria, and Reclamation's role in supporting rural water projects. <4.1. Addressing Ongoing Rural Water Needs> The Rural Water Supply Act of 2006 required the Secretary of the Interior to assess the demand for new rural water supply projects in Reclamation states. In FY2009, Reclamation estimated that identified needs for potable water supply systems in rural areas ranged from $5 billion to $8 billion for nontribal needs; in the same year, it estimated approximately $1.2 billion for specific tribal water supply projects. However, the Administration has not recommended, and Congress has not authorized, any new Reclamation rural water projects since 2009. Additionally, because authorization of Reclamation's Rural Water Supply Program lapsed at the end of FY2016, Reclamation lacks a structured program for developing and recommending rural water supply projects. <4.1.1. Legislation in the 116th Congress> In the 116 th Congress, House and Senate companion bills H.R. 967 and S. 334 , both titled the Clean Water for Rural Communities Act, would authorize $5 million for a feasibility study for the Dry Redwater Rural Water System and $56.7 million (2014 price levels) for construction of the Musselshell-Judith Rural Water System. As noted, a feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program, but the Administration did not recommend the project to Congress for authorization. Congress also is considering legislation to reauthorize the Rural Water Supply Program through FY2026. In the 116 th Congress, both the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ) would reauthorize the existing program. Congress may consider other legislative proposals to address the demand for rural water assistance in the West. For example, the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would require the Secretary of the Interior to establish a grant program to provide financial assistance to disadvantaged communities of less than 60,000 residents that have experienced a significant decline in quantity or quality of drinking water. The grants could fund technical assistance, initial operating and capital costs for edible facilities, and up to 25% of such facilities' O&M. Other legislative proposals would address rural water needs by amending authorities to specific water technology and programs. For example, the Western Water Security Act of 2019 ( H.R. 4891 ) would amend the Water Desalination Act of 1996, as amended ( P.L. 104-298 ; 42 U.S.C. 10301 note), to add a classification for rural desalination projects with a higher federal cost share than desalination projects serving more than 40,000 individuals. <4.2. Funding of Current and Future Projects> In early 2020, Reclamation stated that $1.2 billion was needed to complete authorized rural water projects under construction by the agency. In addition, Reclamation has previously estimated nontribal rural water supply needs in excess of $5 billion, and some observers have reported that assistance for communities is needed to address these needs. Some stakeholders have requested continued and increased funding for Reclamation rural water projects. In the 115 th Congress, representatives of the National Water Resources Association and the Family Farm Alliance asked Congress to compel Reclamation and the Office of Management and Budget to implement the Rural Water Supply Program and investigate opportunities to develop loan and loan guarantee programs that can help fund new water infrastructure projects. Over the years, Reclamation has provided its views regarding funding for rural water projects. In general, Reclamation has testified that rural water projects must compete with a long list of other priorities, including aging infrastructure, environmental compliance and restoration actions, and dam safety. During the consideration of authorizing existing rural water projects, Reclamation stated that long-standing agency policy was that local sponsors, particularly those that are nontribal, should reimburse Reclamation for 100% of the costs incurred for rural water supply from multipurpose projects. Reclamation notes in its budget requests to Congress that constrained federal budgets do not preclude nonfederal sponsors' ability to move forward with rural water projects by funding in excess of the minimum nonfederal contributions. Reclamation has recommended that tribes, where possible, and other project beneficiaries be responsible for the O&M expenses of their rural water projects. Congress has appropriated funds for rural water projects on a nonreimbursable basis (i.e., as de facto grants). In some cases, local and tribal sponsors do not have funds or have not prioritized funds to increase their funding contributions. Should Congress continue to support rural water projects through Reclamation, Congress may consider various options. These might include Continue to provide Reclamation annual appropriations for the agency to allocate funds to individually authorized rural water projects based on established agency criteria. Establish mandatory funding for Reclamation to allocate funds to individually authorized rural water projects based on established agency criteria. For example, the Authorized Rural Water Projects Completion Act ( S. 1556 ) in the 115 th Congress would have created a Reclamation Rural Water Construction Account to receive $80 million annually that otherwise would be deposited into the Reclamation Fund. Funds in the Reclamation Rural Water Construction Account, in addition to amounts appropriated for rural water projects, would be available for the construction of authorized rural water projects. Provide grant funding through a competitive process for nonfederal sponsors to support local projects, such as the grant program the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would establish for communities with fewer than 60,000 residents. Direct appropriations to individually authorized rural water projects. <4.3. Other Rural Water Options> As GAO noted in a 2007 report, numerous federal entities provide funding for water supply and wastewater projects. In addition to Reclamation (which funds only water supply projects), the U.S. Department of Agriculture (USDA), Environmental Protection Agency (EPA), Army Corps of Engineers (USACE), Department of Housing and Urban Development (HUD), and Department of Commerce (DOC) all provide funding for both water supply and wastewater projects. USDA, EPA, HUD, and DOC have formal, nationwide programs with standardized eligibility criteria and processes under which communities compete for funding. In contrast, Reclamation and USACE fund water projects in defined geographic locations under explicit congressional authorizations. According to GAO, Congress has chosen Reclamation to fill a void for projects that are larger and more complex than other rural water projects and that do not meet the criteria of other rural water programs. Some might argue that these projects would be better accomplished via other existing federal water quality or water supply programs. However, as GAO has observed, as designed, some of Reclamation's authorized rural water projects do not fit criteria of other agency's programs due to their cost and regional focus; thus, project proponents have looked to Reclamation for funding. For example, Reclamation may assist rural areas with populations in excess of 10,000 residents that may not be eligible for funding under other programs. Reclamation rural water projects also may serve more than one community (i.e., a regional area, as opposed to a single area). Reclamation developed its Rural Water Supply Program with the intent to complement, rather than duplicate, the efforts of the other agencies' programs and activities. In creating the program, Reclamation signed memoranda of understanding and related documents with other agencies to coordinate efforts. Reclamation has stated that it participates in a variety of broad coordination activities among agencies related to ongoing authorized projects. With the expiration of the Rural Water Supply Program, this formal coordination between Reclamation and other agencies' programs is no longer required. <4.3.1. Appendix. Rural Water Supply Program Appraisal Investigations and Feasibility Studies> The Bureau of Reclamation (Reclamation) provided the Congressional Research Service with a list of appraisal investigations and feasibility studies conducted for potential projects under the Rural Water Supply Program. Before the program authorization expired in FY2016, 22 appraisal investigations were conducted, with nine recommendations for a feasibility study. Five feasibility studies were conducted. Reclamation did not recommend any projects for construction funding, although two studies found feasible alternatives for rural water supply. Reclamation issued concluding reports for appraisal investigations and feasibility studies of projects that were not recommended for construction funding. Reclamation provided a range of reasons for issuing concluding reports: studies being incomplete, no found feasible alternatives, lack of funding, and program expiration. According to Reclamation, some concluding reports were not issued due to a lack of time or resources. In these cases, Reclamation considered the appraisal reports as concluding reports for the purposes of the Rural Water Supply Program. A feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program. Legislation introduced in the 116 th congress, the Clean Water for Rural Communities Act ( H.R. 967 and S. 334 ), would authorize the Central Montana Musselshell-Judith Rural Water System.

Congress has authorized projects and programs through various federal agencies to address water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands. Congress has authorized these projects, known as rural water supply projects, for several locations throughout the West. From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and sometimes the operations and maintenance (O&M), of specific rural water supply projects intended to deliver potable water supplies to rural communities in western states. These projects are largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities served by these projects included tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scope—taking water from one location and moving it across long distances to tie to existing systems. Although M&I portions of most Reclamation water supply facilities require 100% repayment with interest, Congress has authorized rural water projects that receive some or all costs from the federal government on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of costs for tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%. The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending future rural water supply projects. This program was to replace the previous process of authorizing projects individually—often without the level of analysis and review (e.g., feasibility studies) required for Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific project construction in legislation. Ultimately, Reclamation did not recommend and Congress did not authorize any projects through this process, and the authority for the program expired in 2016. Members have introduced legislation in the 116 th Congress to reauthorize the Rural Water Supply Program through FY2026: the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ). Other bills would authorize individual activities (i.e., a feasibility study and a project) previously considered by the Rural Water Supply Program or would address rural water needs by creating authorities for rural water grants or water technology programs. Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) authorized and initiated outside of the Rural Water Supply Program. Enacted funding for rural water supply projects in FY2020 provided $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. Five projects received construction funding in FY2020: Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program, Fort Peck Reservation/Dry Prairie Rural Water System, Lewis and Clark Rural Water System, Rocky Boy's/North Central Montana Rural Water System, and Eastern New Mexico Water Supply. For FY2021, the Administration requested $30.3 million for rural water projects. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects.

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<1. Introduction> Some observers argue the COVID-19 pandemic could be a world-changing event with potentially profound and long-lasting implications for the international security environment and the U.S. role in the world. Other observers are more skeptical that the COVID-19 pandemic will have such effects. This report provides a brief overview of some potential implications the COVID-19 pandemic might have for the international security environment and the U.S. role in the world, and a bibliography of CRS reports and other writings for further reading. Issues for Congress may include whether and how the COVID-19 pandemic could change the international security environment, whether the Trump Administration's actions for responding to such change are appropriate and sufficient, and what implications such change could have for the role of Congress in setting and overseeing the execution of U.S. foreign and defense policy. Congress's decisions regarding these issues could have significant and even profound implications for U.S. foreign and defense policy, and for the status of Congress as a co-equal branch relative to the executive branch in setting and overseeing the implementation of U.S. foreign and defense policy. Appendix A presents a list of CRS reports that provide more in-depth discussions of issues presented in this report. Appendix B presents a list of additional writings reflecting various perspectives on these issues. A separate CRS report discusses the question of whether the U.S. role in the world is changing as a result of factors other than the C OVID-19 pandemic. <2. Overview of Potential Implications> Areas of potential change reflected in writings from observers who view the COVID-19 pandemic as a potentially world-changing event include but are not limited to those discussed below. Although these areas of potential change are presented separately, they overlap in some cases and can interact with one another. <2.1. World Order, International Institutions, and Global Governance> Some observers have focused on the possibility that the COVID-19 pandemic could cause or accelerate a decline or erosion in the U.S.-led liberal international order that has operated since World War II, in the international institutions and norms that contribute to it, and consequently in global governance. A decline or erosion in the U.S.-led liberal order or the international institutions form part of it could set the stage for its replacement by a new or modified world order reflecting changed rules, norms, and practices, or by a more disorderly world. <2.2. U.S. Global Leadership and Role in the World> Some observers have focused on how, in their view, the COVID-19 pandemic is demonstrating that the United States is maintaining or reasserting its role as global leader, while other observers suggest that, in their view, the COVID-19 pandemic is demonstrating that the United States has chosen to withdraw from or is no longer capable of performing that role. The COVID-19 pandemic could influence discussions over the costs and benefits to the United States of acting as a global leader, not only with respect to global health but across a range of issues. Related to this, some observers have focused on how the COVID-19 pandemic may be illustrating the strengths or weaknesses of the Trump Administration's "America First" approach to the U.S. role in the world, or the merits of the U.S. system of government and economic model as potential examples for other countries to emulate. <2.3. China's Potential Role as a Global Leader> Some observers have focused on how the COVID-19 pandemic may be providing insight into whether China desires and is working to become a global leader on par with (or in the place of) the United States, whether China has a capacity for doing so, and how other countries might view China acting in such a role. China's transparency, particularly regarding its actions in the early days of its COVID-19 outbreak in Wuhan, as well as China's so-called donation diplomacy or mask diplomacy meaning China's actions to send medical supplies and personnel to other countries, and the highlighting of these actions in statements from China's government and state-controlled media have become new elements of an ongoing discussion regarding China's capacity or suitability for acting as a global leader. This ongoing discussion includes consideration of a range of other issues, including China's actions for implementing its Belt and Road Initiative, China's territorial disputes with other countries, its participation in international organizations, and its technology-development and international lending activities. <2.4. U.S. Relations and Great Power Competition with China and Russia> Some observers have focused on how the COVID-19 pandemic has become a significant element in U.S-China relations, and in U.S. great power competition with China and Russia, which the Trump Administration has placed at the center of its national security construct. For some observers, the COVID-19 pandemic presents an opportunity for U.S.-China cooperation on an important international issue of common interest. For other observers, the COVID-19 pandemic is a major new source of dispute and arena of competition between the two countries, and is causing U.S.-China relations to harden more fully into a Cold War-like adversarial situation. Some observers have focused on how the COVID-19 pandemic provides a prominent new factor in the discussion of whether the United States should decouple its economy from China's and reduce its dependence on China for key materials and products, including hospital supplies and pharmaceuticals. Some observers have focused on whether the U.S. and Chinse responses to the COVID-19 pandemic will affect views around the world regarding the relative merits of the U.S. and Chinese forms of government and economic models as potential examples to emulate. <2.5. Democracy, Authoritarianism, and Autocracy> Related to the point above about forms of government, some observers have focused on how the COVID-19 pandemic appears to be challenging democratic systems in various countries and providing national leaders with an opportunity or rationale for taking actions to seize greater power and move their countries away from democracy and toward authoritarianism or autocracy, or strengthen or consolidate their already-existing authoritarian or autocratic forms of government. As discussed in another CRS report, a key element of the traditional U.S. role in the world since World War II has been to defend and promote freedom, democracy, and human rights as universal values, while criticizing and resisting authoritarian and illiberal forms of government where and when possible. <2.6. Societal Tension, Reform, and Transformation, and Governmental Stability> Beyond the specific point above about potential movement toward greater authoritarianism and autocracy, some observers have focused on the possibility that the COVID-19 pandemic more generally could cause increased social tensions in certain countries, could lead to (or present opportunities for) societal reforms and transformations, and could destabilize and perhaps cause the downfall of governments, akin to the effects of certain past world-changing events, such as World War I. Such changes could alter the political orientations, national strategies, foreign policies, and defense policies of the countries in which they occur, potentially inducing follow-on effects among governments and other global actors that interact with those countries. <2.7. World Economy, Globalization, and U.S. Trade Policy> Some observers have focused on the possibility that the COVID-19 pandemic could lead to significant and potentially long-lasting changes to the world economy that in turn could reshape the international security environment. Among other things, observers have focused on the possibility that the COVID-19 situation could be leading the world economy into a significant recession an effect that could contribute to the societal tensions mentioned in the previous point. Noting that the COVID-19 pandemic has reduced world trade volumes and disrupted global supply chains, they have focused on the question of whether economic globalization will as a result be slowed, halted, or reversed. Observers are monitoring how such effects could influence or be influenced by U.S. trade policy. <2.8. Allied Defense Spending and U.S. Alliances> The so-called burden-sharing issue that is, the question of whether U.S. allies are shouldering a sufficient share of the collective allied defense burden has long been a point of contention between the United States and its allies around the globe, and it has been a matter of particular emphasis for the Trump Administration. Some observers have focused on the possibility that the costs that U.S. allies are incurring to support their economies during stay-at-home/lockdown periods will lead to offsetting reductions in their defense expenditures. Some observers argue that the NATO allies in Europe in particular may experience contractions in their defense budgets for this reason. More generally, some observers argue that if the COVID-19 pandemic causes a global recession, allied defense budgets could be further reduced a potential impact that could affect not only NATO allies in Europe, but those in Asia as well. <2.9. European Union> Some observers have additionally focused on the question of whether the COVID-19 pandemic is creating tensions among the European Union member states, particularly in connection with actions they are taking to close their national borders, and what impact the COVID-19 pandemic might ultimately have on the cohesion of the European Union. <2.10. Definition of, and Budgeting for, U.S. National Security> Some observers have focused on the question of whether the COVID-19 situation will (or should) lead to a revised definition of U.S. national security, particularly one that is less military-centric and more focused on what are sometimes called human-security-oriented challenges or global issues, such as climate change, that are currently more at the periphery of U.S. national security policy and plans. Such a change in definition could lead to a changed allocation of funding between the Department of Defense (DOD) and other government agencies that perform national-security-related tasks, a realignment of resources within DOD between combat-oriented programs and other programs (such as those related to DOD's mission of providing defense support of civil authorities), and perhaps a changed allocation of funding among the agencies other than DOD that perform national-security-related tasks. <2.11. U.S. Defense Strategy, Defense Budget, and Military Operations> Some observers have focused on the question of whether the large federal expenditures being made in response to the domestic U.S. economic effects of the COVID-19 pandemic, and the impact these expenditures will have on the federal budget deficit and federal debt, could lead to greater constraints in coming years on U.S. defense spending levels. As a follow-on matter, these observers are additionally focusing on the question of whether responding to such increased constraints will (or should) lead to revisions in U.S. defense strategy, changes in U.S. defense programs, and a reduction or termination of certain overseas U.S. military operations. <2.12. U.S. Foreign Assistance and International Debt Relief> Some observers have focused on the question of whether the COVID-19 pandemic is providing a new lens through which to measure the value of U.S. foreign assistance and international debt relief in promoting U.S. interests, particularly in connection with the previously mentioned issue of whether to revise the definition of U.S. national security to make it less military-centric. <2.13. Non-state Actors> Some observers have focused on how non-state actors such as international terrorist and criminal organizations are reacting to the COVID-19 pandemic, and on how much priority should be given to countering such actors in the future, particularly in a context of a changed definition of U.S. national security. <2.14. U.S. Attention to International Issues Other than COVID-19> Some observers have focused on whether responding to the COVID-19 pandemic is affecting the time and resources that U.S. leaders and agencies can devote to addressing other international issues of concern to the United States that predate but continue to exist in parallel with the COVID-19 pandemic. Administration officials have warned other countries to not take actions during the COVID-19 pandemic to challenge U.S. interests around the world or otherwise test U.S. resolve or responsiveness on the thinking that the COVID-19 pandemic is distracting U.S. officials from other concerns or reducing U.S. capacity for responding to any such challenges. <2.15. Role of Congress> At least one observer has focused on the issue of how the COVID-19 pandemic has affected the ability of Congress to conduct oversight of the Administration's foreign policy actions. <2.16. Further Reading> For further reading on the issues outlined above, see the CRS reports presented in Appendix A and the additional writings presented in Appendix B . <3. Potential Issues for Congress> Potential issues for Congress regarding implications of the COVID-19 pandemic for the international security environment and the U.S. role in the world include but are not limited to the following: Will the COVID-19 pandemic change the international security environment, and if so, in what ways? How clearly can potential changes be anticipated? How should the United States respond to potential changes in the international security environment arising from the COVID-19 pandemic and its effects, particularly in light of uncertainty regarding the precise nature and likelihood of these changes? How might U.S. action or inaction influence or accelerate these changes? What actions is the Administration developing to respond to potential changes in the international security environment arising from the COVID-19 pandemic? Does Congress have sufficient visibility into these actions? Are these actions appropriate and sufficient? What metrics should Congress use to assess them? What implications do potential changes in the international security environment arising from the COVID-19 pandemic have for the role of Congress in setting and overseeing the execution of U.S. foreign and defense policy? Is Congress appropriately organized for maintaining Congress as a co-equal branch of government relative to the executive branch in addressing these potential changes? If the COVID-19 pandemic becomes a world-changing event for the international security environment and the U.S. role in the world, what implications, if any, might that have for congressional organization and operations? Appendix A. Related CRS Reports CRS reports that provide more in-depth discussions of specific issues discussed in this report include the following, which are presented in alphabetical order of their titles: CRS In Focus IF11496, COVID-19 and Foreign Assistance: Issues for Congress , by Nick M. Brown, Marian L. Lawson, and Emily M. Morgenstern. CRS Insight IN11288, COVID-19 and the Defense Industrial Base: DOD Response and Legislative Considerations , by Heidi M. Peters. CRS Insight IN11279, COVID-19 and U.S. Iran Policy , by Kenneth Katzman. CRS Legal Sidebar LSB10424, COVID-19: An Overview of Trade-Related Measures to Address Access to Medical Goods , by Nina M. Hart. CRS Report R46304, COVID-19: China Medical Supply Chains and Broader Trade Issues , coordinated by Karen M. Sutter. CRS Insight IN11305, COVID-19: Defense Support of Civil Authorities , by Lawrence Kapp and Alan Ott. CRS In Focus IF11421, COVID-19: Global Implications and Responses , by Sara M. Tharakan et al. CRS Insight IN11280, COVID-19: Industrial Mobilization and Defense Production Act (DPA) Implementation , by Michael H. Cecire and Heidi M. Peters. CRS Legal Sidebar LSB10436, COVID-19: International Trade and Access to Pharmaceutical Products , by Nina M. Hart. CRS In Focus IF11434, COVID-19: U.S.-China Economic Considerations , by Karen M. Sutter and Michael D. Sutherland. CRS Report R46270, Global Economic Effects of COVID-19 , coordinated by James K. Jackson. CRS In Focus IF11480, Overview: The Department of Defense and COVID-19 , coordinated by Kathleen J. McInnis. CRS Insight IN11231, The Defense Production Act (DPA) and COVID-19: Key Authorities and Policy Considerations , by Michael H. Cecire and Heidi M. Peters. CRS Insight IN11337, The Defense Production Act (DPA) and the COVID-19 Pandemic: Recent Developments and Policy Considerations , by Michael H. Cecire and Heidi M. Peters. CRS Insight IN11325, U.S. Travel and Tourism and COVID-19 , by Michaela D. Platzer. Appendix B. Additional Writings In presenting sources of additional reading, this appendix includes some examples of writings reflecting various perspectives on the potential implications of the COVID-19 pandemic on the international security environment and the U.S. role in the world, organized by specific themes or topics. Within each section, the items are presented in chronological order, with the most recent on top. General/Multitopic Edith M. Lederer, "UN Chief Says Pandemic Is Unleashing a 'Tsunami of Hate,'" Associated Press , May 8, 2020. Nikolas K. Gvosdev, "Why the Coronavirus Won't Transform International Affairs Like 9/11 Did," National Interest , May 5, 2020. Deepanshu Mohan, "The Geopolitical Contours of a Post-COVID-19 World," East Asia Forum , May 2, 2020. Andrew Ehrhardt, "Disease and Diplomacy in the 19th Century," War on the Rocks , April 30, 2019. Dmitri K. Simes, "The Perfect Storm," National Interest , April 24, 2020. Fred Kaplan, "What Happens if Oil Doesn't Recover? If Demand Doesn't Pick Up This Summer, We Could See Major Shifts in Global Power," Slate , April 23, 2020. Barry R. Posen, "Do Pandemics Promote Peace? Why Sickness Slows the March to War," Foreign Affairs , April 23, 2020. Joseph Cirincione, "How to Prevent War During the Coronavirus Pandemic, How Will the Coronavirus Threaten Global Peace?" National Interest , April 22, 2020. Frank Hoffman, "An American Perspective on Post-Pandemic Geopolitics," RUSI, April 20, 2020. Gordon Bardos, "Will the Coronavirus Crisis Force America to Look in the Mirror and Reform?" National Interest , April 18, 2020. Nicholas Eberstadt, "The "New Normal": Thoughts about the Shape of Things to Come in the Post-Pandemic World," National Bureau of Asian Research, April 18, 2020. Steve Coll, "Woodrow Wilson's Case of the Flu, and How Pandemics Change History," New Yorker , April 17, 2020. Jackson Diehl, "The Pandemic Is Killing Truth, Too," Washington Post , April 12, 2020. Edith M. Lederer, "UN Chief Warns COVID-19 Threatens Global Peace and Security," Associated Press , April 10, 2020. Stratfor Worldview, "How the Coronavirus Pandemic Is Changing the World and the Future," National Interest , April 4, 2020. Daniel W. Drezner, "The Most Counterintuitive Prediction about World Politics and the Coronavirus, What If Nothing Changes?" Washington Post , March 30, 2020. Ali Demirdas, "Western Values May Not Survive the Coronavirus. European Unity and American Military Power Just Haven't Held Up," National Interest , March 28, 2020. John Allen et al., "How the World Will Look after the Coronavirus Pandemic," Foreign Policy , March 20, 2020. (Includes short contributions from 12 authors.) Maxine Whittaker, "How Infectious Diseases Have Shaped Our Culture, Habits and Language," The Conversation , July 12, 2017. World Order, International Institutions, and Global Governance Edward Fishman, "The World Order Is Dead. Here's How to Build a New One for a Post-Coronavirus Era," Politic o, May 3, 2020. Rebecca Wolfe and Hilary Matfess Sunday, "COVID and Cooperation: The Latest Canary in the Coal Mine," Lawfare , May 3, 2020. Joshua Keating, "The Decline of the Nation-State, Trump's War with the Governors Hints at a New Political Order," Foreign Policy , April 29, 2020. Yukon Huang and Jeremy Smith, "Pandemic Response Reflects Unlearned Lessons of U.S.-China Trade War," Carnegie Endowment for International Peace, April 27, 2020. Mihir Sharma, "Diplomacy Is Another Victim of the Virus," Bloomberg , April 26, 2020. Brahma Chellaney, "The WHO Has Failed the World in its Pandemic Response," Strategist (Australian Strategic Policy Institute) , April 23, 2020. William C. Danvers, "The World Bank steps up its role in fighting for the future," The Hill , April 22, 2020. Eric A. Posner, "The Limits of the World Health Organization," Lawfare , April 21, 2020. Amitav Acharya, "How Coronavirus May Reshape the World Order," National Interest , April 18, 2020. Joseph S. Nye Jr., "No, the Coronavirus Will Not Change the Global Order," Foreign Policy , April 16, 2020. Karen DeYoung and Liz Sly, "Global Institutions Are Flailing in the Face of the Pandemic," Washington Post , April 15, 2020. Colin H. Kahl and Ariana Berengaut, "Aftershocks: The Coronavirus Pandemic and the New World Disorder," War on the Rocks , April 10, 2020. Lanhee J. Chen, "Lost in Beijing: The Story of the WHO, China Broke the World Health Organization. The U.S. Has to Fix It or Leave and Start Its Own Group," Wall Street Journal , April 8, 2020. Colum Lynch, "Can the United Nations Survive the Coronavirus? In the Absence of U.S. Leadership, the U.N. Is Struggling to Carve Out a Role in the Face of What May Be the Greatest Threat Since Its Founding," Foreign Policy , April 8, 2020. Timofey V. Bordachev, "Visions Of The Post-Coronavirus World: Russian Expert On Europe Bordachev: The Liberal World Order Will Not Survive," MEMRI, April 6, 2020. Matthew Lee and Edith M. Lederer, "Global Diplomacy Under the Gun in The Time of Ccoronavirus," Associated Press , April 4, 2020. 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Koblentz and Michael Hunzeker, "National Security in the Age of Pandemics," Defense One , April 3, 2020. Nahal Toosi, "Coronavirus Rattles America's National Security Priesthood," Politico Pro , March 29, 2020. Joseph S. Nye, Jr., "COVID-19's Painful Lesson about Strategy and Power," War on the Rocks , March 26, 2020. Gary J. Schmitt, "National Security and the Pandemic of 2020," American Interest , March 20, 2020. U.S. Defense Strategy, Defense Budget, and Military Operations Susan Montoya Bryan (Associated Press), "US Must Move Ahead with Work on Nukes, Says Nuclear Security Boss," Defense New s, May 6, 2020. Leo Shane III, "No Extra Money for Defense Amid Coronavirus Crisis, Think Tank Argues," Military Times , May 6, 2020. Hal Brands, "Can a Broke America Fight a Cold War With China? The Coronavirus Has United Americans Against Beijing's Aggressions, But It Will Also Devastate the Pentagon Budget," Bloomberg , May 5, 2020. Rebeccah L. Heinrichs, "Expand Missile Defenses During the Pandemic, Don't Cut Them," Defense News , May 5, 2020. Fred Kaplan, "Now Is the Time to Cut the Defense Budget," Slate , May 5, 2020. Paul McLeary, "Old Weapons Under Fire As COVID Debt Rises," Breaking Defense , May 5, 2020. Aaron Mehta, "Esper: Flat Budget Could Speed Cutting of Legacy Programs," Defense News , May 5, 2020. John M. Donnelly, "US military poised for post-pandemic shift," CQ (Congressional Quarterly) , May 4, 2020. Ben Werner, "SECDEF Esper Preparing For Future Defense Spending Cuts," USNI News , May 4, 2020. Rebecca Kheel, "Defense Budget Brawl Looms After Pandemic," The Hill , May 3, 2020. Anrea Howard, "The Pandemic and America's Response to Future Bioweapons," War on the Rocks , May 1, 2020. Paul McLeary, "Pentagon Wary Of Adversaries Buying Defense Firms Amid Economic Crisis," Breaking Defense , April 30, 2020. Ben Wolfgang, "U.S. Military Ramps Up Counterterrorism Operations in Africa Amid Pandemic," Washington Times , April 29, 2020. David Barno and Nora Bensahel, "Five Ways the U.S. Military Will Change After the Pandemic," War on the Rocks , April 28, 2020. Theresa Hitchens, "DoD Budget Cuts Likely As $4 Trillion Deficit Looms," Breaking Defense , April 27, 2020. Walter Russell Mead, "The Century of Bioweapons," Wall Street Journal , April 27, 2020. Connor O'Brien, "Defense Boosters Fire Warning Shots over Budget Cuts Due to Pandemic," Politico Pro , April 24, 2020. Natasha Bertrand, Daniel Lippman, and Lara Seligman, "Officials Probe the Threat of a Coronavirus Bioweapon," Politico Pro , April 23, 2020. William D. Hartung, "Now Isn't the Time to Push for Nuclear Modernization," Defense News , April 21, 2020. Loren Thompson, "How Coronavirus Could Permanently Transform The U.S. Military," Forbes , April 20, 2020. Todd Harrison, "DoD Must Identify Its 'Crown Jewels' in Preparation for Fiscal Uncertainty," Defense News , April 15, 2020. Michael J. Mazarr, "Toward a New Theory of Power Projection," War on the Rock s, April 15, 2020. Robert Burns, "Military Sees No Quick Exit From 'New World' of Coronavirus," Associated Press , April 14, 2020. Tony Bertuca, "Global Pandemic Threatens to Hobble National Defense Strategy," Inside Defense , April 13, 2020. David Ignatius, "The Coronavirus Is Already Reshaping Defense Strategies," Washington Post , April 9, 2020. Daniel L. Davis, "Coronavirus Means No More Money for Forever Wars," National Interest , April 7, 2020. Harrison Schramm, Kevin A. Chlan, Peter Kouretsos, COVID-19, Analysis and Policy Implications , Center for Strategic and Budgetary Assessments, 2020 (released April 7, 2020), 31 pp. Jason Sherman, "Analyst: Pandemic Will Squeeze Defense Spending As Nation's Focus Shifts to Health Care," Inside Defense , April 6, 2020. Stratfor Worldview, "Will the Coronavirus Ruin Countries' Ability to Wage War?" National Interest , April 5, 2020. James G. Foggo III, "Germs: The Seventh Domain of Warfare," U.S. Naval Institute Proceedings , April 2020. David Barno and Nora Bensahel, "After the Pandemic: America and National Security in a Changed World," War on the Rocks , March 31, 2020. Max Boot, "Covid-19 is Killing Off Our Traditional Notions of National Defense," Washington Post , March 31, 2020. Jim Thomas, "A Blueprint for Rebuilding America's Military After the Coronavirus," National Interest , March 28, 2020. Doug Bandow, "Now's The Time To Become A Truly 'America First' Military, With Coronavirus Killing the Economy, We Can No Longer Afford to Project Power Everywhere," American Conservative , March 26, 2020. Doug Bandow, "How the Coronavirus Shows North Korea Doesn't Matter That Much to America," National Interest , March 25, 2020. Doug Bandow, "Coronavirus Means America Is Really Broke. Trump Should Get the Hell Out of Syria," National Interest , March 22, 2020. U.S. Foreign Assistance and International Debt Relief Michael H. Fuchs, Alexandra Schmitt, and Haneul Lee, "Foreign Aid is Critical to Stopping the Coronavirus," National Interest , May 3, 2020. Daniel F. Runde, Conor M. Savoy, and Shannon McKeown, "Covid-19 Has Consequences for U.S. Foreign Aid and Global Leadership," Center for Strategic and International Studies (CSIS), May 1, 2020. James Kynge and Sun Yu, "China Faces Wave of Calls for Debt Relief on 'Belt and Road' Projects," Financial Times , April 30, 2020. Charles Holmes, Anthony Lake, and Witney Schneidman, "It's Time to Help Africa Fight the Virus, The Continent Is Ripe for a Public Health Disaster, and Western Powers Must Step in to Prevent Another Global Catastrophe," Foreign Policy, April 29, 2020. Matthew Lee, "Virus Pandemic Collides with Trump's Disdain for Foreign Aid," Associated Press , April 17, 2020. Adam Tooze, "A Global Pandemic Bailout Was Coming Until America Stopped It," Foreign Policy , April 17, 2020. Editorial Board, "Even as Rich Countries Reel, It's Imperative to Help Emerging Markets," Washington Post , April 16, 2020. Dayo Israel, "Unless Canceled, Africa's Debt Burden Will Cause COVID-19 to Kill Millions," Washington Examiner , April 16, 2020. Cara Anna and Aya Batrawy, "Richest Countries Agree to Freeze Poorer Nations' Debt," Associated Press , April 15, 2020. Nahal Toosi, "Trump Hobbles Foreign Aid as Coronavirus Rips Around the World, Confusion at the Top Has Crippled USAID at a Critical Time for the Global Battle Against the Pandemic," Politico , April 15, 2020. Josh Zumbrun, "G-7 Countries Support Debt Relief for Poorest Countries If Joined by Full G-20," Wall Street Journal , April 14, 2020. Robbie Gramer, "Outgoing USAID Chief Says Pandemic Underscores Importance of Foreign Aid," Foreign Policy , April 13, 2020. Josh Rogin, "The Pandemic Means the Trump Administration Must Stop Mistreating USAID," Washington Post , April 9, 2020. Josh Rogin, "America's $2 Trillion Coronavirus Stimulus Package Ignores the Rest of the World," Washington Post , March 26, 2020. Non-state Actors Ryan Browne, "ISIS Seeks to Exploit Pandemic to Mount Resurgence in Iraq and Syria," CNN , May 8, 2020. Robert Muggah, "The Pandemic Has Triggered Dramatic Shifts in the Global Criminal Underworld," Foreign Policy, May 8, 2020. Ashley Jackson, "For the Taliban, the Pandemic Is a Ladder," Foreign Policy , May 6, 2020. Brandon Prins, "Why Coronavirus May Lead to More Piracy," National Interest , May 6, 2020. Lydia Khalil, "COVID-19 and America's Counter-Terrorism Response," War on the Rocks , May 1, 2020. Luke Baker, "Militants, Fringe Groups Exploiting COVID-19, Warns EU Anti-Terrorism Chief," Reuters , April 30, 2020. Joseph Hincks, "With the World Busy Fighting COVID-19, Could ISIS Mount a Resurgence?" Time , April 29, 2020. Luis Fajardo, "Coronavirus: Latin American Crime Gangs Adapt to Pandemic," BBC , April 22, 2020. Raffaello Pantucci, "After the Coronavirus, Terrorism Won't Be the Same," Foreign Policy , April 22, 2020. Valentina Di Donato and Tim Lister, "The Mafia Is Poised to Exploit Coronavirus, and Not Just in Italy," CNN , April 19, 2020. Jim Mustian and Jake Bleiberg, "'Cartels Are Scrambling': Virus Snarls Global Drug Trade," Associated Press , April 19, 2020. Colum Lynch, "How Trump and Putin Weakened U.N. Bid for a Global Cease-Fire, U.S. Officials Worry That Counterterrorism Operations Will Be Constrained," Foreign Policy , April 17, 2020. Seth J. Frantzman, "Iran Regime, ISIS and Other Extremists Exploit Coronavirus to Wreak Havoc," Jerusalem Post , April 16, 2020. Kevin Sieff, Susannah George, and Kareem Fahim, "Now Joining the Fight Against Coronavirus: The World's Armed Rebels, Drug Cartels and Gangs," Washington Post , April 14, 2020. Souad Mekhennet, "Far-Right and Radical Islamist Groups Are Exploiting Coronavirus Turmoil," Washington Post , April 10, 2020. Yonah Jeremy Bob, "Coronavirus Economic Impact Could Block Iran from Funding Terror INSS," Jerusalem Post , April 7, 2020. Vanda Felbab-Brown, "What Coronavirus Means for Online Fraud, Forced Sex, Drug Smuggling and Wildlife Trafficking," Lawfare , April 3, 2020. Cara Anna, "Extremists See Global Chaos from Virus As An Opportunity," Associated Press , April 2, 2020. Stratfor Worldview, "Coronavirus Could Lead To Lots of This in the Near Future," National Interest , March 22, 2020. (The article discusses potential actions by non-state actors.) U.S. Attention to International Issues Other than COVID-19 Arjun Kapur, "Scotland Launched an Invasion During the Black Death. Does History Tell China to Attack Taiwan?" National Interest , May 2, 2020. Con Coughlin, "China Exploiting the Coronavirus Pandemic to Expand in Asia," Gatestone Institute , April 30, 2020. Corinne Redfern, "The Pandemic's Hidden Human Trafficking Crisis, The Coronavirus Has Created More People Vulnerable to Exploitation by Traffickers and Revealed the World's Unpreparedness to Protect Them," Foreign Policy , April 30, 2020. Paul Haenle, "Security Concerns in Asia-Pacific Escalate Amid Coronavirus Scramble, While the Trump Administration Is Consumed with the Coronavirus, China and North Korea Are Seizing the Moment for Strategic Advantage," Carnegie Endowment for International Peace, April 29, 2020. Bertil Lintner, "Time May Be Ripe for China to Invade Taiwan, Pandemic Has Left a US Security Vacuum Around the Self-Governing Island China Has Oft-Vowed to 'Reincorporate' with the Mainland," Asia Times , April 28, 2020. Victor Davis Hanson, "Pandemic Only 1 of America's Security Concerns," Daily Signal , April 23, 2020. Gordon Lubold and Dion Nissenbaum, "With Trump Facing Virus Crisis, U.S. Warns Rivals Not to Seek Advantage," Wall Street Journal , April 20, 2020. Ellen Mitchell, "Foreign Powers Test US Defenses Amid Coronavirus Pandemic," The Hill , April 19, 2020. Karen DeYoung, "Foreign Policy Challenges Persist for a Distracted U.S. in the Midst of Pandemic," Washington Post , April 10, 2020. Sylvie Lanteaume (Agence France-Presse), "Hit by Virus, Pentagon Warns Enemies: Don't Test Us," Yahoo News , April 10, 2020. "With the world distracted, China intimidates Taiwan," Economist , April 8, 2020. (This article does not list an author.) Fred Kaplan, "The Coronavirus Hasn't Stopped Trump From Undermining Our National Security," Slat e, March 26, 2020. Role of Congress Robbie Gramer and Jack Detsch, "Pandemic Stymies Congressional Check on Trump's Foreign Policy," Foreign Policy , April 8, 2020.

Some observers argue the COVID-19 pandemic could be a world-changing event with potentially profound and long-lasting implications for the international security environment and the U.S. role in the world. Other observers are more skeptical that the COVID-19 pandemic will have such effects. Observers who argue the COVID-19 pandemic could be world-changing for the international security environment and the U.S. role in the world have focused on several areas of potential change, including the following, which are listed here separately but overlap in some cases and can interact with one another: world order, international institutions, and global governance; U.S. global leadership and the U.S. role in the world; China's potential role as a global leader; U.S. relations and great power competition with China and Russia, including the use of the COVID-19 pandemic as a theme or tool for conducting ideological competition; the relative prevalence of democratic and authoritarian or autocratic forms of government; societal tension, reform, transformation, and governmental stability in various countries; the world economy, globalization, and U.S. trade policy; the characteristics and conduct of conflict; allied defense budgets and U.S. alliances; the cohesion of the European Union; the definition of, and budgeting for, U.S. national security; U.S. defense strategy, defense budgets, and military operations; U.S. foreign assistance programs and international debt relief; activities of non-state actors; the amount of U.S. attention devoted to ongoing international issues other than the COVID-19 pandemic; and the role of Congress in setting and overseeing the execution of U.S. foreign and defense policy. Issues for Congress may include whether and how the COVID-19 pandemic could change the international security environment, whether the Trump Administration's actions for responding to such change are appropriate and sufficient, and what implications such change could have for the role of Congress in setting and overseeing the execution of U.S. foreign and defense policy. Congress's decisions regarding these issues could have significant and even profound implications for U.S. foreign and defense policy, and for the status of Congress as a co-equal branch relative to the executive branch in setting and overseeing the implementation of U.S. foreign and defense policy.

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<1. About the U.S. Department of Health and Human Services (HHS)> The mission of HHS is to "enhance the health and well-being of Americans by providing for effective health and human services and by fostering sound, sustained advances in the sciences underlying medicine, public health, and social services." HHS is currently organized into 11 main agencies, called operating divisions (listed below), which are responsible for administering a wide variety of health and human services programs, and conducting related research. In addition, HHS has a number of staff divisions within the Office of the Secretary (OS). These staff divisions fulfill a broad array of management, research, oversight, and emergency preparedness functions in support of the entire department. HHS Operating Divisions Eight of the HHS operating divisions are part of the U.S. Public Health Service (PHS). PHS agencies have diverse missions in support of public health, including the provision of health care services and supports (e.g., IHS, HRSA, SAMHSA); the advancement of health care quality and medical research (e.g., AHRQ, NIH); the prevention and control of disease, injury, and environmental health hazards (e.g., CDC, ATSDR); and the regulation of food and drugs (e.g., FDA). The three remaining HHS operating divisions ACF, ACL, and CMS are not PHS agencies. ACF and ACL largely administer human services programs focused on the well-being of vulnerable children, families, older Americans, and individuals with disabilities. CMS which accounts for the largest share of the HHS budget by far is responsible for administering Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP), in addition to certain programs related to private health insurance. (For a summary of each operating division's mission and links to agency resources related to the FY2021 budget request, see the Appendix .) <2. Context for the FY2021 President's Budget Request> The Budget and Accounting Act of 1921 (P.L. 67-13), as amended, requires the President to submit an annual consolidated federal budget to Congress at the beginning of each regular congressional session, not later than the first Monday in February. Many of the proposals in the President's budget would require changes to laws that govern mandatory spending levels or policies, which are typically established on a multiyear or permanent basis. Discretionary spending , however, which is roughly one-third of the budget, is decided and controlled each fiscal year through the annual appropriations process. While Congress is ultimately not required to adopt the President's proposals or recommendations, the submission of the President's budget typically initiates the congressional budget process and informs Congress of the President's recommended spending levels for agencies and programs. The FY2021 President's budget request was submitted to Congress on February 10, 2020. Less than two months before this, all 12 of the annual appropriations acts for FY2020 had been enacted into law on December 20, 2019. The FY2020 funding levels shown in FY2021 President's budget materials generally reflect enacted annual levels, with limited exceptions. The exceptions include cases in which full-year mandatory funds had not yet been provided for programs typically funded outside of the annual appropriations process (e.g., mandatory funding for the Temporary Assistance for Needy Families Block Grant or the Community Health Center Fund). In such cases, the FY2021 President's budget generally uses estimated FY2020 funding levels based on annualized amounts provided in the most recent short-term funding extensions. Because some FY2020 amounts have not been finalized, this report generally refers to FY2020 funding levels as estimates , whereas amounts for earlier years are called actual or final . In addition, amounts shown for FY2020 do not include supplemental appropriations or other spending effects resulting from coronavirus disease response measures that have been enacted since the FY2021 President's budget request was submitted. <3. Overview of the FY2021 HHS Budget Request> Under the President's budget request, HHS would spend an estimated $1.370 trillion in outlays in FY2021 (see Table 1 ). This is $48 billion (+4%) more than estimated HHS outlays in FY2020 and about $156 billion (+13%) more than actual HHS outlays in FY2019. Historical estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, OMB estimated that HHS accounted for 27% of all federal outlays in FY2019, and projects that it would account for 28% of outlays if all proposals in the President's budget request were enacted. Figure 2 displays proposed FY2021 HHS outlays by major program or spending category in the President's request. As this figure shows, mandatory spending typically accounts for the vast majority of the HHS budget. In fact, two mandatory spending programs Medicare and Medicaid are expected to account for 86% of all estimated HHS spending in FY2021. Medicare and Medicaid are entitlement programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. This figure also shows that discretionary spending accounts for about 8% of estimated FY2021 HHS outlays in the President's request. Although discretionary spending represents a relatively small share of total HHS spending, the department nevertheless receives more discretionary funding than most federal departments. According to OMB data, HHS accounted for almost 8% of all discretionary budget authority across the government in FY2019. The Department of Defense was the only federal agency to account for a larger share of all discretionary budget authority in that year (50%). <3.1. Budgetary Resources Versus Appropriations> As previously mentioned, the HHS budget reflects funding from a broad set of budgetary resources that includes, but is not limited to, the amounts provided to HHS through the annual appropriations process. As a result, certain amounts shown in FY2021 HHS budget materials (including amounts for prior years) will not match amounts provided to HHS by annual appropriations acts and displayed in accompanying congressional documents. There are several reasons for this, discussed briefly below. <3.1.1. Mandatory and Discretionary Spending> Mandatory spending makes up a large portion of the HHS budget. Whereas all discretionary spending is controlled and provided through the annual appropriations process, all mandatory spending is controlled by the program's authorizing statute. In most cases, that authorizing statute also provides the funding for the program (e.g., State Children's Health Insurance Program). However, the budget authority for some mandatory programs (including Medicaid), while controlled by criteria in the authorizing statute, must still be provided through the annual appropriations process; such programs are commonly referred to as appropriated entitlements or appropriated mandatories . Certain budget documents may show only discretionary spending, while others may also show some or all types of mandatory spending. <3.1.2. HHS in the Appropriations Process> The HHS budget request accounts for the department as a whole, while the appropriations process divides HHS funding across three different appropriations bills. Most of the department's discretionary appropriations are provided through the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS) Appropriations Act. However, funding for certain HHS agencies and activities is provided in two other bills the Departments of the Interior, Environment, and Related Agencies Appropriations Act (INT) and the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act (AG). Table 2 lists HHS agencies by appropriations bill. Each of these three appropriations acts provides discretionary HHS funding. In some cases, these acts also provide the necessary funding for appropriated mandatories at HHS. However, authorizing laws provide funding for other mandatory spending programs. <3.1.3. Proposed Law and Current Law Estimates for Mandatory Programs> HHS budget materials include two different estimates for mandatory spending programs when appropriate: proposed law and current law . The p roposed law estimates take into account changes in mandatory spending proposed in the FY2021 HHS budget request. Such proposals would generally need to be enacted into law to affect the budgetary resources ultimately available to the mandatory spending program. HHS materials may also show a current law or current services estimate for mandatory spending programs. These estimates assume that no changes will be made to existing policies, and instead estimate mandatory spending for programs based on criteria established in current authorizing law. The HHS budget estimates in this report reflect the proposed law estimates for mandatory spending programs, but readers should be aware that other HHS, OMB, or congressional estimates might reflect current law instead. <3.1.4. User Fees and Other Types of Collections> In some cases, agencies within HHS have the authority to expend user fees and other types of collections that effectively supplement their appropriations. In addition, agencies may receive transfers of budgetary resources from other sources, such as from the Public Health Service Evaluation Set-Aside (also referred to as the PHS Tap) or one of the mandatory funds established by the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). Budgetary totals that account for these sorts of resources in the HHS estimates are often referred to as being at the program level . HHS agencies that have historically had notable differences between the amounts in the appropriations bills and their program level include, for instance, FDA (due to user fees) and AHRQ (due to transfers). <3.1.5. Scorekeeping and Display Conventions> The Administration may choose to follow different conventions than those of congressional scorekeepers for its estimates of HHS programs. For example, certain transfers of funding between HHS agencies (or from HHS to other federal agencies) that occurred in prior fiscal years, or are expected to occur in the current fiscal year, may be accounted for in the Administration's estimates but not necessarily in the congressional documents. <4. HHS Budget by Operating Division> Figure 3 provides a breakdown of the FY2021 HHS budget request by operating division. When taking into account mandatory and discretionary budget authority (i.e., total budget authority), CMS accounts for the largest share of the request: nearly $1.3 trillion. The majority of the CMS budget request would go toward mandatory spending programs, such as Medicare and Medicaid. Spending on Medicare and Medicaid is expected to increase from FY2020 levels under the President's request, both in terms of proposed law and current law estimates. The request also includes a number of legislative proposals that would reduce spending on these programs (relative to current law, but not the prior year) if enacted. When looking exclusively at discretionary budget authority (as illustrated in Figure 3 and detailed in Table 3 ), funding for CMS is comparatively smaller, accounting for $3.7 billion of the HHS discretionary request. Discretionary CMS funds primarily support program operations and federal administrative activities, though some funds also go toward efforts to reduce health care fraud and abuse. The largest share of the HHS discretionary request would go to the PHS agencies: roughly $64.8 billion in combined public health funding for FDA, HRSA, IHS, CDC, ATSDR, NIH, and SAMHSA (no funds would go to AHRQ under the request ). NIH would receive the largest amount of discretionary budget authority of any single HHS operating division: $37.7 billion. This represents a decrease of roughly $2.6 billion (-6%) from FY2020. All of the existing NIH institutes and centers would receive a decrease under the request. The majority of the proposed NIH budget would support biomedical research performed by hospitals, medical schools, universities, and other research institutions around the country. ACF would receive the second-largest discretionary funding level among the HHS operating divisions: $20.2 billion. This would represent a decrease of roughly $4.2 billion (-17%) from FY2020. The majority of the discretionary ACF request (more than 80%) would go to early childhood care and education programs, such as Head Start and the Child Care and Development Block Grant. As has been the case since FY2018, the budget proposes to eliminate several ACF programs, including the Low Income Home Energy Assistance Program (LIHEAP) and the Community Services Block Grant (CSBG). Table 4 puts the FY2021 request for each HHS operating division and the Office of the Secretary into context, displaying it along with estimates of funding provided over the four prior fiscal years (FY2017-FY2019). These totals are inclusive of both mandatory and discretionary funding. The amounts in this table are shown in terms of budget authority (BA) and outlays. BA is the authority provided by federal law to enter into contracts or other financial obligations that will result in immediate or future expenditures involving federal government funds. Outlays occur when funds are actually expended from the Treasury; they could be the result of either new budget authority enacted in the current fiscal year or unexpended budget authority that was enacted in previous fiscal years. As a consequence, the BA and outlays in this table represent two different ways of accounting for the funding that is provided to each HHS agency through the federal budget process. For example, Table 4 shows $0 in FY2021 BA for AHRQ because the President's budget proposes to eliminate this agency; however, the table shows an estimated $299 million in FY2021 AHRQ outlays, reflecting the expected expenditure of funds previously provided to the agency. <4.1. Appendix. HHS Operating Divisions: Missions and FY2021 Budget Resources> This appendix provides for each operating division a brief summary of its mission, the applicable appropriations bill, the FY2021 budget request level, and links to additional resources related to that request. Food and Drug Administration (FDA) The FDA mission is focused on regulating the safety, efficacy, and security of human foods, dietary supplements, cosmetics, and animal foods; and the safety and effectiveness of human drugs, biological products (e.g., vaccines), medical devices, radiation-emitting products, and animal drugs. It also regulates the manufacture, marketing, and sale of tobacco products. Relevant Appropriations Bill: Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (AG) FY2021 Request: BA: $3.293 billion Outlays: $3.552 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 19), https://www.fda.gov/media/135078/download BIB chapter (p. 20), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=24 Health Resources and Services Administration (HRSA) The HRSA mission is focused on "improving health care to people who are geographically isolated, economically or medically vulnerable." Among its many programs and activities, HRSA supports health care workforce training; the National Health Service Corps; and the federal health centers program, which provides grants to nonprofit entities that provide primary care services to people who experience financial, geographic, cultural, or other barriers to health care. Relevant Appropriations Bill: LHHS FY2021 Request: BA: $11.444 billion Outlays: $11.951 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 17), https://www.hrsa.gov/sites/default/files/hrsa/about/budget/budget-justification-fy2021.pdf BIB chapter (p. 28), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=32 Indian Health Service (IHS) The IHS mission is to provide "a comprehensive health service delivery system for American Indians and Alaska Natives" and "raise the physical, mental, social, and spiritual health of American Indians and Alaska Natives to the highest level." IHS provides health care for approximately 2.2 million eligible American Indians and Alaska Natives through a system of programs and facilities located on or near Indian reservations, and through contractors in certain urban areas. Relevant Appropriations Bill: Departments of the Interior, Environment, and Related Agencies (INT) FY2021 Request: BA: $6.391 billion Outlays: $6.479 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 8), https://www.ihs.gov/sites/budgetformulation/themes/responsive2017/display_objects/documents/FY_2021_Final_CJ-IHS.pdf BIB chapter (p. 37), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=41 Centers for Disease Control and Prevention (CDC) and Agency for Toxic Substances and Disease Registry (ATSDR) The CDC mission is focused on "disease prevention and control, environmental health, and health promotion and health education." CDC is organized into a number of centers, institutes, and offices, some focused on specific public health challenges (e.g., injury prevention) and others focused on general public health capabilities (e.g., surveillance and laboratory services). In addition, the ATSDR is headed by the CDC director. For that reason, the ATSDR budget is often shown within CDC. Following the conventions of the FY2021 HHS BIB, ATSDR's budget request is included in the CDC totals shown in this report. ATSDR's work is focused on preventing or mitigating adverse effects resulting from exposure to hazardous substances in the environment. Relevant Appropriations Bills: LHHS (CDC) INT (ATSDR) FY202 1 Request (CDC and ATSDR combined): BA: $7.134 billion Outlays: $8.174 billion Additional Resources Related to the FY202 1 Request: CDC Congressional Justification (all-purpose table on p. 25), https://www.cdc.gov/budget/documents/fy2021/FY-2021-CDC-congressional-justification.pdf ATSDR Congressional Justification, https://www.cdc.gov/budget/documents/fy2021/FY-2021-ATSDR-congressional-justification.pdf BIB chapter (p. 43), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=47 National Institutes of Health (NIH) The NIH mission is focused on conducting and supporting research "in causes, diagnosis, prevention, and cure of human diseases" and "in directing programs for the collection, dissemination, and exchange of information in medicine and health." NIH is organized into 27 research institutes and centers, headed by the NIH Director. (The FY2021 President's budget assumes that AHRQ's functions will be consolidated within NIH, in the new National Institute for Research on Safety and Quality [NIRSQ]. This assumption is reflected in the figures below. ) Relevant Appropriations Bill: LHHS FY2021 Request: BA: $37.905 billion Outlays: $39.807 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 15), available at https://officeofbudget.od.nih.gov/pdfs/FY21/br/1-OverviewVolumeSingleFile-toPrint.pdf BIB chapter (p. 54), available at https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=58 Substance Abuse and Mental Health Services Administration (SAMHSA) The SAMHSA mission is focused on reducing the "impact of substance abuse and mental illness on America's communities." SAMHSA coordinates behavioral health surveillance to improve understanding of the impact of substance abuse and mental illness on children, individuals, and families, and the costs associated with treatment. Relevant Appropriations Bill: LHHS FY2021 Request: BA: $5.598 billion Outlays: $5.984 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 6), https://www.samhsa.gov/sites/default/files/about_us/budget/fy-2021-samhsa-cj.pdf BIB chapter (p. 63), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=67 Agency for Healthcare Research and Quality (AHRQ) The AHRQ mission is focused on research to make health care "safer, higher quality, more accessible, equitable, and affordable." Specific AHRQ research efforts are aimed at reducing the costs of care, promoting patient safety, measuring the quality of health care, and improving health care services, organization, and financing. The FY2021 President's budget proposes eliminating AHRQ and consolidating certain key AHRQ functions within NIH, in the new National Institute for Research on Safety and Quality (NIRSQ). Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $0 Outlays: $0.303 billion Additional Resources Related to the FY202 1 Request: Congressional Justification for the proposed National Institute for Research on Safety and Quality, https://www.ahrq.gov/sites/default/files/wysiwyg/cpi/about/mission/budget/2021/FY_2021_CJ_NIRSQ.pdf There is no FY2021 BIB chapter for AHRQ. Centers for Medicare & Medicaid Services (CMS) The CMS mission is focused on supporting "innovative approaches to improve quality, accessibility, and affordability" of Medicare, Medicaid, the State Children's Health Insurance Program (CHIP), and private insurance, and on supporting private insurance market reform programs. The President's budget estimates that in FY2021, "over 145 million Americans will rely on the programs CMS administers including Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the [Health Insurance] Exchanges." Relevant Appropriations Bill: LHHS FY2021 Request: BA: $1,297.294 billion Outlays: $1,232.275 billion Additional Resources R elated to the FY2021 Request: Congressional Justification (all-purpose table on p. 9), https://www.cms.gov/About-CMS/Agency-Information/PerformanceBudget/FY2021-CJ-Final.pdf BIB chapter (p. 69), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=73 Administration for Children and Families (ACF) The ACF mission is focused on promoting the "economic and social well-being of children, youth, families, and communities." ACF administers a wide array of human services programs, including Temporary Assistance for Needy Families (TANF), Head Start, child care, the Social Services Block Grant (SSBG), and various child welfare programs. Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $54.976 billion Outlays: $57.489 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 6), https://www.acf.hhs.gov/sites/default/files/olab/fy_2021_congressional_justification.pdf BIB chapter (p. 141), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=145 Administration for Community Living (ACL) The ACL mission is focused on maximizing the "independence, well-being, and health of older adults, people with disabilities across the lifespan, and their families and caregivers." ACL administers a number of programs targeted at older Americans and the disabled, including Home and Community-Based Supportive Services and State Councils on Developmental Disabilities. Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $2.097 billion Outlays: $2.153 billion Additional Resources Related to th e FY2021 Request: Congressional Justification (not yet available online); see excerpts, including a downloadable version of the all-purpose table, at https://acl.gov/about-acl/budget BIB chapter (p. 159), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=163

This report provides information about the FY2021 budget request for the U.S. Department of Health and Human Services (HHS). Historically, HHS has been one of the larger federal departments in terms of budgetary resources. Estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, HHS is estimated to have accounted for 27% of all federal outlays in FY2019. (FY2019 funding levels are generally considered final, whereas some FY2020 funding levels remain estimates.) The FY2021 President's budget request was submitted to Congress on February 10, 2020. Subsequently, on March 17, 2020, the President submitted a letter to Congress about FY2021 budget amendments (along with a supplemental appropriations request for FY2020) related to the response to the Coronavirus Disease 2019 (COVID-19) outbreak. According to the letter, these budget amendments would have budgetary effects for the FY2021 President's request for some HHS accounts at the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH). The letter did not contain sufficient details to incorporate potential effects of these amendments into the FY2021 request numbers contained in this report. As a result, the report reflects the President's initial request as submitted on February 10. Under the FY2021 President's budget request, as submitted in February 2020, HHS would spend an estimated $1.37 trillion in outlays in FY2021. This would be $48 billion (+4%) more than estimated HHS outlays in FY2020 and $156 billion (+13%) more than actual HHS outlays in FY2019. Mandatory spending typically comprises the majority of the HHS budget. Two mandatory spending programs—Medicare and Medicaid—are expected to account for 86% of all estimated HHS outlays in FY2021, according to the President's budget request. Medicare and Medicaid are entitlement programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. While mandatory spending is controlled (but not always provided) by authorizing laws, all discretionary spending is controlled and provided through the annual appropriations process. Discretionary spending accounts for about 8% of HHS outlays in the FY2021 President's budget request. Although discretionary spending represents a relatively small share of the HHS budget, the department nevertheless receives more discretionary money than most federal departments. According to OMB data, HHS accounted for nearly 8% of all discretionary budget authority across the government in FY2019.

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<1. Introduction> The National Flood Insurance Program (NFIP) is the primary source of flood insurance coverage for residential properties in the United States, with more than five million policies in over 22,000 communities in 56 states and jurisdictions. The program collects about $4.6 billion in annual revenue from policyholders' premiums, fees and surcharges and provides over $1.3 trillion in coverage. The NFIP was established by the National Flood Insurance Act of 1968. The general purpose of the NFIP is both to offer primary flood insurance to properties with significant flood risk, and to reduce flood risk through the adoption of floodplain management standards. A longer-term objective of the NFIP is to reduce federal expenditure on disaster assistance after floods. The Federal Emergency Management Agency (FEMA), which administers the NFIP, is planning to introduce Risk Rating 2.0 , which represents the biggest change to the way the NFIP calculates flood insurance premiums since its inception. The new rates are scheduled to go into effect on October 1, 2021, for all NFIP policies. The price of insurance is generally based on three components: (1) the average annual loss, which is the expected loss per year; (2) the risk, which depends on the variability or uncertainty in loss estimates; and (3) expenses. These rating factors are used to calculate the premium that is sufficient to cover expected losses. The methodologies used to estimate these components, particularly the average annual loss and the risk, have changed over the decades that the NFIP has been in operation. This report will outline how the NFIP currently rates risks and sets premiums to cover losses, and how these are expected to change with the introduction of Risk Rating 2.0. <2. The NFIP's Current Rating Structure> <2.1. How the NFIP Currently Determines Flood Insurance Premiums> The NFIP's current rating structure follows general insurance practices in effect at the time that the NFIP was established and has not fundamentally changed since the 1970s. The current NFIP rating structure uses several basic characteristics to classify properties based on flood risks. Structures are evaluated by their specific flood zone on a Flood Insurance Rate Map (FIRM), occupancy type, and the elevation of the structure relative to the Base Flood Elevation (BFE). In addition, the premium structure includes estimates for the expenses of the NFIP, including servicing of policies. FEMA uses a nationwide rating system that combines flood zones across many geographic areas. Individual policies do not necessarily reflect topographical features that affect flood risk. FEMA calculates expected losses for groups of structures that are similar in flood risk and key structural aspects, and assigns the same rate to all policies in a group. For example, two properties that are rated as the same NFIP risk (e.g., both are one-story, single-family dwellings with no basement, in the same flood zone, and elevated the same number of feet above the BFE ) , are charged the same rate per $100 of insurance, although they may be located in different states with differing flood histories or rest on different topography, such as a shallow floodplain as opposed to a steep river valley. In addition, two properties in the same flood zone are charged the same rate, regardless of their location within the zone. <2.1.1. Risk Modeling> FEMA's current efforts to model risk consider only the potential for coastal storm surge and fluvial (river) flooding. The NFIP expresses flood risk in terms of the expected economic loss due to inundation and the probability of that loss. Information about the flood hazard is determined through NFIP flood studies, the vulnerability of the structure being insured, and the performance of certain flood protection measures. This is incorporated into a flood risk assessment, which yields an estimate of the average annual loss. The insurance rate is determined from this loss after adjusting for expenses, deductibles, underinsurance (because not all structures are insured to their full value), and other factors. In inland areas, NFIP flood studies focus on a river's watershed, the topography along the river and adjacent floodplain where structures are located, and the hydraulic characteristics of the river and floodplain. In coastal areas, the studies also assess the effects of storm surge and wave action. Models of relevant physical processes are coupled with statistical models of weather events to compute flood depths and velocities, and their likelihood of occurring. The model prediction results are summarized in reports and portrayed on FIRMs which show water surface elevations, floodplain boundaries, and flood zones. An area of specific focus on the FIRM is the Special Flood Hazard Area (SFHA). Properties in an SFHA are subject to the mandatory purchase requirement, which requires owners of properties in the mapped SFHA, in a community that participates or has participated in the NFIP, to purchase flood insurance as a condition of receiving a federally backed mortgage. Within the SFHA, there are two broad flood zones, the A zone and the V zone. V zones are distinguished from A zones in that V zones are subject to wave action (i.e., coastal flooding). <2.1.2. Geographical and Structural Variables> To calculate the premium, the current rating system considers the flood zone , the building occupancy type, the foundation type, the number of floors, the presence or not of a basement, whether the property is entitled to a subsidy, whether or not the property is a primary residence, prior claims, and the structure's elevation relative to the BFE. The amount of coverage and the deductible will also affect the premium. <2.1.3. Premium Subsidies and Cross-Subsidies> Except for certain subsidies, flood insurance rates in the NFIP are directed to be "based on consideration of the risk involved and accepted actuarial principles," meaning that the rate is reflective of the true flood risk to the property. FEMA determines full-risk rates by estimating the probability of a given level of flooding, damage estimates based on that level of flooding, and accepted actuarial principles. However, Congress has directed FEMA not to charge actuarial rates for certain categories of properties and to offer subsidies or cross-subsidies to certain classes of properties in order to achieve the program's objectives so that that owners of certain existing properties in flood zones are able to afford flood insurance. There are three main categories of properties which pay less than full risk-based rates: 1. Those built or substantially improved before FEMA published the first post-1974 flood insurance rate map (FIRM); 2. Most properties newly mapped into a SFHA on or after April 1, 2015, if the applicant gets flood insurance coverage within a year of the mapping; and 3. Those that had flood insurance on the property that complied with a prior FIRM, but the property was remapped into a different rate class (a practice known as "grandfathering"). <2.1.3.1. Pre-FIRM Subsidy> Pre-FIRM properties are those which were built or substantially improved before December 31, 1974, or before FEMA published the first FIRM for their community, whichever was later. By statute, premium rates charged on structures built before they were first mapped into a flood zone that have not been substantially improved, known as pre-FIRM structures, are allowed to have lower premiums than what would be expected to cover predicted claims. The availability of this pre-FIRM subsidy was intended to allow preexisting floodplain properties to contribute in some measure to pre-funding their recovery from a flood disaster instead of relying solely on federal disaster assistance. In essence, flood insurance could distribute some of the financial burden among those protected by flood insurance and the public. As of September 2018, approximately 13% of NFIP policies received a pre-FIRM subsidy. Historically, the total number of pre-FIRM policies is relatively stable, but the percentage of those policies by comparison to the total policy base has decreased. <2.1.3.2. Newly Mapped Subsidy> The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) established a new subsidy for properties that are newly mapped into a SFHA on or after April 1, 2015, if the applicant obtains coverage that is effective within 12 months of the map revision date. Certain properties may be excluded based on their loss history. The rate for eligible newly mapped properties is equal to the Preferred Risk Policy (PRP) rate, but with a higher Federal Policy Fee, for the first 12 months following the map revision. After the first year, the newly mapped rate begins to transition to a full-risk rate, with annual increases to newly mapped policy premiums calculated using a multiplier that varies by the year of the map change. As a result of the increases to the multiplier, premiums for newly-mapped policies are increasing 15% per year. As of September 2018, about 4% of NFIP policies receive a newly mapped subsidy. <2.1.3.3. Grandfathering> FEMA allows owners of properties that were built in compliance with the FIRM which was in effect at the time of construction to maintain their old flood insurance rate class if their property is remapped into a new flood rate class. This practice is colloquially referred to as grandfathering, and is separate and distinct from the pre-FIRM subsidy. A property can be grandfathered due to a change in its flood zone or a change in its BFE. Zone grandfathering is the most common form of grandfathering. An example of zone grandfathering would be a property that is initially mapped into a flood zone and is built to the proper building code and standards, and is later remapped to a higher-risk flood zone. If the policyholder has maintained continuous insurance coverage under the NFIP, the owner of this property can pay the flood insurance premium based on the prior mapped zone. Elevation grandfathering occurs when a new FIRM increases the BFE, but the property itself does not change flood zones. For example, a property that was initially mapped as being four feet above BFE but is now, under the revised FIRM, only one foot above BFE, would still be allowed to pay the premium associated with a property four feet above BFE. FEMA does not consider the practice of grandfathering to be a subsidy for the NFIP, per se, because grandfathered properties are within a class of policies that are not subsidized for the class as a whole; instead, the discount provided to an individual policyholder is cross-subsidized by other policyholders in the NFIP. Thus, while grandfathering does intentionally allow policyholders to pay premiums that are less than their actuarial rate, the discount is offset by others in the same rate class as the grandfathered policyholder. As of September 2018, about 9% of NFIP policies were grandfathered. <2.2. Premium, Fees, and Surcharges> In addition to the building and contents premium, NFIP policyholders pay a number of fees and surcharges mandated by law. <2.2.1. Paid by All Policyholders> The Federal Policy Fee (FPF) was authorized by Congress in 1990 and helps pay for the administrative expenses of the program, including floodplain mapping and some of the insurance operations. The amount of the Federal Policy Fee is set by FEMA and can increase or decrease year to year. Since October 2017, the FPF has been $50 for Standard Flood Insurance Policies (SFIPs), $25 for Preferred Risk Policies (PRPs), and $25 for contents-only policies. A reserve fund assessment was authorized by Congress in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) to establish and maintain a reserve fund to cover future claim and debt expenses, especially those from catastrophic disasters. Since April 2016, FEMA has charged every NFIP policy a reserve fund assessment equal to 15% of the premium. All NFIP policies are also assessed a surcharge following the passage of HFIAA. The amount of the HFIAA surcharge is dependent on the type of property being insured. For primary residences, the charge is $25; for all other properties, the charge is $250. <2.2.2. Paid by Most Policyholders> The NFIP requires most policyholders to purchase Increased Cost of Compliance (ICC) coverage . This is in effect a separate insurance policy to offset the expense of complying with more rigorous building code standards when local ordinances require them to do so. The ICC policy has a separate rate premium structure, and provides an amount up to $30,000 in payments for certain eligible expenses. Congress has capped the amount that can be paid for ICC coverage at $75. ICC coverage is not required on condominium units and content-only policies. <2.2.3. Paid by Some Policyholders> In April 2019, FEMA began charging a Severe Repetitive Loss premium equivalent to 5% of the premium on all severe repetitive loss properties. If a community is on probation from the NFIP, all policyholders in that community will be charged a probation surcharge of $50 for a full one-year period, even if the community brings its program into compliance and is removed from probation. <3. Proposed Rating Structure Under Risk Rating 2.0> <3.1. How the NFIP Will Determine Flood Insurance Premiums> As proposed, NFIP premiums calculated under Risk Rating 2.0 will reflect an individual property's flood risk, in contrast to the current rating system in which properties with the same NFIP flood risk are charged the same rates. This will involve the use of a larger range of variables than in the current rating system, both in terms of modeling the flood risk and also in assessing the risk to each property. <3.1.1. Risk Modeling> The current rating system includes only two sources of flood risk: the 1%-annual-chance fluvial flood and the 1 %-annual-chance coastal flood . In contrast, Risk Rating 2.0 is designed to incorporate a broader range of flood frequencies and sources, including pluvial flooding (flooding due to heavy rainfall) , flooding due to tsunami, and coastal erosion outside the V zone. Risk Rating 2.0 is expected to use a multi-model approach to support the development of the new rates, with data from multiple sources including existing NFIP map data, NFIP policy and claims data, United States Geological Survey (USGS) 3-D elevation data, National Oceanographic and Atmospheric Administration (NOAA) SLOSH storm surge data, and U.S. Army Corps of Engineers data sets. According to FEMA, Risk Rating 2.0 will also use three commercial catastrophe models to estimate future loss potential. The use of catastrophe models to estimate potential losses caused by events such as hurricane wind, storm surge, inland flooding, tornadoes, earthquakes, and wildfires has become a standard risk management practice in the insurance industry. Catastrophe models were initially developed to address the shortcomings inherent in using historical data to project potential losses from infrequent, severe events that impacted many properties that were not geographically diverse. While each peril model reflects factors specific to the peril being modeled, catastrophe models generally have similar components, including modules simulating (1) the probability of the particular catastrophe occurring; (2) the intensity of the catastrophe; (3) the damage to structures; and (4) the allocation of the amount of the loss among those responsible for payment. The first stage of catastrophe modeling is to generate a stochastic event set, which is a database of simulated events. Each event is characterized by a probability of occurrence (event rate) and geographic area affected. Thousands of possible event scenarios are simulated, based on realistic parameters and historical data, to model probabilistically what could happen in the future. The hazard component of catastrophe models quantifies the severity of each event in a geographical area, once the event has occurred. An event footprint is generated, which is a spatial representation of hazard intensity from a specific event. For example, a model could calculate the peak wind speeds at each location affected by hurricane winds. Property vulnerability is modeled using mean damage ratios (MDRs), which are losses expressed as a percent of value, for a given hazard level (e.g., hurricane wind speed) and location. MDRs give the average percentages of damage that are expected for a structure with the characteristics input into the model. Finally, a financial or insurance module quantifies the financial consequences of each event from various financial perspectives. The policy terms such as deductibles, limits, and reinsurance are applied to the damage from each insured property from the vulnerability model to calculate the allocation of the loss amount. In the first stage of Risk Rating 2.0 modeling, FEMA is to conduct probabilistic flood risk analyses, in which structures are assigned specific annualized probabilities of being impacted by flood, and to validate these results with NFIP historical data. The next step is to compare the results of this analysis with the output of commercial catastrophe models. Finally, FEMA is to generate average annual loss values for certain geographies, focusing particularly on leveed areas and complex flooding hazards. <3.1.2. Geographic and Structural Variables> Geographical variables to be used in Risk Rating 2.0 are to include the distance to water and the type of water (e.g., river, stream, coast), the elevation of the property relative to the flooding source, and the stream order, which is a measure of the relative size of streams and rivers. The structural variables which have been identified by FEMA for use in Risk Rating 2.0 include the foundation type of the structure, the height of the lowest floor of the structure relative to BFE, and the replacement cost value of the structure. <3.1.3. Replacement Cost Value> In the current NFIP rating system, rates are based on the amount of insurance purchased for a structure rather than the replacement cost of that structure. For most actuarially-rated structures, the NFIP classifies the first $60,000 of building coverage for single-family residences ($175,000 for businesses) and $25,000 of contents coverage as the basic limit. It charges higher rates for coverage below this amount, because losses are more likely to occur in this range. Rates for additional coverage above the basic limit are lower. The basic and additional rates are weighted to account for the average tendency to buy less insurance than the replacement value. For example, a post-FIRM single-family property in Zone A with no basement would currently pay a basic rate of 1.1% per $100 coverage on the first $60,000 and an additional rate of 0.3% per $100 of coverage over $60,000. The two-tiered rating structure was used by the NFIP for two reasons. First, it ensured that the premium collected is sufficient to cover the typical claim, even if a policy is under-insured; according to FEMA, most NFIP claims are below $60,000. By charging a high rate for coverage up to $60,000, a policyholder's premium is likely to be sufficient to cover a typical claim. Secondly, it encouraged policyholders to insure their structure fully. By charging a low additional rate, policyholders are encouraged not just to insure a typical claim, but to insure against the unlikely but possible higher claim. For much of the NFIP's existence, the two-tiered rating structure operated with minimal inequity. However, as the range of replacement values widened, particularly through the 2000s, the potential for inequity caused by rating based on coverage instead of structure value grew. Two groups are most subject to inequity. First, structures whose value is closer to the $60,000 basic limit pay more than they would if their rate was based on their structure value because their entire rate is mainly comprised of the higher basic rate. Second, structures whose value is above $250,000 pay less than they would if their rate was based on structure value, because their rate is based on an average structure value that is much less than their actual structure value. In addition, high-valued structures can produce much higher claims than lower valued structure with the same intensity of damage. If replacement cost value were to be used in setting NFIP premium rates, it is anticipated that those structures with higher replacement costs than current local or national averages would begin paying more for their NFIP coverage than those structures that are below the average, which would pay less. How much more, or how much less, is undetermined. <3.1.4. Mitigation Credits in Risk Rating 2.0> Risk Rating 2.0 is to initially provide credits for three mitigation actions: 1. installing flood openings according to the criteria in 44 C.F.R. 60.3 ; 2. elevating onto posts, piles, and piers; and 3. elevating machinery and equipment above the lowest floor . FEMA has not yet given any information on how these credits will be applied to individual property premiums. Currently the only mitigation activity for which the NFIP gives premium credit is elevating a structure, so Risk Rating 2.0 could encourage individual policyholders to do more to mitigate the flood risk for their property. <3.2. Risk Rating 2.0 and Flood Zones> Flood zones are to no longer be used in calculating a pro perty's flood insurance premium following the introduction of Risk Rating 2.0; instead, the premium are to be calculated based on the specific features of an individual property. However, as proposed, flood zones will still be needed for floodplain management purposes ; for example, all new construction and substantial improvements to buildings in Zone V must be elevated on pilings, posts, piers, or columns. T he boundary of the SFHA will still be required for the mandatory purchase requirement . The FIRM map appeal process will still exist, but once Risk Rating 2.0 begins, map appeals are not to have any effect on the premium that a policyholder pays. Although FEMA has not yet given any details of how grandfathered properties will be affected by Risk Rating 2.0, other than to say that "all properties will be on a glide path to actuarial rates," the implication of the fact that flood zones will no longer be used to set premiums appears to indicate that zone grandfathering, at least, will no longer be relevant. <4. Maximum Premium Increases under Current Statute> FEMA has statutory authority to set premium rates. The limitations on annual premium increases are also set in statute, and Risk Rating 2.0 will not be able to increase rates annually beyond these caps. HFIAA set maximum rate increases for primary residences at 5-18% per year. HFIAA permits individual property increases of up to 18%, but limits the rate class increases to 15% per year. In other words, the average annual premium rate increase for primary residences within a single risk classification rate may not be increased by more than 15% a year, while the individual premium rate increase for any individual policy may not be increased by more than 18% each year. Other categories of properties are required to have their premium increased by 25% per year until they reach full risk-based rates: this includes non-primary residences, non-residential properties, business properties, properties with severe repetitive loss, properties with substantial cumulative damage, and properties with substantial damage or substantial improvement after July 6, 2012. However, FEMA does not consider everything that policyholders pay to the NFIP to be part of the premium and therefore subject to these caps. When premium rates are calculated for compliance with the statutory caps, FEMA only includes the building and contents coverage, the Increased Cost of Compliance coverage, and the reserve fund assessment. Other fees and surcharges are not considered part of the premium and therefore are not subject to the premium cap limitations, including the Federal Policy Fee, the HFIAA surcharge and, if relevant, the 5% Severe Repetitive Loss premium and/or probation surcharge. Table 1 shows the effects of a maximum statutory increase on the national average premium for a Standard Flood Insurance Policy (SFIP) which pays the full $75 for Increased Cost of Compliance (ICC) coverage. According to FEMA, the national average premium for an SFIP is $700. The reserve fund assessment for this policy would be $105 and the ICC premium would be $75, for a total premium of $880. For an SFIP primary residence, the maximum 18% increase would be calculated on this premium of $880, leading to an increase of $158.40 and a new premium of $1038.40. However, an SFIP primary residence would also pay an FPF of $50 and a HFIAA surcharge of $25, so the total amount due to the NFIP after an 18% increase would be $1113.40. An SFIP for a non-primary residence would be subject to a 25% increase on the initial premium of $880, leading to an increase of $220 and a new premium of $1100. Costs for such a policy for a non-primary residence would also include an FPF of $50 and a HFIAA surcharge of $250, so the total amount due to the NFIP after a 25% increase would be $1,400. <4.1. Risk Rating 2.0 and NFIP Cross-Subsidies> The current three categories of properties which pay less than the full risk-based rate (pre-FIRM, newly-mapped, and grandfathered) are determined by the date when the structure was built relative to the date of adoption of the FIRM, rather than the flood risk or the ability of the policyholder to pay. As proposed, the new rating system will not eliminate the three categories, nor the process of phasing out subsidies which began with BW-12, but rate changes will not necessarily be uniform within each category. Premiums for individual properties will be tied to their actual flood risk rather than the flood zone, but the rate at which the subsidies will be phased out will continue to be constrained by law. In general, Risk Rating 2.0 is expected to lead to the reduction of cross-subsidies between NFIP policyholders, and the eventual elimination of premium subsidies and cross-subsidies once all properties are paying the full risk-based rate. However, certain non-insurance activities of the NFIP are funded by cross-subsidies from NFIP policyholders' premiums. For example, through a program called the Community Rating System (CRS), FEMA encourages communities to improve upon the minimum floodplain management standards that are required to participate in the NFIP. Policyholders in communities which participate in the CRS can get discounts of 5% to 45% on their flood insurance premiums. These discounts are determined by the activities carried out by the community to reduce flood and erosion risk and adopt measures to protect natural and beneficial floodplain functions. The National Research Council estimated that the CRS program provided an average 11.4% discount on SFIP premiums across the NFIP. The CRS discount is cross-subsidized into the NFIP program, such that the discount for one community ends up being offset by increased premium rates in all communities across the NFIP. An average 11.4% discount for CRS communities is cross-subsidized and shared across NFIP communities through a cost (or load) increase of 13.4% to overall premiums. It is not yet clear how Risk Rating 2.0 will affect the CRS cross-subsidy. In addition, as much as 42% of the funding for flood mapping and floodplain management is collected from NFIP policyholders in the form of the FPF. About 66% of the resources from the FPF are allocated to flood mapping, with floodplain management receiving about 19% of the overall income from the FPF. Again, it is not yet clear how Risk Rating 2.0 might affect funding for floodplain management and flood risk mapping. <5. Concluding Observations> FEMA believes that the more transparent and accurate flood insurance pricing in Risk Rating 2.0 will lead to better risk communication and an increase in flood insurance take-up rate. However, Risk Rating 2.0 is not designed to increase or decrease revenue for the NFIP. According to FEMA, Risk Rating 2.0 will not be allowed to create a shortfall relative to the amount of premium income under the current rating system. If the new rates lead to a shortfall, the rating plan will be revised. FEMA is carrying out an actuarial analysis and cannot give any information at the time of writing about the number or percentage of properties which will see their premiums change under Risk Rating 2.0. However, certain types of properties may be more likely to be affected, either positively or negatively. These may include zone-grandfathered properties, properties which are currently on the border of flood zones, properties currently outside the SFHA at risk of pluvial flooding, and properties with above-average or below-average replacement cost values. For example, the use of distance to water, rather than flood zone, may mean that premiums for properties at the landward boundary of an SFHA could go down, while premiums for a property at the water boundary could go up. Concerns about premium increases in the past have focused on certain subsidized properties, but under Risk Rating 2.0 all types of properties may be subject to higher rates of increase than at present. For example, as of April 1, 2019, the premium for pre-FIRM properties increased by 7.3% and the premium for newly mapped properties increased by 15%. Premiums for post-FIRM V zone properties increased by 6%, post-FIRM A zones increased by 4%, and X zone properties increased by 1%. These properties could face higher premiums under Risk Rating 2.0. Risk Rating 2.0 is may lead to premium increases for some NFIP policyholders, which could raise questions of affordability. When the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) went into effect, constituents from multiple communities expressed concerns about the elimination of lower rate classes, arguing that it created a financial burden on policyholders, risked depressing home values, and could lead to a reduction in the number of NFIP policies purchased. Similar concerns may be expressed with Risk Rating 2.0. Although risk-based price signals could give policyholders a clearer understanding of their true flood risk, charging actuarially sound premiums may mean that insurance for some properties is considered unaffordable, or that premiums increase at a rate which may be considered to be politically unacceptable. FEMA does not currently have the authority to implement an affordability program, nor does FEMA's current rate structure provide the funding required to support an affordability program. However, affordability provisions are included in the three bills which have been introduced in the 116 th Congress for long-term reauthorization of the NFIP: the National Flood Insurance Program Reauthorization Act of 2019 ( H.R. 3167 ), and the National Flood Insurance Program Reauthorization and Reform Act of 2019 ( S. 2187 ) and its companion bill in the House, H.R. 3872 . As Congress considers a long-term reauthorization of the NFIP, a central question may be who should bear the costs of floodplain occupancy in the future and how to address the concerns of constituents facing increases in flood insurance premiums.

The National Flood Insurance Program (NFIP) is the primary source of flood insurance coverage for residential properties in the United States, with more than five million policies in over 22,000 communities in 56 states and jurisdictions. FEMA is planning to introduce the biggest change to the way the NFIP calculates flood insurance premiums, known as Risk Rating 2.0 , since the inception of the NFIP in 1968 . The new premium rates are scheduled to go into effect on October 1, 2021, for all NFIP policies across the country. Risk Rating 2.0 will continue the overall policy of phasing out NFIP subsidies, which began with the Biggert-Waters Flood Insurance Reform Act of 2012 and continued with the Homeowner Flood Insurance Affordability Act of 2014. Under the change, premiums for individual properties will be tied to their actual flood risk. Because the limitations on annual premium increases are set in statute, Risk Rating 2.0 will not be able to increase rates faster than the existing limit for primary residences of 5%-18% per year. According to FEMA, Risk Rating 2.0 will reflect an individual property's risk, reflect more types of flood risk in rates, use the latest actuarial practices to set risk-based rates, provide rates that are easier to understand for agents and policyholders, and reduce complexity for agents to generate a flood insurance quote. The NFIP's current rating structure follows general insurance practices in effect at the time that the NFIP was established and has not fundamentally changed since the 1970s . The current NFIP rating structure uses several basic characteristics to classify properties based on flood risks. Structures are evaluated by their flood zone on a Flood Insurance Rate Map (FIRM), occupancy type, and the elevation of the structure. FEMA uses a nationwide rating system that combines flood zones across many geographic areas, and calculates expected losses for groups of structures that are similar in flood risk and key structural aspects, assigning the same rate to all policies in a group. According to FEMA, flood zones will no longer be used in calculating a property's flood insurance premium following the introduction of Risk Rating 2.0. Instead, the premium will be calculated based on the specific features of an individual property, including structural variables such as the foundation type of the structure, the height of the lowest floor of the structure relative to base flood elevation, and the replacement cost value of the structure. The current rating system includes two sources of flood risk: the 1%-annual-chance fluvial (river) flood and the 1%-annual-chance coastal flood. As proposed, Risk Rating 2.0 will incorporate a broader range of flood frequencies and sources than the current system, as well as geographical variables such as the distance to water, the type and size of nearest bodies of water, and the elevation of the property relative to the flooding source. According to FEMA, although flood zones on a FIRM will not be used to calculate a property's flood insurance premium, flood zones will still be used for floodplain management purposes, and the boundary of the Special Flood Hazard Area will still be required for the mandatory purchase requirement.

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<1. Introduction and Issues for Congress> Many U.S. officials and Members of Congress consider Estonia, Latvia, and Lithuania, often referred to collectively as the Baltic states , to be valued U.S. allies and among the most pro-U.S. countries in Europe. Strong ties between the United States and the Baltic states have deep historical roots. Lithuania, Latvia, and Estonia gained their independence in 1918, after the collapse of the Russian Empire. In 1940, they were forcibly incorporated into the Soviet Union, but the United States never recognized their annexation. The United States strongly supported the restoration of the three countries' independence in 1991, and it was a leading advocate of their accession to NATO and the European Union (EU) in 2004. The United States and the Baltic states work closely together in their respective bilateral relationships and within NATO, as well as in the context of U.S.-EU relations. The U.S.-Baltic partnership encompasses diplomatic cooperation in pursuit of shared foreign policy objectives, extensive cooperation on security and defense, and a mutually beneficial economic relationship. The United States provides considerable security assistance to the Baltic states, including financing assistance and defense sales, intended to strengthen their military capabilities. Since 2014, U.S. focus on the Baltic region has increased, driven by concerns about potential threats posed by Russia. Developments related to Russia and the implications for U.S. policy and NATO likely will have continuing relevance for Congress. Estonia, Latvia, and Lithuania are central interlocutors and partners in examining and responding to these challenges. As indicated by annual security assistance appropriations, as well as resolutions and bills adopted or introduced in recent years, Congress supports the maintenance of close relations and security cooperation with the Baltic states. The House Baltic Caucus, a bipartisan group of 70 Members of the House of Representatives, and the Senate Baltic Freedom Caucus, a bipartisan group of 11 Senators, seek to maintain and strengthen the U.S.-Baltic relationship and engage in issues of mutual interest. <2. Domestic Politics> Although outside observers typically view Estonia, Latvia, and Lithuania as a group, citizens of the three countries tend to point out that alongside the three countries' many similarities are notable differences in national history, language, and culture. Cooperation and convergence among the Baltic states remains the central trend, but each country has its own unique domestic political dynamics and the viewpoints and priorities of the three countries are not always completely aligned. Estonia, Latvia, and Lithuania stand out as the leaders of democracy among post-Soviet states and are the only post-Soviet states that have joined NATO and the EU. Since the restoration of their independence nearly 30 years ago, the three countries' governments have tended to consist of multiparty coalitions, which have maintained broadly pro-market, pro-U.S./NATO, and pro-EU orientations. <2.1. Estonia> The government of Estonia is led by the center-left Center Party in a coalition with the far-right, anti-immigration Conservative People's Party of Estonia (EKRE) and the conservative Pro Patria (Fatherland) party. Juri Ratas of the Center Party is Estonia's prime minister. The Center Party came in second in Estonia's March 2019 general election with 23.1% of the vote (26 seats in Estonia's 101-seat unicameral parliament, the Riigikogu ); it was able to form a government after it unexpectedly reversed its campaign pledge not to work with the far-right EKRE. EKRE came in third in the election with 17.8% of the vote, more than doubling its share of the vote from the 2015 election and winning 19 seats (a gain of 12 seats). The center-right Reform Party, which led a series of coalition governments from 2005 to 2016, came in first place in the 2019 election, winning 28.9% of the vote (34 seats). However, it was unable to secure enough support from potential coalition partners to form a government. The Center Party, whose support comes largely from Estonia's Russian-speaking population (about 30% of the population), previously led a coalition government with Pro Patria and the center-left Social Democratic Party from November 2016 until the 2019 election. In late 2016, a changeover in the party's leadership reoriented the Center Party away from a Russian-leaning outlook to a clear pro-Western stance in support of Estonia's membership in NATO and the EU. During the 2019 campaign, the Center Party advocated for a progressive tax system, higher social spending, a simplified path to citizenship for noncitizen residents, and maintenance of the country's dual Estonian- and Russian-language education system. The Reform Party, by contrast, advocated maintenance of a flat tax, tight fiscal policy, and Estonian language exams for obtaining citizenship. The Reform Party also called for rolling back Russian-language education in the country's school system. Observers assert that EKRE benefitted in the 2019 election from antiestablishment sentiment among voters and gained support by appealing to rural Estonians who feel economically left behind. In addition to opposing immigration, EKRE is adamantly nationalist, skeptical of the EU, and anti-Russia. Some analysts suggest there is a potential for friction between the Center Party and EKRE on issues such as citizenship, immigration, and abortion policy. In 2016, Estonia's parliament unanimously elected Kersti Kaljulaid as president. Kaljulaid is the country's youngest president (aged 46 at the time of her election) and its first female president. A political outsider with a background as an accountant at the European Court of Auditors, she was put forward as a surprise unity candidate after Estonia's political parties were unable to agree on the first round of candidates. The president serves a five-year term and has largely ceremonial duties but plays a role in defining Estonia's international image and reflecting the country's values. <2.2. Latvia> Latvia's October 2018 general election produced a fragmented result, with seven parties winning seats in the country's 100-seat unicameral parliament ( Saeima ) . After three months of negotiations and deadlock, a five-party coalition government took office in January 2019. Prime Minister Kri j nis Kari of the center-right New Unity Party (JV) leads the government. JV leveraged its experience as a member of the previous governing coalition to put together and lead the new government despite being the smallest party in the Saeima , with eight seats. The other coalition members are the conservative, nationalist National Alliance (NA) and three new parties: the antiestablishment Who Owns the State? (KPV LV); the New Conservative Party (JKP), which campaigned on an anti-corruption platform; and the liberal Development/For! alliance. The coalition partners hold a combined 61 seats in the Saeima and appear likely to maintain the broadly center-right, fiscally conservative, and pro-European policies followed by recent Latvian governments. At the same time, the strong showings in the election by KPV LV and JKP (each won 16 seats) appeared to reflect deepening public dissatisfaction with corruption and the political establishment following high-profile bribery and money-laundering scandals in 2018. The three parties of the previous coalition government, the centrist Union of Greens and Farmers (ZZS), the Unity Party (rebranded New Unity in 2018), and the NA, lost nearly half their total seats, dropping from a combined 61 seats to 32 seats. The center-left Harmony Social Democratic Party (SDPS), which draws its support largely from the country's ethnic Russian population, remained the largest party in parliament, with 23 seats. With five of the seven parties in the coalition government, the SDPS and ZZS are the parliamentary opposition. The next general election is scheduled to take place in 2022. On May 29, 2019, the Saeima elected Egils Levits to be Latvia's next president. A former judge at the European Court of Justice, Levits formally took office on July 8, 2019. Outgoing President Raimonds Vejonis of the ZZS declined to run for a second term. The president performs a mostly ceremonial role as head of state but also acts as commander-in-chief of the armed forces and has the power to propose and block legislation. <2.3. Lithuania> Lithuania has a centrist coalition government composed of four political parties and led by the center-right Lithuanian Peasants and Greens Union (LV S). The LV S emerged as the surprise winner of the country's October 2016 parliamentary election, winning 54 of the 141 seats in the Lithuanian parliament ( Seimas ) after winning one seat in the 2012 election. The prime minister of Lithuania is Saulius Skvernelis, a politically independent former interior minister and police chief who was selected for the position by the LV S (while remaining independent, Skvernelis campaigned for the LV S). A major factor in the 2016 election outcome was the perception that Skvernelis and the LV S remained untainted by a series of corruption scandals that negatively affected support for most of Lithuania's other political parties. The LV S initially formed a coalition government with the center-left Social Democratic Party of Lithuania (LSDP), which led the previous coalition government following the 2012 election. In September 2017, the LSDP left the coalition amid tensions over the slow pace of tax and pension reforms intended to reduce economic inequality. Prime Minister Skvernelis subsequently led a minority government of the LV S and the Social Democratic Labour Party of Lithuania (LSDDP), a new party that splintered off from the LSDP. In July 2019, the LV S and the LSDDP reached an agreement to form a new coalition government with the addition of the nationalist-conservative Order and Justice Party and the Electoral Action of Poles in Lithuania-Christian Families Alliance. The four parties in the current coalition control a parliamentary majority, with a combined 76 out of 141 seats in the Seimas . The coalition's domestic agenda focuses primarily on boosting social programs, including greater spending on social insurance and increased benefits for families, students, and the elderly. The opposition parties are the center-right Homeland Union-Lithuanian Christian Democrats, which came in second place in the 2016 election with 31 seats; the LSDP; and the center-right Liberal Movement. The next general election is scheduled to take place in October 2020. Gitanas Naus da, a pro-European, politically independent centrist and former banker, won Lithuania's May 2019 presidential election. He replaces Dalia Grybauskait , who served as president from 2009 to 2019 and was consistently regarded as Lithuania ' s most popular politician. The powers of the Lithuanian presidency, the only presidency in the Baltic states to be directly elected, are weaker than those of the U.S. presidency. However, the Lithuanian president plays an important role in shaping foreign and national security policy, is commander-in-chief of the armed forces, appoints government officials, and has the power to veto legislation. Efforts to combat corruption remain a focus of Lithuania's government. Following a series of bribery scandals involving leading politicians and one of the country's largest companies, the Seimas adopted a new law in 2018 appointing special prosecutors to investigate cases of political corruption. <3. Economic Issues> The 2008-2009 global economic crisis hit the Baltic states especially hard; each of the three countries experienced an economic contraction of more than 14% in 2009. The social costs of the recession and the resulting budget austerity included increased poverty rates and income inequality and considerable emigration to wealthier parts of the EU. The Baltic economies have since rebounded, however, benefitting from strong domestic consumption, external demand for exports, and investment growth (including from EU funding): Estonia's gross domestic product (GDP) grew by 5.8% in 2017 and 4.8% in 2018. It is forecast to grow by 3.2% in 2019 and 2.9% in 2020. Unemployment declined from 16.7% in 2010 to 5.4% in 2018. Latvia's GDP grew by 4.6% in 2017 and 4.8% in 2018; it is forecast to grow by 2.8% in 2019 and 2.8% in 2020. Unemployment declined from 19.5% in 2010 to 7.4% in 2018. Lithuania's GDP grew by 4.1% in 2017 and 3.5% in 2018; it is forecast to grow by 3.4% in 2019 and 2.7% in 2020. Unemployment declined from 17.8% in 2010 to 6.1% in 2018. Despite the crisis and aftermath, each of the Baltic states fulfilled a primary economic goal when each adopted the euro as its currency (Estonia in 2011, Latvia in 2014, and Lithuania in 2015). The public finances of the Baltic states remain well within guidelines set by the EU (which require member states to have an annual budget deficit of less than 3% of GDP and maintain government debt below 60% of GDP). Both Estonia and Latvia recorded a budget deficit below 1% of GDP in 2018, and Lithuania had a small budget surplus. Gross government debt in 2018 was approximately 8.3% of GDP for Estonia (making it the EU's least-indebted member state), 35.9% of GDP for Latvia, and 34.2% of GDP for Lithuania. According to a study by the European Commission, foreign direct investment (FDI) in the Baltic states remains below precrisis levels. With considerable investment in the financial services sector, Sweden is the largest foreign investor in the region, followed by Finland and the Netherlands. Estonia has been the most successful of the three Baltic countries in attracting FDI, with FDI equivalent to approximately 100% of gross value added in 2015, compared to approximately 63% for Latvia and 40% for Lithuania. <3.1. Banking Sector Concerns> U.S. and European authorities have expressed concerns about the practices of banks in the region that cater to nonresidents, largely serving account holders based in Russia and other countries of the former Soviet Union. In 2018, two scandals in particular brought attention to money-laundering challenges in the region. In February 2018, the U.S. Department of the Treasury designated ABLV Bank, then the third-largest bank in Latvia, as a financial institution of primary money laundering concern. Treasury accused it of money laundering, bribery, and facilitating transactions violating United Nations sanctions against North Korea. Following a run on deposits and a decision by the European Central Bank not to intervene, ABLV initiated a process of self-liquidation. The Latvian government subsequently made reforming the banking sector and strengthening anti-money-laundering (AML) practices top policy priorities. A September 2018 report commissioned by Danske Bank, Denmark's largest bank, indicated that between 2007 and 2015, some 200 billion (approximately $220 billion) worth of suspicious transactions may have flowed through a segment of its Estonian branch catering to nonresidents, primarily Russians. The activity continued despite critical reports by regulatory authorities and whistleblower accounts highlighting numerous failures in applying AML practices. In February 2019, the Estonian Financial Supervision Authority ordered Danske Bank to cease operations in Estonia; Danske Bank subsequently decided to cease its activities in Latvia and Lithuania (and Russia), as well. <4. Regional Relations with the United States> The U.S. State Department describes Estonia, Latvia, and Lithuania as strong, effective, reliable, and valued allies that have helped to promote security, stability, democracy, and prosperity in Europe and beyond. Many citizens of the Baltic states remain grateful to the United States for consistently supporting their independence throughout the Cold War and playing a key role in promoting the restoration of independence in 1991. Most policymakers in the Baltic states tend to see their countries' relationship with the United States as the ultimate guarantor of their security against pressure or possible threats from Russia. All three Baltic states joined NATO and the EU in 2004 with strong U.S. support. In addition to maintaining a pro-NATO and pro-EU orientation, the Baltic states have sought to support U.S. foreign policy and security goals. For example, they have worked closely with the United States in Afghanistan, where the three Baltic states have contributed troops to NATO-led missions since 2002-2003. The three countries also have been partner countries in the Global Coalition to Defeat the Islamic State, providing personnel, training, weapons, and funding for efforts to counter the Islamic State in Iraq and Syria since 2014. The Trump Administration and many Members of Congress have demonstrated support for strong U.S. relations with the Baltic states. In April 2018, President Donald Trump hosted the presidents of the three Baltic states for a quadrilateral U.S.-Baltic Summit intended to deepen security and defense cooperation and reaffirm the U.S. commitment to the region. The presidential summit was followed by a U.S.-Baltic Business Summit intended to expand commercial and economic ties. During the 115 th Congress, the Senate adopted a resolution ( S.Res. 432 ) congratulating Estonia, Latvia, and Lithuania on the 100 th anniversary of their independence; applauding the U.S.-Baltic partnership; commending the Baltic states' commitment to NATO, transatlantic security, democracy, and human rights; and reiterating the Senate's support for the European Deterrence Initiative (EDI) as a means of enhancing Baltic security (on EDI, see " U.S. European Deterrence Initiative ," below). <4.1. Security Partnership and Assistance> The United States provides significant security assistance to its Baltic partners. According to the State Department, as of July 2019, U.S. security assistance to the Baltic states has included more than $450 million in defense articles sold under the Foreign Military Sales (FMS) program and more than $350 million in defense articles authorized under the Direct Commercial Sales process since 2014; more than $150 million in Foreign Military Financing (FMF) since 2015, with the aim of strengthening the Baltic states' defensive capabilities in areas such as hybrid warfare, electronic warfare, border security, and air and maritime domain awareness and enhancing interoperability with NATO forces; approximately $1.2 million annually per country in International Military Education and Training (IMET) funds contributing to the professional education of military officers; and $290 million in funding from the Department of Defense under Title 10 train and equip programs since 2015, including approximately $173 million in FY2018. Since 1993, the Baltic states have participated in the U.S. National Guard State Partnership Program. Under the program, Estonia's armed forces partner with units from the Maryland National Guard, Latvia's armed forces partner with the Michigan National Guard, and Lithuania's armed forces partner with the Pennsylvania National Guard. In 2017, the United States signed separate bilateral defense cooperation agreements with each of the Baltic states. The agreements enhanced defense cooperation by building on the NATO Status of Forces Agreement to provide a more specific legal framework for the in-country presence and activities of U.S. military personnel. The National Defense Authorization Act for Fiscal Year 2018 ( P.L. 115-91 ) authorized the Department of Defense to conduct or support a security assistance program to improve the Baltic states' interoperability and build their capacity to deter and resist aggression. The program was authorized through 2020 with a spending limit of $100 million. In November 2018, the United States and the three Baltic states agreed to develop bilateral defense cooperation strategic road maps focusing on specific areas of security cooperation for the period 2019-2024. In April 2019, the United States and Lithuania signed a road map agreeing to strengthen cooperation in training, exercises, and multilateral operations; improve maritime domain awareness in the Baltic Sea; improve regional intelligence-sharing, surveillance, and early warning capabilities; and build cybersecurity capabilities. In May 2019, the United States signed road map agreements with Latvia and Estonia outlining similar priorities for security cooperation. In the 116 th Congress, the National Defense Authorization Act for Fiscal Year 2020 ( P.L. 116-92 ) extended security assistance to the Baltic states for building interoperability and deterrence through 2021 and increased the total spending limit to $125 million. The act also requires the Secretary of Defense and the Secretary of State to jointly conduct a comprehensive assessment of the military requirements necessary to deter and resist Russian aggression in the region. The committee report ( S.Rept. 116-103 ) for the Senate version of the Department of Defense Appropriations Act, 2020 ( S. 2474 ), recommends allocating $400 million to the Defense Cooperation Security Agency to fund a Baltics regional air defense radar system. A sense of Congress resolution introduced in the House of Representatives ( H.Res. 416 ) would reaffirm U.S. support for the Baltic states' sovereignty and territorial integrity and encourage the Administration to further defense cooperation efforts. Partially reflected in the National Defense Authorization Act for Fiscal Year 2020, the Baltic Reassurance Act ( H.R. 3064 ) introduced in the House of Representatives would reiterate the U.S. commitment to the security of the Baltic states and require the Secretary of Defense to conduct a comprehensive regional defense assessment. <4.2. Economic Relations> U.S. economic ties with the three Baltic states remain relatively limited, although the State Department has stated there are "growing commercial opportunities for U.S. businesses" and "room for growth" in the relationship. In 2018, U.S. goods exports to Estonia were valued at $346.1 million and goods imports from Estonia were valued at $953.5 million. Main U.S. exports to Estonia are computer and electronic products, chemicals, machinery, and transportation equipment; Estonia's top exports to the United States are computer and electronic products, petroleum products and chemicals, electrical equipment, and medical instruments. U.S. affiliates employ about 3,570 people in Estonia, and U.S. FDI in Estonia was about $100 million in 2017. In 2018, U.S. goods exports to Latvia were valued at $510.4 million and goods imports from Latvia were valued at $727.1 million. Main U.S. exports to Latvia are transportation equipment and computer and electronic products; top U.S. imports from Latvia are beverage products and transportation equipment. U.S. affiliates employ about 1,325 people in Latvia, and U.S. FDI in Latvia was $71 million in 2017. In 2018, U.S. exports to Lithuania were valued at $706.4 million and imports from Lithuania were valued at nearly $1.268 billion. Main U.S. exports to Lithuania are used machinery, chemicals, computer and electronic products, and transportation equipment; top U.S. imports from Lithuania are petroleum and coal products, chemicals, and furniture. U.S. affiliates employ about 2,250 people in Lithuania, and Lithuania has not attracted significant levels of U.S. FDI. <5. Regional Security Concerns and Responses> Officials in the Baltic region have noted with concern what they view as increasing signs of Russian foreign policy assertiveness. These signs include a buildup of Russian forces in the region, large-scale military exercises, and incursions by Russian military aircraft into Baltic states' airspace. Unlike Georgia and Ukraine, the Baltic states are members of NATO, and many observers contend the alliance's Article 5 collective defense guarantee limits potential Russian aggression in the Baltic region. Nevertheless, imposing various kinds of pressure on the Baltic states enables Russia to test NATO solidarity and credibility. Defense experts assert that Russian forces stationed near the Baltic region, including surface ships, submarines, and advanced S-400 air defense systems, could "allow [Russia] to effectively close off the Baltic Sea and skies to NATO reinforcements." According to a RAND report based on a series of war games staged in 2014 and 2015, a quick Russian strike could reach the capitals of Estonia and Latvia in 36-60 hours. <5.1. Defense Spending and Capabilities> The breakup of the Soviet Union left the Baltic states with virtually no national militaries, and their forces remain small and limited (see Table 1 ). The Baltic states' defense planning consequently relies heavily on NATO membership, and these states have emphasized active participation in the alliance through measures such as contributing troops to NATO's mission in Afghanistan. In the context of Russia's invasion of Ukraine and renewed concerns about Russia, the Baltic states have significantly increased their defense budgets and sought to acquire new military capabilities. Lithuania has the largest military of the three Baltic states, with 19,850 total active duty personnel in 2019. According to NATO, Lithuania has increased its defense spending from $427 million in 2014 to an expected $1.084 billion in 2019, equivalent to 1.98% of GDP (NATO recommends that member states allocate 2% of GDP for defense spending). The defense ministry has moved ahead with plans to acquire new self-propelled artillery systems and portable anti-aircraft missiles, as well as elements of a medium-range air defense system. After abolishing conscription in 2008, Lithuania reintroduced compulsory military service in 2015 due to concerns about Russia, a move that brings 3,000 personnel to the armed forces per year. According to NATO, Estonia's defense spending is expected to be 2.13% of GDP ($669 million) in 2019. The country's armed forces total 6,600 active personnel and 12,000 reserves, plus a volunteer territorial defense force with about 15,800 members. Estonia has taken steps to upgrade its air defense system and modernize a range of ground warfare equipment, including anti-tank weapons. Estonia has compulsory military service for men aged 18-27, with an eight-month basic term of conscripted service. Latvia's armed forces total 6,210 active personnel. According to NATO figures, Latvia has more than doubled its defense spending as a percentage of GDP over the past five years, from 0.94% of GDP in 2014 to 2.01% of GDP ($724 million) in 2019. Acquisition priorities of the Latvian armed forces include self-propelled artillery, armored reconnaissance vehicles, multi-role helicopters, anti-aircraft missiles, and anti-tank missiles. <5.2. U.S. European Deterrence Initiative> Under the European Deterrence Initiative (EDI), which was launched in 2014 and originally called the European Reassurance Initiative, the United States has bolstered security cooperation in Central and Eastern Europe with enhanced U.S. military activities in five areas: (1) increased military presence in Europe, (2) additional exercises and training with allies and partners, (3) improved infrastructure to allow greater responsiveness, (4) enhanced prepositioning of U.S. equipment, and (5) intensified efforts to build partner capacity of newer NATO members and other partners. As of December 2019, there are approximately 6,000 U.S. military personnel involved in the associated Atlantic Resolve mission at any given time, with units typically operating in the region under a rotational nine-month deployment. The United States has not increased its permanent troop presence in Europe (about 67,000 troops, including two U.S. Army Brigade Combat Teams, or BCTs). Instead, it has focused on rotating additional forces into the region, including nine-month deployments of a third BCT based in the United States. The rotational BCT is based largely in Poland, with units also conducting training and exercises in the Baltic states and 14 other European countries. The Fourth Infantry Division Mission Command Element, based in Pozna , Poland, acts as the headquarters overseeing rotational units. EDI funding increased substantially during the first years of the Trump Administration, from approximately $3.4 billion in FY2017 to approximately $4.8 billion in FY2018 and approximately $6.5 billion in FY2019. For FY2020, the Administration requested $5.9 billion in funding for the EDI; defense officials explained that the reduced request was due to the completion of construction and infrastructure projects. In September 2019, the Department of Defense announced plans to defer $3.6 billion of funding for 127 military construction projects in order to fund construction of the U.S.-Mexico border wall, with approximately $770 million of this money to come from EDI-related projects. Affected initiatives in the Baltic states reportedly include the planned construction of a special forces operations and training facility in Estonia. <5.3. NATO Enhanced Forward Presence> At the 2016 NATO Summit in Warsaw, the alliance agreed to deploy battalion-sized (approximately 1,100-1,500 troops) multinational battle groups to Poland and each of the three Baltic states (see Figure 2 ). These enhanced forward presence units are intended to deter Russian aggression and emphasize NATO's commitment to collective defense by acting as a tripwire that ensures a response from the whole of the alliance in the event of a Russian attack. Germany leads the multinational battalion in Lithuania, with troop contributions from Belgium, the Czech Republic, Iceland, the Netherlands, and Norway. Canada leads the multinational battalion in Latvia, with troop contributions from Albania, the Czech Republic, Italy, Montenegro, Poland, Slovakia, Slovenia, and Spain. The United Kingdom (UK) leads in Estonia, with contributions from Denmark, France, and Iceland. (The United States leads the multinational battalion in Poland, with contributions from Croatia, Romania, and the UK. ) NATO continues to resist calls to deploy troops permanently in countries that joined the alliance after the collapse of the Soviet Union due to concerns in some member states that doing so could violate the terms of the 1997 NATO-Russia Founding Act. Accordingly, the enhanced NATO presence has been referred to as continuous but rotational rather than permanent . <5.4. NATO Air Policing Mission> Lacking their own fighter aircraft, the Baltic states rely on their NATO allies to police and defend Baltic airspace. NATO launched the Baltic Air Policing mission in 2004. The mission originally consisted of rotating four-month deployments of four aircraft. Following Russia's invasion of Ukraine in 2014, deployments increased to 8 to 12 aircraft at a time. The Baltic states contribute to mission costs, including by providing ground services for the aircraft and supplying aviation fuel. In September 2019, Belgium took over as the air-policing mission's lead nation, with four Belgian and four Danish F-16s operating from iauliai Air Base in Lithuania, augmented by four Czech Gripen fighters based at mari Air Base in Estonia. From May to August 2019, in what was the 50 th rotation of the Baltic Air Policing mission, Hungary was the lead nation, with Hungarian Gripens joined at iauliai by F-18s from Spain and British Eurofighters augmenting from mari. <5.5. Potential Hybrid Threats> In recent years, tensions between Russia and the Baltic states have been exacerbated by reciprocal accusations of spying; illicit cyber activity, including the hacking of Baltic states' government websites; and a Russian propaganda offensive directed at Russian speakers in the Baltic states. Baltic states' support for EU sanctions on Russia due to its invasion of Ukraine also has exacerbated tensions, as have Russian retaliatory sanctions targeting agricultural products. Many observers have expressed concerns about Russia targeting the Baltic states with hybrid warfare tactics, such as those it has used in Ukraine. <5.5.1. Disinformation Campaigns and Ethnic Russians in Baltic States> The presence of a large ethnic Russian population in the Baltic states is a factor in these concerns, especially given that Russian claims of persecution against Russian communities were part of Russia's pretext for intervention in Ukraine. According to statements by Russian officials, including President Vladimir Putin, one of the central principles of Russian foreign policy is acting as the defender and guarantor of the rights of Russian-speaking people wherever they live. Russia routinely accuses Estonia and Latvia of violating the human rights of Russian-speaking minorities by discriminating against the Russian language in official usage. Although international organizations generally have rejected these charges, some segments of the countries' Russian-speaking communities are poorly integrated into society. About 230,000 people in Latvia and 76,000 people in Estonia, the majority of whom are ethnic Russians, are noncitizen residents who are not allowed to vote or hold public office because they have not passed a citizenship test, which includes language and history components. Additionally, approximately 55,000 Russian citizens live in Latvia and 89,000 Russian citizens live in Estonia. Many in the ethnic Russian community receive their news primarily from Russian-language television and newspapers, and Russian media dominates the information market in Russian-speaking regions. In the past, Latvia and Lithuania have imposed fines and temporary bans on Russian media outlets, such as Rossiya and Sputnik , due to what authorities considered dangerous and unbalanced reporting. Analysts have documented how Russia uses traditional media (e.g., radio, television) and social media to propagate disinformation in the Baltic states and many other European countries. Russian disinformation efforts against the Baltic states typically attempt to polarize society by portraying the Baltic states as illegitimate and dysfunctional, the EU as ineffective and divided, NATO and the United States as imperial powers, and Baltic governments as Russophobe fascist regimes that oppress their ethnic Russian populations. Russian outlets repeatedly have sought to stir up opposition to NATO deployments in the region by fabricating stories of criminal activity by deployed NATO soldiers. There is no movement among Russian-speaking communities in the Baltic states advocating absorption by Russia, and survey data indicate that these communities are not a unified, homogenous group in terms of how they view competing political narratives. Analysts believe most members of these communities prefer to live in Estonia or Latvia rather than Russia; noncitizen residents enjoy benefits such as visa-free travel throughout the EU, and average wages are considerably higher than in Russia. Concerns remain, however, that Russia could attempt to foment tensions or civil unrest as a pretext for intervention or in an attempt to seize territory populated by ethnic Russians. <5.5.2. Cyberattacks> Vulnerability to potential cyberattacks is a primary concern for the Baltic states. Following a period of heightened tensions with Russia in 2007, Estonia's internet infrastructure came under heavy attack from hackers. Estonian officials said some assaults came from Russian government web servers, although many others came from all over the world. According to analysts, what appeared as a series of smaller, individual distributed denial-of-service attacks was most likely a coordinated, large-scale effort. The attacks did little long-term damage, and they gave Estonia experience in facing such incidents and prompted the country to strengthen its cyber defenses. Estonia hosts the NATO Cooperative Cyber Defense Center of Excellence, which opened in 2008. The center fosters cooperation and information sharing on cybersecurity between NATO countries, conducts cyberwarfare research and training, and organizes exercises and conferences preparing NATO countries to detect and fight cyberattacks. In 2018, Lithuania adopted a national Cyber Security Strategy and integrated several government agencies into the National Cyber Security Centre (NCSC) under the Ministry of Defense. Lithuania's NCSC registered more than 53,000 cybersecurity incidents in 2018. The International Telecommunication Union's Global Cybersecurity Index 2018 ranked Lithuania fourth and Estonia fifth in the world based on measurements of legal, technical, organizational, capacity building, and cooperation measures related to cybersecurity. (The UK was ranked first, United States second, and France third. ) <6. Energy Security> In 2014, a decade after joining NATO and the EU, the Baltic states continued to import 100% of their natural gas from Russia. This dependence raised concerns that Russia could use energy as political and economic leverage against the Baltic states, prompting them to diversify their supply sources and improve their integration with European natural gas networks. In 2014, a floating liquefied natural gas (LNG) terminal became operational at the Lithuanian port of Klaip da. The nearly 300-meter-long vessel, the Independence , has the capacity to supply 100% of Lithuania's natural gas needs and 90% of the total natural gas needs of the three Baltic countries combined. In 2014, the Lithuanian gas company Litgas signed a five-year deal with Norway's Statoil (now Equinor) to provide 540 million cubic meters of gas to the facility annually. Gazprom subsequently agreed to cut the price Lithuania pays for natural gas. The United States began exporting LNG to Lithuania in 2017. Currently, Lithuania imports nearly 58% of its natural gas from Russia, accounting for approximately 19% of its primary energy consumption. Although Estonia and Latvia continue to import all of their natural gas from Russia, natural gas accounts for a relatively low share of the countries' overall energy supplies. Oil shale accounts for about 85% of Estonia's domestic energy supply, whereas natural gas accounts for less than 6%. Russian natural gas accounts for approximately 24% of Latvia's primary energy consumption; hydropower is Latvia's largest source of energy. In addition to Lithuania's LNG facility, numerous initiatives aim to reduce regional energy dependence on Russia through supply diversification and increased interconnectivity. A pipeline from Poland to Lithuania, linking the natural gas networks of the Baltic states to the rest of the EU, is expected to be completed in 2021. The Baltic Connector pipeline linking the gas infrastructures of Estonia and Finland is expected to become operational in 2020. Poland opened an LNG terminal in 2015, and Finland opened one in 2019. As a remnant of the Soviet era, the Baltic states' power grids remain connected and synchronized with those of Russia (including Kaliningrad) and Belarus; a control center in Moscow regulates frequency and manages reserve capacity for the Baltic states' electricity supply. Two strategic projects to integrate the region's power grid into the wider European electricity market became operational in 2016: the LitPol link connecting Lithuania with Poland and the 450-kilometer undersea NordBalt cable connecting Lithuania with Sweden. Previously, two connections between Estonia and Finland were the only infrastructure linking the region's electric grid to the rest of Europe. In 2018, the governments of Estonia, Latvia, and Lithuania reached an agreement with the European Commission on plans to synchronize their electricity grids with the rest of Europe by 2025. Many U.S. officials and Members of Congress regard European energy security as a U.S. interest. In particular, there has been concern in the United States that Russian energy dominance could affect the ability to present a united transatlantic position when it comes to other issues related to Russia. Successive U.S. Administrations have encouraged EU member states to reduce energy dependence on Russia through diversification of supply. They also have supported European steps to develop alternative sources and increase energy efficiency. In the 116 th Congress, related bills include the European Energy Security and Diversification Act of 2019 (House-passed H.R. 1616 and S. 704 ), the Protect European Energy Security Act ( H.R. 2023 ), and the Energy Security Cooperation with Allied Partners in Europe Act of 2019 ( S. 1830 ). <7. Conclusion> The Baltic states are likely to remain strong U.S. allies and important U.S. security partners in Europe. Analysts believe close cooperation between the United States and the Baltic states will continue for the foreseeable future in areas such as efforts to deter potential Russian aggression, the future of NATO, energy security, and economic issues. The Baltic states likely will continue to look to the United States for leadership on foreign policy and security issues. During the 116 th Congress, the activities and funding level of the EDI, bilateral security cooperation with the Baltic states, and the regional presence and activities of NATO forces may remain of interest to Members of Congress. Efforts to bolster the capabilities of the Baltic states' armed forces, including through defense sales and the provision of U.S. security assistance, also may be of congressional interest. The Baltic states likely will be of continuing importance in the area of European energy security. In addition, Members of Congress may wish to remain informed about potential security threats to the Baltic states posed by Russia, including conventional military concerns and hybrid threats, such as disinformation campaigns and cyberattacks. Members of Congress may have an interest in assessing how the Baltic states, as well as other NATO and EU member states, can develop capabilities to counter such hybrid threats.

Estonia, Latvia, and Lithuania, often referred to as the Baltic states , are close U.S. allies and considered among the most pro-U.S. countries in Europe. Strong U.S. relations with these three states are rooted in history. The United States never recognized the Soviet Union's forcible incorporation of the Baltic states in 1940, and it applauded the restoration of their independence in 1991. These policies were backed by Congress on a bipartisan basis. The United States supported the Baltic states' accession to NATO and the European Union (EU) in 2004. Especially since Russia's 2014 invasion of Ukraine, potential threats posed to the Baltic states by Russia have been a primary driver of increased U.S. and congressional interest in the region. Congressional interest in the Baltic states has focused largely on defense cooperation and security assistance for the purposes of deterring potential Russian aggression and countering hybrid threats, such as disinformation campaigns and cyberattacks. Energy security is another main area of U.S. and congressional interest in the Baltic region. Regional Security Concerns U.S., NATO, and Baltic leaders have viewed Russian military activity in the region with concern; such activity includes large-scale exercises, incursions into Baltic states' airspace, and a layered build-up of anti-access/area denial (A2AD) capabilities. Experts have concluded that defense of the Baltic states in a conventional military conflict with Russia likely would be difficult and problematic. The Baltic states fulfill NATO's target of spending 2% of gross domestic product (GDP) on defense, although as countries with relatively small populations, their armed forces remain relatively small and their military capabilities limited. Consequently, the Baltic states' defense planning relies heavily on their NATO membership. Defense Cooperation and Security Assistance The United States and the Baltic states cooperate closely on defense and security issues. New bilateral defense agreements signed in spring 2019 focus security cooperation on improving capabilities in areas such as maritime domain awareness, intelligence sharing, surveillance, and cybersecurity. The United States provides significant security assistance to the Baltic states; the National Defense Authorization Act for Fiscal Year 2020 ( P.L. 116-92 ) increased and extended U.S. assistance for building interoperability and capacity to deter and resist aggression. Under the U.S. European Deterrence Initiative (EDI), launched in 2014, the United States has bolstered its military presence in Central and Eastern Europe. As part of the associated Operation Atlantic Resolve, rotational U.S. forces have conducted various training activities and exercises in the Baltic states. NATO has also helped to bolster the Baltic states' security. At the 2016 NATO summit, the allies agreed to deploy multinational battalions to each of the Baltic states and Poland. The United Kingdom leads the battalion deployed in Estonia, Canada leads in Latvia, and Germany leads in Lithuania. Rotational deployments of aircraft from NATO member countries have patrolled the Baltic states' airspace since 2004; deployments have increased in size since 2014. Potential Hybrid Threats Since 2014, when the EU adopted sanctions targeting Russia due to the Ukraine conflict, tensions between Russia and the Baltic states have grown. These conditions have generated heightened concerns about possible hybrid threats and Russian tactics, such as disinformation campaigns and propaganda, to pressure the Baltic states and promote anti-U.S. or anti-NATO narratives. A large minority of the Estonian and Latvian populations consists of ethnic Russians; Russia frequently accuses Baltic state governments of violating the rights of Russian speakers. Many ethnic Russians in the Baltic states receive their news and information from Russian media sources, potentially making those communities a leading target for disinformation and propaganda. Some observers have expressed concerns that Russia could use the Baltic states' ethnic Russian minorities as a pretext to manufacture a crisis. Cyberattacks are another potential hybrid threat; addressing potential vulnerabilities with regard to cybersecurity is a top priority of the Baltic states. Energy Security The Baltic states have taken steps to decrease energy reliance on Russia, including through a liquefied natural gas (LNG) terminal in Lithuania and projects to build pipeline and electricity interconnections with Poland, Finland, and Sweden.

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<1. Background> Cannabidiol (CBD) , a compound in the Cannabis sativa plant , has been promoted as a treatment for a range of conditions, including epileptic seizures, post-traumatic stress disorder, anxiety, inflammation, and sleeplessness . However, limited scientific evidence exists to substantiate or disprove the efficacy of CBD in treating these conditions . In the United States, CBD is being marketed in food and beverages, dietary supplements, cosmetics , and tobacco products such as electronic nicotine delivery systems (ENDS , the overarching term encompassing electronic cigarettes) products that are primarily regulated by the Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FFDCA). CBD is also the active ingredient in Epidiolex , an FDA-approved pharmaceutical drug used to treat seizures associated with two rare and severe forms of epilepsy . CBD is derived from the Cannabis sativa plant (commonly referred to as cannabis), which includes both hemp and marijuana (defined further below). CBD and tetrahydrocannabinol (THC) are thought to be the most abundant cannabinoids in the cannabis plant and are among the most researched cannabinoids for their potential medical value. THC a psychoactive compound is found at high levels in m arijuana and low levels in hemp (see Figure 1 ). CBD, on the other hand, is generally considered to be nonpsychoactive and may be derived from either hemp or marijuana. As described below, this distinction is relevant for purposes of oversight by the Drug Enforcement Administration (DEA), but generally not for FDA oversight. FDA has stated that it "treats products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products meaning they're subject to the same authorities and requirements as FDA-regulated products containing any other [non-cannabis] substance. This is true regardless of whether the cannabis or cannabis-derived compounds are classified as hemp under [7 U.S.C. Section 1639o] as amended by the 2018 [f]arm [b]ill." In contrast, the DEA does not regulate cannabis or cannabis-derived compounds that meet the statutory definition of hemp. Botanically, marijuana and hemp are from the same species of plant, Cannabis sativa , but from different varieties or cultivars. Marijuana and hemp have separate definitions in U.S. law and are subject to different statutory and regulatory requirements. M arijuana (as defined in statute) generally refers to the cultivated plant used as a psychotropic drug, either for medicinal or recreational purposes. Marijuana is a Schedule I controlled substance under the Controlled Substances Act (CSA) and is regulated by DEA. Schedule I substances are subject to the most severe CSA restrictions and penalties; with exceptions for federally approved research, it is a federal crime to grow, sell, or possess the drug. Thus, under the CSA, the unauthorized manufacture, distribution, dispensation, and possession of marijuana and its derivatives (including marijuana-derived CBD) are prohibited. Hemp (as defined in statute separately from marijuana), on the other hand, may be legally cultivated under federal law, subject to oversight by the U.S. Department of Agriculture (USDA). Hemp is generally grown for use in the production of a wide range of products, including foods and beverages, personal care products, dietary supplements, fabrics and textiles, paper, construction materials, and other manufactured and industrial goods (see Figure 2 ). Until December 2018, hemp was included in the CSA definition of marijuana and was thus subject to the same restrictions as marijuana. The Agriculture Improvement Act of 2018 (2018 farm bill; P.L. 115-334 ) removed hemp and its derivatives (including hemp-derived CBD) from the CSA definition of marijuana. As a result, hemp is no longer subject to regulation and oversight as a controlled substance by DEA. Instead, hemp production is now subject to regulation and oversight as an agricultural commodity by USDA. CBD and CBD-related products that do not meet the statutory definition of hemp (in 7 U.S.C. 1639o) continue to be prohibited (aside from lawful use for research purposes) under the CSA and remain regulated by DEA. Changes enacted in the 2018 farm bill related to hemp were expected by many to generate additional market opportunities for hemp-derived consumer products such as hemp-derived CBD. However, the farm bill also explicitly preserved FDA's authorities under the FFDCA and Section 351 of the Public Health Service Act, including for hemp-derived products. As mentioned above, cannabis and cannabis-derived FDA-regulated products are subject to the same authorities and requirements as FDA-regulated products including pharmaceutical drugs, food, dietary supplements, and cosmetics containing any other substance (whether cannabis-derived or otherwise). As described below, FDA has determined that it is unlawful to introduce food containing added CBD into interstate commerce, or to market CBD as or in dietary supplements. FDA has not made similar determinations for other FDA-regulated product categories (pharmaceutical drugs, cosmetics, and tobacco products). <2. FDA Regulation of CBD Products> In the United States, CBD is the active ingredient in the prescription drug Epidiolex. CBD is also being marketed in food and beverages, dietary supplements, cosmetics, and tobacco products such as ENDS. Each of these product types is governed by different statutory and regulatory requirements, primarily administered by FDA. The agency also shares regulatory authority with other entities; for example, the Alcohol and Tobacco Tax and Trade Bureau (TTB), with regard to alcoholic beverages, and the Federal Trade Commission (FTC), with regard to the advertising and promotion of certain CBD products. This section provides an overview of how FDA regulates drugs, food, dietary supplements, cosmetics, and tobacco products, and the applicability of those requirements to products that contain CBD. Table 1 summarizes selected regulatory requirements by CBD product type. <2.1. Pharmaceutical Drugs> FDA, under the FFDCA, regulates the safety and effectiveness of prescription and nonprescription (over-the-counter, or OTC) drugs sold in the United States. Prescription drugs require health practitioner supervision to be considered safe for use due to drug toxicity, potential harmful effect, or method of use and may be dispensed only pursuant to a prescription. In contrast, OTC drugs may be used without a prescriber's authorization, provided they have an acceptable safety margin, low potential for misuse or abuse, and are adequately labeled so that consumers can self-diagnose the condition, self-select the medication, and self-manage the condition. The statutory definition of the term drug includes "articles (other than food) intended to affect the structure or any function of the body of man or other animals" and "articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals." In general, a new drug may not be introduced into interstate commerce without FDA approval. For purposes of new drug approval, except under very limited circumstances, FDA requires data from clinical trials 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. Once a manufacturer completes clinical trials, it submits the results of those investigations, along with other information, to FDA in a new drug application (NDA). In reviewing an NDA, FDA considers whether the drug is safe and effective for its intended use; whether the proposed labeling is appropriate; and 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. The NDA process can be used to obtain approval of both prescription and OTC drugs. If a sponsor wants to transfer an approved drug from prescription to OTC status (called an Rx-to-OTC switch), the sponsor must submit to FDA an NDA (or a supplement to an NDA) providing data to support the switch. As part of an NDA for an OTC drug, FDA may require the sponsor to conduct label comprehension studies assessing the extent to which consumers understand the information in the proposed labeling. FDA also may recommend that the sponsor conduct self-selection studies to assess whether consumers can appropriately self-select a drug based on the information on the labeling. In June 2018, FDA approved an NDA for the prescription drug Epidiolex, submitted by GW Pharmaceuticals, for the treatment of seizures associated with Lennox-Gastaut syndrome and Dravet syndrome in patients two years old and older. The active ingredient in Epidiolex is CBD, although its mechanism of action that is, the mechanism by which it exerts its anticonvulsant effects is not known. FDA approved Epidiolex in June 2018; at that time, the drug contained a chemical constituent of marijuana (CBD) that was considered a Schedule I controlled substance. Therefore, it could not be marketed unless rescheduled by the DEA. Upon FDA approval, Epidiolex no longer met the criteria for placement in Schedule I, as it now had an accepted medical use in the United States. On September 28, 2018, based on a recommendation from FDA, DEA issued an order placing FDA-approved drugs that contain cannabis-derived CBD and no more than 0.1% THC in Schedule V. Epidiolex is available by prescription and only at specialty pharmacies. It is the first (and only) pharmaceutical formulation of highly purified, plant-derived CBD available in the United States. Because Epidiolex is designated as an orphan drug (i.e., a drug that treats a rare disease or condition), it was awarded seven years of marketing exclusivity upon approval. This means that FDA cannot approve an NDA for the same drug in this case, one that has CBD as its active ingredient for the same disease or condition (i.e., for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome in patients two years old and older) for seven years, with limited exceptions. <2.2. Foods and Food Additives> The FFDCA defines food to mean "(1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article." FDA's Center for Food Safety and Applied Nutrition (CFSAN) is responsible for oversight of human food, while FDA's Center for Veterinary Medicine (CVM) is responsible for oversight of animal food (feed). The FFDCA requires that all human and animal foods are safe to eat, produced in compliance with current good manufacturing practices (CGMPS), contain no harmful substances, and are truthfully labeled, among other things. Generally, food intended for human or animal consumption is not approved by FDA prior to marketing. However, any substance added to food is a food additive, subject to premarket review and approval by FDA. An exception to this is if a substance is generally recognized as safe (i.e., GRAS) under the conditions of its intended use, among qualified experts, or unless the use of the substance is otherwise excepted from the definition of a food additive. To obtain approval of a substance as a food additive, a person may submit to FDA a food additive petition, which proposes the issuance of a regulation prescribing the conditions under which the additive may be safely used. Food additives are approved for specific uses (e.g., to improve taste, texture, or appearance; to improve or maintain nutritional value; or to maintain or improve safety and freshness). If FDA determines, after reviewing the data submitted in a petition, that a proposed use of a food additive is safe, the agency issues a regulation authorizing that specific use of the substance. The use of a food substance may be determined to be GRAS either through scientific procedures or, for a substance used in food before 1958, through scientific procedures or experience based on common use in food. FDA established a voluntary GRAS notification process that permits any person to notify the agency of a conclusion that a substance is GRAS under the conditions of its intended use in human food. A substance is considered GRAS on the basis of common knowledge about its safety for its intended use, and the data and information relied upon for the GRAS substance must be generally available . This is in contrast to the data and information used to support a food additive petition, which are generally privately held and submitted to FDA for evaluation. Additional information about the food additive petition process and submission of GRAS notifications is available in Appendix A . Under the FFDCA, it is unlawful to introduce into interstate commerce a food (human or animal) to which a drug has been added either an approved drug or a drug for which substantial clinical investigations have been instituted and made public. There are several exceptions to this: (1) if the drug was marketed in food before it was approved as a drug or before clinical drug investigations were instituted; (2) if the Secretary has issued a regulation, after notice and comment, approving the use of such drug in the food; (3) if the use of the drug in the food is to enhance the safety of the food and not to have independent biological or therapeutic effects on humans, and the use is in conformity with specified requirements; or (4) if the drug is a new animal drug whose use is not unsafe under FFDCA Section 512. FDA has concluded, based on available evidence, that none of these are the case for CBD, and because CBD is an active ingredient in an approved drug, FDA has taken the position that it is unlawful to introduce into interstate commerce food containing added CBD (i.e., to use CBD as a food additive). However, according to FDA, cannabis-derived ingredients that do not contain CBD (or THC) may fall outside the scope of this prohibition. Foods containing parts of the hemp plant that include only trace amounts of CBD (e.g., hemp seed and ingredients derived from hemp seed) may be lawfully marketed under certain circumstances pursuant to FDA approval as a food additive or a GRAS determination. In December 2018, FDA announced that it had completed its evaluation of three GRAS notices related to hemp seed-derived ingredients (i.e., hulled hemp seeds, hemp seed protein, and hemp seed oil). FDA had no questions regarding the company's conclusion that the use of such products as described in the notices is safe. Thus, FDA allowed them to be marketed in human foods without food additive approval for the uses specified in the GRAS notices, provided they comply with all other applicable requirements. Intended uses of the hemp seed-derived ingredients include adding them as a source of protein, carbohydrates, oil, and other nutrients to beverages (e.g., smoothies, protein drinks, and plant-based alternatives to dairy products), as well as to soups, dressings, baked goods, snacks, and nutrition bars. While FDA has determined that it is unlawful to introduce into interstate commerce food to which CBD has been added, independent of CBD's status as a drug ingredient, CBD has not been approved as a food additive. FDA also has determined that "[b]ased on a lack of scientific information supporting the safety of CBD in food it cannot conclude that CBD is [GRAS] among qualified experts for its use in human or animal food." <2.2.1. Animal Food and Feed Considerations> As previously noted, the FFDCA definition of food includes animal food. Similar to food intended for human consumption, animal food is not subject to premarket approval by FDA unless it meets the definition of a food additive. In that case, it would be subject to the premarket requirements for food additives (or GRAS exemption). Depending on the claims made, certain animal feed/food may meet the FFDCA definition of a drug . Like human drugs, animal drugs require FDA approval prior to marketing. In some cases, animal food may be considered both a food and a drug simultaneously. Although premarket approval by FDA is not required for most animal food (excluding animal drugs), other federal and state rules govern their manufacture and sale. These include, for example, labeling requirements and ingredient definitions. As previously noted, it is a prohibited act, with certain exceptions, under the FFDCA to introduce into interstate commerce animal food to which a drug has been added either an approved drug or a drug for which substantial clinical investigations have been instituted and made public. Some cannabis-derived ingredients that do not contain CBD or contain only trace amounts of CBD (e.g., hemp seed and ingredients derived from hemp seed) may fall outside the scope of this prohibition and may be lawfully marketed pursuant to FDA approval as a food additive or a GRAS determination. However, to date, FDA has not approved any food additive petitions or evaluated any GRAS notices related to use of hemp seed and hemp-seed derived ingredients in animal food. In addition, as previously mentioned, FDA has stated that "[b]ased on a lack of scientific information supporting the safety of CBD in food it cannot conclude that CBD is [GRAS] among qualified experts for its use in human or animal food." While FDA is the primary federal agency responsible for regulating the safety of food, the agency works with states and the Association of American Feed Control Officials (AAFCO) in the implementation of uniform policies for regulating the use of animal food products. For example, FDA provides scientific and technical assistance to the AAFCO ingredient Definition Request Process, the purpose of which is to "identify the safety, utility, and identity of ingredients used in animal feed." CVM recognizes ingredients listed in the Official Publication of the AAFCO as being acceptable for use in animal food. According to FDA, "there are no approved food additive petitions or ingredient definitions listed in the AAFCO OP for any substances derived from hemp, and we are unaware of any GRAS conclusions regarding the use of any substances derived from hemp in animal food." AAFCO has issued guidelines on hemp in animal food, which are generally consistent with FDA's policy. The guidelines also note that, based on discussions with FDA and the hemp industry, materials and products that are CBD-infused need to be treated as drugs because the intended uses are largely associated with drug claims. This means that parts of the hemp plant will not be appropriate for approval as an animal feed ingredient. As such, products that contain CBD as a feed ingredient could be labeled adulterated or misbranded and be subject to regulatory actions by state agencies. <2.3. Dietary Supplements> A dietary supplement is defined as a product (other than tobacco) that is intended to supplement the diet; is intended to be taken by mouth as a pill, capsule, powder, tablet, or liquid; and contains one or more of the following dietary ingredients: vitamins, minerals, herbs or other botanicals, amino acids, and other substances or their constituents. Dietary supplements are generally regulated as food under the FFDCA and, as such, are not subject to premarket approval. Dietary supplements must comply with FDA's regulations prescribing CGMPs related to manufacturing, packaging, labeling, or holding dietary supplements to ensure their quality. A dietary supplement may not claim to diagnose, cure, mitigate, treat, or prevent a specific disease or class of diseases. FDA does not evaluate the safety and effectiveness of dietary supplements prior to marketing; however, supplements are subject to various statutory and regulatory requirements. Among other things, a firm that seeks to market a dietary supplement containing a new dietary ingredient (NDI) must notify FDA at least 75 days prior to marketing. The manufacturer or distributor of the dietary supplement that contains an NDI subject to the notification requirements may not market the supplement until 75 days after the filing date. An NDI is defined as a dietary ingredient that was not marketed as a dietary supplement in the United States before October 15, 1994. An exception to the NDI notification requirement is if the dietary ingredient was "present in the food supply as an article used for food in a form in which the food has not been chemically altered." In this case, the dietary ingredient would still be considered an NDI because it was not marketed prior to October 15, 1994, but it would be exempt from the notification requirement. An NDI notification must include a "history of use or other evidence of safety establishing that the dietary ingredient, when used under the conditions recommended or suggested in the labeling of the dietary supplement, will reasonably be expected to be safe," along with other information. FDA acknowledges receipt of the NDI notification and notifies the submitter of the date of receipt, which is also the NDI notification filing date. FDA must keep the information in the NDI notification confidential for the first 90 days after receiving it. If the manufacturer or distributor submits additional information in support of the NDI notification, FDA may reset the 75-day period and assign a new filing date. FDA does not approve NDI notifications. Instead, the agency generally issues one of four response letters: (1) a letter of acknowledgment without objection; (2) a letter listing deficiencies that make the notification incomplete; (3) an objection letter raising safety concerns based on information in the notification or identifying gaps in the history of use or other evidence of safety; or (4) a letter raising other regulatory issues with the NDI or dietary supplement (e.g., the NDI or supplement is excluded from the definition of a dietary supplement). Under the FFDCA, an article that is an active ingredient in an approved drug, or that has been authorized for investigation as a new drug and for which the existence of such clinical investigations has been made public, is excluded from the definition of a dietary supplement and may not be marketed as such. An exception to this is if FDA issues a regulation finding that the use of such substance in a dietary supplement is lawful. An article that is approved as a drug or being investigated as a drug may be marketed in or as a dietary supplement if it was marketed as a dietary supplement or as a food prior to approval or clinical investigation (before the IND became effective). According to FDA, CBD is an active ingredient in an FDA-approved drug (i.e., Epidiolex), and it was authorized for investigation as a new drug for which substantial clinical investigations had been instituted and made public before its marketing as a dietary supplement. As such, FDA has determined that CBD may not be sold as a dietary supplement unless FDA promulgates regulations concluding otherwise, regardless of whether the CBD is hemp-derived or marijuana-derived. FDA has issued several public statements maintaining that it is unlawful to market CBD as, or in, dietary supplements. FDA may issue a regulation, after notice and comment, creating an exception that allows CBD to be marketed as a dietary supplement. Such a regulation may be requested by an interested person through the filing of a citizen petition. If an interested party has evidence challenging FDA's conclusion excluding CBD from the dietary supplement definition, the party may submit to FDA a citizen petition asking the agency to issue a regulation, subject to notice and comment, finding that the ingredient, when used as or in a dietary supplement, would be lawful. To date, FDA has not issued such a regulation for any substance (whether cannabis-derived or not) that is an active ingredient in an approved drug or is authorized for investigation as a new drug. If FDA were to issue a regulation allowing CBD to be marketed as a dietary supplement, that product likely would be expected to comply with the various requirements governing lawful marketing of supplements, including compliance with CGMPs and NDI notification. Despite FDA's determination that marketing CBD as a dietary supplement is unlawful, these products remain on the market. On November 14, 2019, the Consumer Healthcare Products Association (CHPA) submitted a citizen petition to FDA, asking the agency to "exercise its statutory authority and discretion to engage in rulemaking that establishes a regulatory pathway to legally market dietary supplements containing [CBD] derived from hemp (as defined in 7 U.S.C. 1639o(1))" and to require that manufacturers of CBD-containing dietary supplements submit NDI notifications. It is unclear whether other citizen petitions have been submitted to FDA requesting that it issue a regulation allowing CBD to be marketed as a dietary supplement. <2.4. Cosmetics and Personal Care Products> The FFDCA defines cosmetics as "(1) articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance and (2) articles intended for use as a component of any such articles; except that such term shall not include soap." FDA has the authority to take certain enforcement action against adulterated or misbranded cosmetics. A cosmetic is deemed adulterated if, among other things, it contains a poisonous or deleterious substance, or if it has been made or held in unsanitary conditions. A cosmetic is deemed misbranded if, among other things, "its labeling is false or misleading in any particular," or if the label lacks required information. In addition, if a product makes therapeutic claims (i.e., that its intended use is the cure, mitigation, treatment, or prevention of a disease), FDA generally considers that product to be a drug (or a drug-cosmetic) and subject to the FFDCA drug requirements. If a company has not obtained approval of a new drug prior to marketing, it is in violation of the FFDCA. For example, in October 2019, FDA sent a warning letter to a manufacturer marketing a CBD body butter with therapeutic claims. However, FDA's authority over cosmetic products is generally more limited than for the other products that the agency regulates. FDA does not have the authority to conduct premarket review of cosmetic ingredients, nor can FDA require cosmetics manufacturers to submit data substantiating the safety of their cosmetics. While FDA regulations prohibit or restrict the use of certain ingredients in cosmetics, the regulations do not apply to any cannabis or cannabis-derived ingredients (e.g., CBD). Legislation has been introduced in the 116 th Congress that would expand FDA's authority to regulate cosmetic products and would require a safety review of certain ingredients, among other things. If CBD were included in such a review and found to be unsafe for use in cosmetics, that finding would likely affect whether CBD could be marketed in cosmetics. <2.5. Tobacco Products> FDA regulates the manufacture, marketing, and distribution of tobacco products, per its authorities in the FFDCA, as amended by the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA; P.L. 111-31 ). A tobacco product is defined as "any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product)" that is not a drug, device, or drug-device combination product. Nicotine is an addictive chemical compound present in the tobacco plant. Tobacco products including cigarettes, cigars, smokeless tobacco, hookah tobacco, and most ENDS contain nicotine. Tobacco-derived nicotine (as well as any other tobacco-derived compound) meets the statutory definition of a tobacco product. In 2016, FDA promulgated regulations (known as the deeming rule ) that extend authority over all products meeting the definition of a tobacco product that were not already subject to the FFDCA, including ENDS. In the deeming rule, FDA clarified its authority to regulate all components and parts associated with ENDS, including e-liquids. E-liquids, which can include nicotine, flavorings, and other ingredients, are heated in ENDS to create a vapor that a user inhales. If an e-liquid contains CBD and makes therapeutic claims, it may be considered an unapproved drug and may be in violation of the FFDCA. In addition, if an e-liquid contains any tobacco-derived compound (e.g., nicotine) and CBD, but does not make therapeutic claims for CBD, the product may still meet the statutory definition of a tobacco product because it includes tobacco-derived compounds. In such case, the product may be subject to FDA's tobacco regulatory authorities, although the product might not receive marketing authorization if it is determined that allowing the product to be marketed would not be appropriate for the protection of public health. However, if the e-liquid contains CBD only, with no tobacco-derived compounds, and does not make therapeutic claims, FDA's enforcement options might be limited. In this case, it would be unclear whether the product meets the statutory definition of a tobacco product and is therefore subject to FDA's tobacco regulatory authorities. FDA has stated that it intends to make a determination about regulating such products as tobacco products on a case-by-case basis. <2.6. Alcohol Beverage Products> While TTB is the primary federal regulator of alcoholic beverages, FDA plays a role in determining what ingredients may be used in the production of alcoholic beverages. In general, before a hemp ingredient may be used in the production of an alcohol beverage product whether it be a distilled spirit, wine, or beer the producer may be required to request formula approval from TTB. Requirements are outlined in the Federal Alcohol Administration Act (27 U.S.C. 201 et seq.) and in regulation. For distilled spirits, for example, an approved formula is required to "blend, mix, purify, refine, compound, or treat spirits in a manner which results in a change of character, composition, class or type of the spirits;" any change in an approved formula requires a new filing. For wine, formula approval is required for "special natural wine, agricultural wine, and other than standard wine (except distilling material or vinegar stock)." For beer, formula approval is required for any fermented product that "is not generally recognized as a traditional process in the production of a fermented beverage designated as 'beer,' 'ale,' 'porter,' 'stout,' 'lager,' or 'malt liquor'" or to which certain ingredients are added. Specific labeling requirements also apply, and generally require prior approval. In addition, regarding interstate and foreign commerce in spirits, wine, and beer, it is unlawful for businesses to operate without a permit. Certain states and local jurisdictions might also have their own alcohol product prohibitions and production requirements, as well as restrictions on interstate commerce. TTB's current policy is that the agency "will not approve any formulas for alcohol beverages that contain ingredients that are controlled substances under the CSA" (e.g., marijuana or marijuana-derived CBD). With regard to CBD derived from hemp, TTB is in the process of updating its guidance on the use of hemp ingredients to reflect changes in the 2018 farm bill. TTB also states that it consults with FDA on ingredient safety issues and, in some cases, may "require formula applicants to obtain documentation from FDA indicating that the proposed use of an ingredient in an alcohol beverage would not violate [FFDCA]." Thus, in general, TTB treats hemp-derived ingredients for alcohol beverage products as any other product ingredient. As such, any ingredients added to alcohol beverage products must be either an FDA-approved food additive or determined to be GRAS. As aforementioned, to date, FDA has evaluated GRAS determinations for three different hemp seed-derived ingredients that do not contain CBD, although allowed uses do not include addition to alcoholic beverages. With regard to CBD, FDA has determined that it is unlawful to introduce into interstate commerce food to which certain drug ingredients (e.g., CBD) have been added. Additionally, independent of CBD's status as a drug ingredient, CBD has not been approved as a food additive, and FDA has determined that "[b]ased on a lack of scientific information supporting the safety of CBD in food it cannot conclude that CBD is [GRAS] among qualified experts for its use in human or animal food." Formulations seeking approval to use other types of hemp extracts as an ingredient including but not limited to CBD would likely not be approved by TTB, since these extracts have not been authorized for use in food by FDA. <3. Therapeutic Uses of CBD and Research Considerations> Cannabinoids such THC and CBD interact with specific cell receptors in the brain and throughout the body to produce their intended effects. Although THC activates certain receptors that then produce euphoric or intoxicating effects, CBD has low affinity for those same receptors and therefore does not produce intoxicating effects. This property may make CBD an attractive compound for drug developers. In addition, preclinical (e.g., animal model) research suggests that CBD may interact with other brain-signaling systems that can produce therapeutic effects, such as the reduction of seizures, pain, and anxiety. The therapeutic benefits, or underlying mechanism of action for therapeutic benefits, of CBD remain uncertain, even in CBD-containing drugs that have been approved by regulatory agencies. For example, in the United States, GW Pharmaceuticals' Epidiolex (CBD) is approved for the treatment of seizures associated with two rare and severe forms of epilepsy. However, according to the drug's labeling, the mechanism by which the drug exerts its anticonvulsant effects is not known. In addition, while not yet approved in the United States, GW Pharmaceuticals' drug Sativex (nabiximols) a cannabis extract spray containing a 1:1 ratio of CBD and delta-9 THC has regulatory approval in more than 25 countries for the treatment of spasticity (muscle stiffness/spasm) due to multiple sclerosis (MS). In Canada, Sativex has conditional marketing authorization as an adjunctive treatment for neuropathic pain in adult patients with MS and "as adjunctive analgesic [pain relieving] treatment in adult patients with advanced cancer who experience moderate to severe pain during the highest tolerated dose of strong opioid therapy for persistent background pain." However, Phase III clinical trials previously conducted by GW Pharmaceuticals found that Sativex failed to show superiority over placebo in treating the pain of patients with advanced cancer who experience inadequate analgesia during optimized chronic opioid therapy. Furthermore, while CBD is predicted to have anti-inflammatory properties, which may play a role in its analgesic effects, preliminary evidence suggests that the analgesia is mediated by THC, and the extent to which CBD contributes to those therapeutic effects is unclear. CBD is the subject of numerous ongoing randomized controlled trials (RCTs). As of December 2019, a database maintained by the National Library of Medicine (NLM) at the National Institutes of Health (NIH) lists numerous domestic and international ongoing RCTs involving cannabinoids including CBD as a treatment for a variety of conditions, including chronic pain, tremors associated with Parkinson's disease, and anxiety. GW Pharmaceuticals is also studying CBD and CBD variants in clinical trials for autism and schizophrenia. Other pharmaceutical manufacturers are conducting clinical trials with CBD and its variants for other indications, including severe acne and graft-versus-host disease (GVHD). However, until such studies are completed, conclusive evidence supporting the use of CBD to treat various health conditions is limited. In February 2017, the National Academies of Sciences, Engineering, and Medicine (NASEM) published a comprehensive review of fair- and good-quality systematic reviews of literature and high-quality primary research on cannabis and cannabinoids. NASEM did not make specific comparisons between cannabinoids derived from hemp versus marijuana, or between cannabinoids from low versus high THC strains of marijuana. However, for CBD or CBD-enriched cannabis specifically, the report noted research gaps among existing literature in treating numerous conditions, including cancer in general, chemotherapy-induced nausea, epilepsy, and post-traumatic stress disorder (PTSD), among other conditions. Nonetheless, CBD is promoted as treatment for a range of conditions, including PTSD, anxiety, inflammation, and sleeplessness despite limited scientific evidence substantiating or disproving these claims. These research gaps can be attributed, in part, to the status of marijuana as a Schedule I controlled substance under the CSA. Individuals who seek to conduct research on any controlled substance must do so in accordance with the CSA and other federal laws. DEA research requirements are more stringent for Schedule I and Schedule II substances than for substances in Schedules III-V. For example, for Schedule I substances such as marijuana, even if practitioners have a DEA registration for a substance in Schedules II-V, they must obtain a separate DEA registration for researching a Schedule I substance. In addition, due to its Schedule I status, the DEA strictly limits the quantity of marijuana manufactured each year. These requirements can prolong the process of acquiring marijuana (including marijuana-derived CBD) for research. As mentioned previously, the 2018 farm bill removed hemp and hemp derivatives (including hemp-derived CBD) from the CSA definition of marijuana, making them no longer subject to regulation and oversight as a controlled substance by DEA. DEA has confirmed that a DEA registration is no longer required to grow or research hemp plants and CBD preparations that meet the statutory definition of hemp . However, CBD preparations containing above the 0.3% delta-9 THC level (i.e., meeting the statutory definition of marijuana) continue to be subject to Schedule I CSA requirements. As a result, conducting research on these substances may continue to be a challenge. <4. Considerations for Congress: Marketing of CBD> <4.1. What Are the Circumstances Under Which FDA-Regulated Products Containing CBD Can Be Marketed Currently?> As mentioned previously, FDA has determined that at this time, CBD cannot be added to any food that is sold in interstate commerce and that CBD cannot be marketed as a dietary supplement. Although FDA could issue a regulation allowing CBD to be added to food or allowing its use in dietary supplements, the agency has never issued such a regulation for any substance (whether cannabis-derived or not) that is an approved drug or authorized for investigation as a new drug. Although FDA has determined that CBD (and THC) may not be added to food or marketed as a dietary supplement, the agency has not made this same determination for other compounds derived from cannabis, although those compounds may be subject to DEA restrictions; FDA's determination is specific to CBD and THC because both are active ingredients in FDA-approved drugs. FDA also has not determined that CBD may not be added to cosmetics; however, if a CBD-containing cosmetic product makes therapeutic claims (e.g., that it is intended to diagnose, treat, cure, mitigate, or prevent a disease), FDA would likely consider the product to be a drug subject to the new drug approval requirements. CBD may be lawfully marketed as a drug, pursuant to FDA approval, and in compliance with applicable statutory and regulatory requirements. If a firm seeks to market CBD as a treatment or an otherwise therapeutic product, the firm generally would need to obtain premarket approval from FDA via the new drug approval pathway. To date, FDA has approved one CBD-containing drug, Epidiolex, which is available by prescription for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome in patients two years old and older. Epidiolex is marketed by GW Pharmaceuticals. On May 31, 2019, FDA held a public hearing "to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds." Prior to the hearing, FDA had opened a docket to which interested stakeholders could submit a request for FDA to review scientific data and information about products containing cannabis or cannabis-derived compounds. Although FDA has maintained that it is unlawful to add CBD to food or to market CBD as a dietary supplement, CBD continues to be marketed in violation of this determination. The agency has generally prioritized enforcement against companies and products that pose the greatest risk to consumers for example, products making claims that CBD can treat Alzheimer's or stop cancer cell growth. FDA has said that it "does not have a policy of enforcement discretion with respect to any CBD products," although this is expected to change in light of language included in the explanatory statement accompanying the FY2020 enacted appropriation (see " What Could Congress Do to Allow CBD to Be Marketed as a Food Additive or Dietary Supplement? "). Some industry stakeholders are recommending that, absent an FDA regulatory framework for CBD products, manufacturers and marketers of dietary supplements or foods that contain hemp or CBD comply with federal regulations for supplements and food in the interim to help ensure the quality of these CBD products. Such compliance would include facility registration, adherence to CGMPs, and meeting labeling requirements. In an effort to establish industry-wide standards, one organization has established its own third-party certification program designed for hemp food, dietary supplements, and cosmetic companies. This certification program is independent of federal requirements, and FDA has not validated or verified any third-party certification program for hemp. <4.2. What Is the Current State of the CBD Market?> At the retail level, consumer products labeled as containing CBD are being marketed and sold in food and beverages, cosmetics and personal care products, certain tobacco products, and dietary supplements despite FDA's position that CBD may not be sold in food and beverages or dietary supplements. CBD-containing products that claim to meet the definition of hemp are sold through specialty retailers, such as natural/organic grocery stores, tobacco (or smoke) shops, yoga studios, and farmers' markets; through direct-to-consumer and online sales; from herbal practitioners; and by large retailers such as CVS and Walgreens. Although some industry analysts foresee a strong market for marijuana-derived CBD, it remains prohibited (aside for lawful research purposes) under the CSA if the product does not meet the statutory definition of hemp in 7 U.S.C. 1639o. The DEA has confirmed that a DEA registration is not required to grow or research hemp plants and CBD preparations that meet the statutory definition of hemp. Despite the federal prohibition on growing, selling, or possessing marijuana, marijuana-derived CBD products that have not been approved by FDA have been made available in states where medical and/or recreational cannabis is legal under state law, in violation of federal law. Depending on where a CBD product is manufactured and sold, it may primarily be produced using only drug-grade cannabis and marketed as a medicinal or therapeutic product, in violation of FDA requirements. To date, most of the CBD products sold in states where medical and/or recreational cannabis is legal do not meet the statutory definition of hemp. Typically, these products contain 0.45% to 1.5% THC, with some products containing up to 9% THC levels that could result in psychoactive effects by the user. In 2018, CBD sales in the United States were estimated at $534 million, according to the Hemp Business Journal . This amount includes sales from hemp-derived CBD products, marijuana-derived CBD products (currently a Schedule I controlled substance), and the FDA-approved drug Epidiolex. In 2018, more than 1,000 companies were producing and marketing CBD products for the U.S. market. Since 2014, when total CBD sales were a reported $108 million, U.S. sales of CBD have risen fivefold ( Figure 3 ). In 2018, hemp- and marijuana-derived CBD sales were $240 million and $264 million, respectively, while sales of Epidiolex were estimated at $30 million ( Figure 3 ). Current projections of U.S. sales of CBD indicate expected growth over the next few years. Such sales are expected to exceed $1 billion in 2020 and reach nearly $2 billion in 2022, roughly split between the three markets (hemp-derived, marijuana-derived, and pharmaceutical CBD; see Figure 3 ). Others forecast sales well beyond these levels, with some predicting that sales of hemp-derived CBD will eventually dominate the cannabis market, since hemp-derived CBD does not tend to carry the stigma associated with marijuana. An ATKearney survey shows that U.S. consumers, regardless of age, strongly believe that cannabis can "offer wellness and therapeutic benefits," ranging from 74% to 83% of those surveyed across all age demographics. Some global markets where cannabis is legal are already reporting product shortages of CBD medicinal cannabis products. In the United States, growth in CBD sales is expected despite continued regulatory and legal uncertainty, given continued FDA, DEA, and state and local restrictions. <4.3. What Could Congress Do to Allow CBD to Be Marketed as a Food Additive or Dietary Supplement?> Despite FDA's current determination that CBD cannot be marketed as a food additive or a dietary supplement, these products continue to be sold. In response, some members of Congress have expressed support for a regulatory framework for hemp-derived CBD in certain FDA-regulated consumer products. In absence of a regulatory framework for hemp-derived CBD products, Congress has directed FDA to issue a policy of enforcement discretion with respect to CBD products that meet the statutory definition of hemp that also come under FDA jurisdiction. More specifically, the explanatory statement accompanying the enacted FY2020 appropriation states that [t]he agreement includes $2,000,000 for research, policy evaluation, market surveillance, issuance of an enforcement discretion policy, and appropriate regulatory activities with respect to products under the jurisdiction of the FDA which contain CBD and meet the definition of hemp, as set forth in section 297A of the Agricultural Marketing Act of 1946 (7 U.S.C. 16390). Within 60 days of enactment of this Act, the FDA shall provide the Committees with a report regarding the agency's progress toward obtaining and analyzing data to help determine a policy of enforcement discretion and the process in which CBD meeting the definition of hemp will be evaluated for use in products. The FDA is further directed to perform a sampling study of the current CBD marketplace to determine the extent to which products are mislabeled or adulterated and report to the Committees within 180 days of enactment of this Act. The statement does not explicitly require FDA to set a safe level or threshold for CBD in consumer products. However, the activities conducted pursuant to this directive may inform the establishment of such a level in the future. In addition to the activities directed in the explanatory statement, Congress also could take further legislative action, such as requiring FDA to issue a regulation, under its FFDCA authorities, expressly permitting CBD that meets the definition of hemp to be used as a food additive or dietary supplement. For example, such a regulation could prescribe the conditions under which CBD may be safely used as a food additive (e.g., to add flavor or nutritional value to food, in specified quantities, subject to specified labeling requirements). However, because FDA has never before issued such a regulation allowing an approved drug or a substance authorized for investigation as a new drug to be a food additive or added to a dietary supplement, it is not clear what such a regulation would look like. Congress also could consider amending the FFDCA provisions that FDA has identified as restricting marketing of CBD in food and dietary supplements. For example, Congress could exclude from these provisions CBD that meets the statutory definition of hemp. However, even if the marketing of CBD-containing products were no longer restricted by these provisions, CBD-containing products may still be subject to other FFDCA requirements. For example, to lawfully market a CBD product as a dietary supplement, a firm may need to submit an NDI notification to FDA, in addition to meeting other statutory and regulatory requirements for supplements. To lawfully market CBD as a food additive, a firm would be expected to either obtain approval via a food additive petition or pursuant to a GRAS determination. As FDA has said that the agency "is not aware of any basis to conclude that CBD is GRAS among qualified experts for its use in human or animal food," a food additive petition may be necessary. As mentioned above, food and dietary supplements are not evaluated by FDA for safety and effectiveness prior to marketing. Given this fact, in determining whether a legislative approach is appropriate, Congress may consider the potential for adverse health effects and other unintended consequences. For example, clinical trials to support the approval of Epidiolex demonstrated the potential for liver injury at certain doses, and CBD may interact with other drugs or dietary supplements. Other concerns include the potential dosing and cumulative effects of exposure to CBD from multiple sources (e.g., food, supplements, and cosmetics); whether there are populations for whom CBD is not appropriate (e.g., pregnant or lactating women); and whether allowing CBD to be marketed as a supplement or food additive could undermine incentives for conducting clinical trials and obtaining evidence of safety and effectiveness to support drug approval. FDA's position with respect to the status of CBD impacts other agencies' and regulatory bodies' policies and guidance. For example, TTB consults with FDA on alcohol ingredient safety issues and generally requires that any ingredient added to alcohol beverages must be either an FDA-approved food additive or determined to be GRAS. CBD is not an approved food additive nor has it been found to be GRAS for use in alcohol or otherwise. It remains to be seen whether TTB would allow CBD that meets the definition of hemp to be added to alcoholic beverages if FDA issues a policy of enforcement discretion as directed by the explanatory statement accompanying the FY2020 enacted appropriation. Similarly, the AAFCO has issued guidelines on hemp in animal food, which are generally consistent with FDA's policy. A new policy of enforcement discretion issued pursuant to the language in the explanatory statement may affect AAFCO's guidelines. Additionally, in May 2019, the U.S. Patent and Trademark Office (USPTO) issued guidance that limits trademark registrations for CBD products. USPTO's guidance describes how it would review marks for cannabis and cannabis-related goods and services, and clarifies that compliance with federal law is a condition of federal trademark registration, regardless of the legality of the activities under state law. It further states that a "determination of whether commerce involving cannabis and cannabis-related goods and services is lawful requires consultation of several different federal laws," including the CSA, FFDCA, and the 2018 farm bill ( P.L. 115-334 ). Therefore, "registration of marks for foods, beverages, dietary supplements, or pet treats containing CBD will still be refused as unlawful under the FDCA, even if derived from hemp, as such goods may not be introduced lawfully into interstate commerce." Some claim that because the guidance does not specifically address cosmetic products, this could suggest that federal USPTO registration could be possible for such products; however, they also assert that USPTO is looking to FDA to further clarify conditions under which CBD foods, beverages, dietary supplements or pet treats may be lawfully marketed. Appendix A. Food Additive Petition Process and GRAS Notification Submission Food Additive Petition Process FDA has determined that CBD cannot be added to any food that is sold in interstate commerce. FDA is authorized to issue a regulation, after notice and comment, approving the use of a drug (e.g., CBD) as a food additive, although the agency has never done so for any substance. The FFDCA does not specify a process for FDA to issue such a regulation, other than that it must be after notice and comment. In regard to the process for food additive approval, FDA is authorized to "by order establish a regulation" that prescribes the conditions under which a food additive may be safely used. The issuance of such regulation may be proposed by FDA on its own initiative or by an interested person via submission of a food additive petition. A food additive petition must include, in addition to any explanatory or supporting data, the following information: the name and all pertinent information relating to the food additive, including its chemical identity and composition (if possible); a statement of the conditions of its proposed use, including directions, recommendations, and suggestions, and the proposed labeling; "all relevant data bearing on the physical or other technical effect such additive is intended to produce, and the quantity of such additive required to produce such effect"; a description of methods for determining the quantity of such additive in or on food, and any substance formed in or on food, because of its use; and full reports of safety investigations, including the methods and controls used in conducting such investigations. FDA may request that the petitioner also provide information about the manufacturing methods, facilities, and controls, as well as samples of the food additive (or articles used as its components) and samples "of the food in or on which the additive is proposed to be used." Additional requirements are specified in FDA regulations. Within 30 days of the petition filing date, FDA must publish notice in the Federal Register of the regulation proposed by the petitioner. Within 90 days of petition filing, FDA must issue either an order denying the petition or an order establishing a regulation prescribing the conditions under which the food additive may be used safely (e.g., particular foods in which it may be used, maximum quantity, labeling and directions). This 90-day period may be extended by FDA, as specified. FDA may not issue such a regulation if a fair evaluation of the data "fails to establish that the proposed use of the food additive, under the conditions of use to be specified in the regulation, will be safe," subject to specified limitations, or if a fair evaluation of the data "shows that the proposed use of the additive would promote deception of the consumer in violation of [the FFDCA] or would otherwise result in adulteration or in misbranding of food." FDA is authorized to fix a "tolerance limitation" if necessary to ensure safe use of the additive. In considering whether the use of a food additive is safe, FDA must consider, among other relevant factors, the probable consumption of the additive and cumulative effect in the diet. Any person adversely affected by such order may file objections with FDA and request a public hearing and may file for judicial review, as specified. Food additive regulations may be amended or repealed. An interested person may, for example, submit a food additive petition requesting issuance of a regulation allowing a new use of a previously approved additive. If a food additive is already subject to an FDA regulation for the proposed intended use, it does not require premarket approval via a petition. Instead, that food additive may be marketed by complying with the applicable food additive regulation. GRAS Notice Submission Any person may submit a notice to FDA expressing the view that a substance is GRAS and not subject to the premarket review requirements for food additives under FFDCA Section 409. A GRAS notice has seven parts, each of which must be included in a submission to FDA. If one of the seven parts of a GRAS notice is omitted, the submission must explain why that part does not apply. The seven parts of a GRAS notice are as follows: 1. signed statements and certification; 2. identity, method of manufacture, specifications, and physical or technical effect; 3. dietary exposure; 4. self-limiting levels of use; 5. experience based on common use in food before 1958; 6. narrative; and 7. a list of supporting data and information in the GRAS notice. FDA evaluates the submission to determine whether to file it and then informs the submitter of the agency's decision. If FDA decides to file the GRAS notice, the agency sends a letter to the submitter with the filing date. The regulations do not specify a filing deadline for FDA. The regulations do state that FDA is required to respond to a GRAS notice within 180 days of filing. FDA may extend that timeframe by 90 days as needed. Filed GRAS notices are made public by FDA. Appendix B. Abbreviations Used in this Report

Cannabidiol (CBD), a compound in the Cannabis sativa plant, has been promoted as a treatment for a range of conditions, including epileptic seizures, post-traumatic stress disorder, anxiety, inflammation, and sleeplessness. However, limited scientific evidence is available to substantiate or disprove the efficacy of CBD in treating these conditions. In the United States, CBD is marketed in food and beverages, dietary supplements, cosmetics, and tobacco products such as electronic nicotine delivery systems (ENDS)—products that are primarily regulated by the Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FFDCA, 21 U.S.C. §§301 et seq.). CBD is also the active ingredient in Epidiolex, an FDA-approved pharmaceutical drug. The Regulation of Marijuana and Hemp CBD is derived from the Cannabis sativa plant (commonly referred to as cannabis), which includes both hemp and marijuana. Marijuana is a Schedule I controlled substance under the Controlled Substances Act (CSA, 21 U.S.C. §§802 et seq.) and is regulated by the Drug Enforcement Administration (DEA). Schedule I substances are subject to the most severe CSA restrictions and penalties. Except for purposes of federally approved research, it is a federal crime to grow, sell, or possess marijuana. Until December 2018, hemp was included in the CSA definition of marijuana and was thus subject to the same restrictions. Legislative changes enacted as part of the 2018 farm bill (Agriculture Improvement Act of 2018, P.L. 115-334 ) removed longstanding federal restrictions on the cultivation of hemp. No longer subject to regulation and oversight as a controlled substance by DEA, hemp production is now subject to regulation and oversight as an agricultural commodity by the U.S. Department of Agriculture (USDA). The 2018 farm bill expanded the statutory definition of what constitutes hemp to include "all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers," as long as it contains no more than a 0.3% concentration of delta-9 tetrahydrocannabinol (THC; 7 U.S.C. §1639o). All non-hemp cannabis and cannabis derivatives—including marijuana-derived CBD—are considered to be marijuana under the CSA and remain regulated by DEA. Production and Marketing of Hemp Products Legislative changes related to hemp enacted as part of the 2018 farm bill were widely expected to generate additional market opportunities for the U.S. hemp market. However, the farm bill explicitly preserved FDA's authority under the FFDCA and Section 351 of the Public Health Service Act (PHSA, 42 U.S.C. §262), including for hemp-derived products. Following enactment of the farm bill, in a December 2018 statement, FDA stated that it is "unlawful under the [FFDCA] to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived." The agency has maintained this view in subsequent communications. Despite FDA's determination, CBD continues to be widely marketed and sold in both food and dietary supplements in the United States. To date, FDA has generally prioritized enforcement against companies and products that pose the greatest risk to consumers—for example, CBD products claiming to treat Alzheimer's or stop cancer cell growth. In 2014, total U.S. CBD sales were a reported $108 million. In 2018, more than 1,000 companies produced and marketed CBD for the U.S. market, and U.S. CBD sales were estimated at $534 million, according to the Hemp Business Journal . That dollar amount is projected to exceed $1 billion in 2020 and to reach nearly $2 billion in 2022. This amount includes sales from hemp-derived CBD, marijuana-derived CBD (currently a Schedule I controlled substance), and pharmaceutical CBD (currently only Epidiolex). Congressional Interest Congress has expressed concern about the proliferation of CBD products marketed in violation of federal law and has called on FDA to provide guidance on lawful pathways for marketing hemp-derived CBD in food and dietary supplements. In absence of a regulatory framework for hemp-derived CBD, in the explanatory statement accompanying the FY2020 enacted appropriation, Congress directed FDA to issue a policy of enforcement discretion with respect to CBD products that meet the statutory definition of hemp. In addition to the activities directed in the explanatory statement, Congress could also take further legislative action in the future, such as requiring FDA to issue a regulation, under its FFDCA authorities, expressly permitting CBD that meets the definition of hemp to be used as a food additive or dietary supplement. Congress also could amend the FFDCA provisions that FDA has identified as restricting marketing of CBD in food and dietary supplements. In determining whether a legislative approach is appropriate, Congress may consider the potential for adverse health effects and other unintended consequences.

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<1. Introduction> In December 2019, a new disease, later called COVID-19, emerged in China and quickly spread around the world. The disease presents major consequences for global health, foreign relations, the global economy, and global security. International institutions and country governments are taking a variety of responses to address these challenges. In the 116 th Congress, Members have introduced legislation to respond to COVID-19 in particular and to address global pandemic preparedness in general that are now occurring on a global scale. This report focuses on global implications of and responses to the COVID-19 pandemic, and is organized into four broad parts that answer common questions regarding: (1) the disease and its global prevalence, (2) country and regional responses, (3) global economic and trade implications, and (4) issues that Congress might consider. For information on domestic COVID-19 cases and related responses, see CRS Insight IN11253, Domestic Public Health Response to COVID-19: Current Status and Resources Guide , by Kavya Sekar and Ada S. Cornell. <1.1. What are coronaviruses and what is COVID-19?1> Coronaviruses that typically infect humans are common pathogens, which can cause mild illnesses with symptoms similar to the common cold, or severe illness, potentially resulting in death of the victim. Prior to COVID-19, two "novel" coronaviruses (i.e., coronaviruses newly recognized to infect humans) have caused serious illness and death in large populations, namely severe acute respiratory syndrome (SARS) in 2002-2003 and Middle East Respiratory Syndrome (MERS), which was first identified in 2012 and continues to have sporadic transmission from animals to people with limited human-to-human spread. The origin of COVID-19 is unknown, although genetic analysis suggests an animal source. The World Health Organization (WHO) first learned of pneumonia cases from unknown causes in Wuhan, China, on December 31, 2019. In the first days of January 2020, Chinese scientists isolated a previously unknown coronavirus in the patients, and on January 11, Chinese scientists shared its genetic sequence with the international community. (See CRS Report R46354, COVID-19 and China: A Chronology of Events (December 2019-January 2020) , by Susan V. Lawrence.) The virus is now present in most countries ( Figure 1 ). For the purposes of this report, CRS refers to COVID-19 as the virus and the syndrome people often develop when infected. <1.2. How is COVID-19 transmitted?5> Health officials and researchers are still learning about COVID-19. According to the U.S. Centers for Disease Control and Prevention (CDC), the virus is thought to spread mainly from person-to-person between individuals who are in close contact with each other (less than six feet), through respiratory droplets produced when an infected person coughs or sneezes. Health officials and researchers are still determining the virus's incubation period, or time between infection and onset of symptoms. CDC is using 14 days as the outer bound for the incubation period, meaning that the agency expects someone who has been infected to show symptoms within that period. The CDC has confirmed that asymptomatic cases (infected individuals who do not have symptoms) can transmit the virus, though "their role in transmission is not yet known." A study of the 3,711 passengers on the Diamond Princess cruise ship found that 712 people (19.2% of the cruise ship passengers) tested positive for COVID-19. Almost half (331) of the positive cases were asymptomatic at the time of testing. <1.3. What are global COVID-19 case fatality and hospitalization rates?9> The COVID-19 case fatality rate is difficult to determine; milder cases are not being diagnosed, death is delayed, and wide disparities exist in case detection worldwide. In addition, the case fatality rate in any given context may depend on a number of factors including the demographics of the population, density of the area, and the quality and availability of health care services. Scientists are using different methods to estimate case fatality and estimates range. One study of those diagnosed with COVID-19 estimated case fatality rates for Wuhan, China and other parts of China at 1.4% and 0.85%, respectively. Another estimated 3.6% within China and 1.5% outside the country, with a third recommending using a range of 0.2%-3.0%. Current data suggest the elderly and those with preexisting medical conditions (including asthma, high blood pressure, heart disease, cancer, and diabetes) are more likely to become severely sickened by COVID-19. One study in China showed that 80% of those killed by the virus were older than 60 years and 81% of surveyed COVID-19 cases were mild. Another study showed that 87% of all hospitalized COVID-19 patients in China were aged between 30 and 79 years, though the study did not further disaggregate the data by age. Whereas the CDC found that the elderly had higher death rates, more than half (55%) of reported COVID-19 hospitalizations between February 12 and March 16, 2020, were of individuals younger than 65 years ( Figure 2 ). <1.4. Where are COVID-19 cases concentrated?16> As of May 13, 2020, national governments reported to the WHO more than 4 million cases of COVID-19 and almost 300,000 related deaths worldwide. Ten countries accounted for over 70% of all reported cases and almost 80% of all reported deaths ( Table 1 ). The pandemic epicenter has shifted from China and Asia to the United States and Europe. China and Belgium are no longer among the 10 countries with the highest number of deaths, and Russia and Brazil joined the ranks. Almost 90% of all reported cases were identified in the WHO Americas and Europe regions ( Table 2 ). Cases are continuing to rise in the Americas, where 88% of all cases were found in the United States (74%), Brazil (9%), and Canada (4%). In Europe, the cases are more widely distributed, and seven countries comprise 77% of all cases: Russia (14%), Spain (13%), United Kingdom (13%), Italy (12%), Germany (10%), Turkey (8%) and France (8%). <2. COVID-19 Responses of International Institutions> Individual countries carry out both domestic and international efforts to control the COVID-19 pandemic, with the WHO issuing guidance, coordinating some international research and related findings, and coordinating health aid in low-resource settings. Countries follow (to varying degrees) WHO policy guidance on COVID-19 response and leverage information shared by WHO to refine national COVID-19 plans. The United Nations (U.N.) Office for the Coordination of Humanitarian Affairs (UNOCHA) is requesting $6.7 billion to support COVID-19 efforts by several U.N. entities (see " Multilateral Technical Assistance " section). <2.1. International Health Regulations19> <2.1.1. What rules guide COVID-19 responses worldwide?> WHO is the U.N. agency responsible for setting norms and rules on global health matters, including on pandemic response. The organization also develops and provides tools, guidance and training protocols. In 1969, the World Health Assembly (WHA) the governing body of WHO adopted the International Health Regulations (IHR) to stop the spread of six diseases through quarantine and other infectious disease control measures. The WHA has amended the IHR several times, most recently in 2005. The 2005 edition, known as IHR (2005), provided expanded means for controlling infectious disease outbreaks beyond quarantine. The regulations include a code of conduct for notification of and responses to disease outbreaks with pandemic potential, and carry the expectation that countries (and their territories) will build the capacity, where lacking, to comply with IHR (2005). The regulations mandate that WHO Member States build and maintain public health capacities for disease surveillance and response; provide or facilitate technical assistance to help low-resource countries develop and maintain public health capacities; notify WHO of any event that may constitute a Public Health Emergency of International Concern (PHEIC) and respond to requests for verification of information regarding such event; and follow WHO recommendations concerning public health responses to the relevant PHEIC. Per reporting requirements of the IHR (2005), China and other countries are monitoring and reporting COVID-19 cases to WHO. Observers are debating the extent to which China is fully complying with IHR (2005) reporting rules (see " Asia " and the Appendix ). <2.1.2. How does WHO respond to countries that do not comply with IHR (2005)?> IHR (2005) does not have an enforcement mechanism. WHO asserts that "peer pressure and public knowledge" are the "best incentives for compliance." Consequences that WHO purports non-compliant countries might face include a tarnished international image, increased morbidity and mortality of affected populations, travel and trade restrictions imposed by other countries, economic and social disruption, and public outrage. China's response to the COVID-19 outbreak may deepen debates about the need for an IHR enforcement mechanism. On one hand, questions about the timeliness of China's reporting of the COVID-19 outbreak and questions about China's transparency thereafter might bolster arguments in favor of an enforcement mechanism. On the other hand, some have questioned whether the WHA would vote to abdicate some of its sovereignty to provide WHO enforcement authority. <2.1.3. How does the Global Health Security Agenda (GHSA) relate to IHR (2005) and pandemic preparedness?> IHR (2005) came into force in 2007, with signatory countries committing to comply by 2012. In 2012, only 20% of countries reported to the WHO that they had developed IHR (2005) core capacities, and many observers asserted the regulations needed a funding mechanism to help resource-constrained countries with compliance. In 2014, the WHO launched the Global Health Security Agenda (GHSA) as a five-year (2014-2018) multilateral effort to accelerate IHR (2005) implementation, particularly in resource-poor countries lacking the capacity to adhere to the regulations. The GHSA appeared to advance global pandemic preparedness capacity; more than 70% of surveyed countries reported in 2017 being prepared to address a global pandemic. Regional disparities persisted, however; about 55% of surveyed countries in the WHO Africa region reported being prepared for a pandemic, compared to almost 90% of countries surveyed in the WHO Western Pacific region. In 2017, participating countries agreed to extend the GHSA through 2024. For more information on the GHSA, see CRS In Focus IF11461, The Global Health Security Agenda (GHSA): 2020-2024 , by Tiaji Salaam-Blyther. <2.2. Multilateral Technical Assistance> <2.2.1. What is WHO doing to respond to the COVID-19 pandemic?23> In February 2020, WHO released a $675 million Strategic Preparedness and Response Plan for February through April 2020. WHO aims to provide international coordination and operational support, bolster country readiness and response capacity particularly in low-resource countries and accelerate research and innovation. As of May 8, private donors and 26 countries have contributed $536.5 million towards the plan, including $30.3 million from the United States. Countries have pledged an additional $198.5 million towards the plan. As of April 22, WHO has used the funds to purchase and ship personal protective equipment (PPE) to 133 countries, including 2,566,880 surgical masks and masks, 1,641,900 boxes of gloves, 184,478 gowns, 29,873 goggles, and 79,426 face shields; supply 1,500,000 diagnostic kits to 126 countries; develop online COVID-19 training courses in 13 languages; and enroll more than 100 countries in WHO-coordinated trials to accelerate identification of an effective vaccine and treatment, which include 1,200 patients, 144 studies, and 6 candidate vaccines in clinical evaluation and 77 in preclinical evaluation. In April 2020, the WHO issued an updated plan that provided guidance for countries preparing for a phased transition from widespread transmission to a steady state of low-level or no transmission, among other things. The update did not include a request for additional funds. Also in April 2020, the WHO hosted a virtual event with the President of France, the President of the European Commission, and the Bill & Melinda Gates Foundation where heads of state, the G20 President, the African Union Commission Chairperson, the U.N. Secretary General and leaders from a variety of nongovernmental organizations, including Gavi, the Vaccine Alliance, and the Coalition for Epidemic Preparedness and Innovation (CEPI), pledged their commitment to the Access to COVID-19 Tools (ACT Accelerator). The participants, and other partners who have since joined the effort, committed to "work towards equitable global access" to COVID-19 countermeasures (including vaccines and therapies). A pledging conference, hosted by the European Union (EU), took place on May 4 to support the effort. As of May 6, donors have pledged $7.4 billion for the ACT Accelerator and other global COVID-19 responses. The United States neither participated in the launch nor provided funding for the ACT Accelerator. Debates about whether health commodities are a public good are long-standing and have intensified in recent years. For decades, countries have willingly donated virus samples to the WHO for international research. During a 2005-2007 H5N1 avian flu outbreak, however, Indonesia refused to share samples of the virus, asserting that companies were selling patented vaccines created from the donated samples at a price Indonesians could not afford. The WHO and its Member States, through the WHA, have not yet developed an agreement that satisfies poor countries concerned about affordability and wealthier countries (where most global pharmaceutical companies are based) concerned about recapturing research and development costs. The WHO has sought to negotiate prepurchasing agreement during each major outbreak since the H5N1 debacle. French officials, for example, have characterized any COVID-19 commodity that might be developed as a "public good," and they have criticized statements by a French pharmaceutical company on committing to provide the U.S. government first access to a COVID-19 vaccine that the company produces. The WHO has established the Solidarity Trial to coordinate international COVID-19-related research and development. Participating parties, including countries, pharmaceutical companies, and nongovernmental organizations, agree to openly share virus information and commodities developed with donated specimens. The EU and its Member States, and nine other countries, have drafted a resolution to be considered at the upcoming World Health Assembly on a unified international COVID-19 response, including on "the need for all countries to have unhindered timely access to quality, safe, efficacious and affordable diagnostics, therapeutics, medicines and vaccines ... for the COVID-19 response." <2.2.2. How are international financial institutions responding to COVID-19?32> The international financial institutions (IFIs), including the International Monetary Fund (IMF), the World Bank, and specialized multilateral development banks (MDBs), are mobilizing unprecedented levels of financial resources to support countries grappling with the health and economic effects of the COVID-19 pandemic. About 100 countries more than half of the IMF's membership have requested IMF loans, and the IMF has announced it is ready to tap its total lending capacity, about $1 trillion, to support governments responding to COVID-19. In April 2020, the World Bank pledged to mobilize about $160 billion through 2021, and other multilateral development banks committed about $80 billion over the same time period. MDB support is expected to cover a wide range of activities, including strengthening health services and primary health care, bolstering disease monitoring and reporting, training front-line health workers, encouraging community engagement to maintain public trust, and improving access to treatment for the poorest patients. In addition, at the urging of the IMF and the World Bank, the G-20 countries in coordination with private creditors have agreed to suspend debt payments for low-income countries through the end of 2020. Policymakers are discussing a number of policy actions to further bolster the IFI response to the COVID-19 pandemic. Examples include changing IFI policies to allow more flexibility in providing financial assistance, pursuing policies at the IMF to increase member states' foreign reserves, and providing debt relief to low-income countries. Some of these policy proposals would require congressional legislation. Through the stimulus legislation ( P.L. 116-136 ), Congress accelerated authorizations requested by the Administration in the FY2021 budget for the IMF, two lending facilities at the World Bank, and two lending facilities at the African Development Bank. <2.2.3. What is the U.N. humanitarian response to the COVID-19 pandemic?36> Outside of the WHO, other U.N. entities and their implementing partners are considering how to maintain ongoing humanitarian operations while preparing for COVID-19 cases should they arise. On March 17, 2020, the International Organization for Migration (IOM) and the U.N. High Commissioner for Refugees (UNHCR) announced they were suspending global resettlement travel for refugees due to the COVID-19 travel bans. Cessation of resettlement may reinforce population density in refugee camps and other settlements, which might further complicate efforts to address COVID-19 outbreaks in such settings. Many experts agree that even prior to the COVID-19 pandemic, the scope of current global humanitarian crises was unprecedented. The U.N. Office for the Coordination of Humanitarian Affairs (UNOCHA) estimated that in 2020, nearly 168 million people in 53 countries would require humanitarian assistance and protection due to armed conflict, widespread or indiscriminate violence, and/or human rights violations. The 2020 U.N. global humanitarian annual appeal totaled an all-time high of more than $28.8 billion, excluding COVID-19 responses. The appeal also focused on the needs of displaced populations, which numbered more than 70 million people, including 25.9 million refugees, 41.3 million internally displaced persons (IDPs) and 3.5 million asylum seekers. In addition, natural disasters are also key drivers of displacement each year. Humanitarian experts agree that the conditions in which vulnerable, displaced populations live make them particularly susceptible to COVID-19 spread and present significant challenges to response and containment. Overcrowded living spaces and insufficient hygiene and sanitation facilities make conditions conducive to contagion. In many situations, disease control recommendations are not practical. Space is not available to create isolation and "social-distancing," for example, and limited access to clean water and sanitation make regular and sustained handwashing difficult. In addition, low or middle-income countries that are likely to struggle to respond effectively to the pandemic host 85% of refugees worldwide. So far, relatively few COVID-19 cases have been reported among the displaced and those affected by conflict or natural disasters, although there is a widespread lack of testing. On March 25, 2020, the United Nations launched a $2.01 billion global appeal for the COVID-19 pandemic response to "fight the virus in the world's poorest countries, and address the needs of the most vulnerable people" through the end of the year. According to the United Nations, as of early May, donors had so far provided $923 million toward the initial appeal and contributed $608 million outside the plan. On May 7, 2020, the United Nations announced it had tripled the appeal to $6.7 million and expanded its coverage to 63 countries as it became clear that COVID-19's "most devastating and destabilizing effects will be felt in the world's poorest countries." While the United Nations does not expect the pandemic to peak in the world's poorest countries for another three to six months, already there are reports of "incomes plummeting and jobs disappearing, food supplies falling and prices soaring, and children missing vaccinations and meals." The updated plan brings together humanitarian appeals from other U.N. agencies in an effort to coordinate emergency health and humanitarian responses (see Table 3 ). UNOCHA will coordinate the U.N.-wide response, but most of the activities will be carried out by specific U.N. entities, non-governmental organizations, and other implementing partners. U.N. guidance for scaling up responses in refugee and IDP settings includes addressing mental health and psychological aspects, adjusting food distribution, and developing prevention and control mechanisms in schools. Some experts recommend incorporating COVID-19 responses within existing humanitarian programs to ensure continuity of operations and to protect aid personnel while facilitating their access in areas where travel has been restricted. <3. U.S. Support for International Responses> On January 29, 2020, President Donald Trump announced the formation of the President's Coronavirus Task Force, led by the Department of Health and Human Services (HHS) and coordinated by the White House National Security Council (NSC). On February 27, the President appointed Vice President Michael Pence as the Administration's COVID-19 task force leader, and the Vice President subsequently appointed the head of the President's Emergency Plan for AIDS Relief (PEPFAR), Ambassador Deborah Birx, as the White House Coronavirus Response Coordinator. International COVID-19 response efforts carried out by U.S. federal government departments and agencies, including those in the Task Force, are described below. <3.1. Emergency Appropriations for International Responses58> On March 6, 2020, the President signed into law P.L. 116-123 , Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 , which provides $8.3 billion for domestic and international COVID-19 response. The Act includes $300 million to continue the CDC's global health security programs and a total of $1.25 billion for the U.S. Agency for International Development (USAID) and Department of State. USAID- and Department of State-administered aid includes the following: Global Health Programs (GHP). $435 million for global health responses (see " U.S. Agency for International Development (USAID) "), including $200 million for USAID's Emergency Reserve Fund (ERF). International Disaster Assistance (IDA). $300 million for relief and recovery efforts in the wake of the COVID-19 pandemic. Economic Support Fund (ESF). $250 million to address COVID-19-related "economic, security, and stabilization requirements." The Act also provides $1 million to the USAID Office of Inspector General to support oversight of COVID-19-related aid programming. On March 27, 2020, President Trump signed P.L. 116-136 , Coronavirus Aid, Relief, and Economic Security Act , which contains emergency funding for U.S. international COVID-19 responses, including the following: International Disaster Assistance (IDA). $258 million to "prevent, prepare for, and respond" to COVID-19. Migration and Refugee Assistance (MRA). $350 million to the State Department-administered MRA account to "prevent, prepare for, and respond" to COVID-19. <3.2. U.S. Department of State61> <3.2.1. How does the State Department help American citizens abroad?> Section 43 of the State Department Basic Authorities Act of 1956 (P.L. 84-885; hereinafter, the Basic Authorities Act) requires the State Department to serve as a clearinghouse of information on any major disaster or incident that affects the health and safety of U.S. citizens abroad. The department implements this statutory responsibility through its Consular Information Program (CIP), which provides a range of products, including but not limited to country-specific information web pages, Travel Advisories, Alerts, and Worldwide Cautions. Travel Advisories range from Level 1 (Exercise Normal Precautions) to Level 4 (Do Not Travel). On March 31, 2020, the State Department issued an updated Level 4 Global Health Advisory advising U.S. citizens to avoid all international travel due to the global impact of COVID-19. Level 4 Travel Advisories do not constitute a travel ban. Instead, they advise U.S. citizens not to travel because of life threatening risks and, in some cases, limited U.S. government capability to provide assistance to U.S. citizens. The State Department's Level 4 Global Health Advisory notes that because the State Department has authorized the departure of U.S. personnel abroad who are "at higher risk of a poor outcome if exposed to COVID-19," U.S. embassies and consulates may have more limited capacity to provide services to U.S. citizens abroad. CIP products are posted online and disseminated to U.S. citizens who have registered to receive such communications through the Smart Traveler Enrollment Program (STEP). The Assistant Secretary for Consular Affairs is responsible for supervising and managing the CIP. State Department regulations provide that when health concerns rise to the level of posing a significant threat to U.S. citizens, the State Department will publish a web page describing the health-related threat and resources. The Bureau of Consular Affairs has developed such a web page for the COVID-19 pandemic. Additionally, the State Department has created a website providing COVID-19-related information and resources for every country in the world. Furthermore, on March 24, 2020, the State Department began publishing a daily COVID-19 newsletter, developed for Members of Congress and congressional staff, intended to "dispel rumor, combat misinformation, and answer any outstanding questions regarding the Department's overseas crisis response efforts." <3.2.2. What are the authorities and funding for the State Department to carry out overseas evacuations?> The Omnibus Diplomatic Security and Antiterrorism Act of 1986 ( P.L. 99-399 ) authorizes the Secretary of State to carry out overseas evacuations. Section 103 of this law requires the Secretary to "develop and implement policies and programs to provide for the safe and efficient evacuation of United States Government personnel, dependents, and private United States citizens when their lives are endangered." In addition, the Basic Authorities Act authorizes the Secretary to make expenditures for overseas evacuations. Section 4 of this law authorizes both expenditures for the evacuation of "United States Government employees and their dependents" and "private United States citizens or third-country nationals, on a reimbursable basis to the maximum extent practicable," leaving American citizens or third-country nationals generally responsible for the cost of evacuation, although emergency financial assistance may be available for destitute evacuees. Furthermore, the Basic Authorities Act limits the scope of repayment to "a reasonable commercial air fare immediately prior to the events giving rise to the evacuation." In practice, even when the State Department advises private U.S. citizens to leave a country, it will advise them to evacuate using existing commercial transportation options whenever possible. This is reflected in the State Department's current Level 4 Global Health Advisory, which states that "[i]n countries where commercial departure options remain available, U.S. citizens who live in the United States should arrange for immediate return." In more rare circumstances, when the local transportation infrastructure is compromised, the State Department will arrange chartered or non-commercial transportation for U.S. citizens to evacuate to a safe location determined by the department. Following the outbreak of COVID-19, the State Department has made such arrangements for thousands of U.S. citizens throughout the world, initially those in Wuhan, China and, shortly thereafter, U.S. citizen passengers who were quarantined on the Diamond Princess cruise ship in Yokohama, Japan. As demand for repatriation surged, the State Department leveraged new options to evacuate U.S. citizens, including "commercial rescue flights." To facilitate these flights, the department worked with the airline industry to help them secure the needed clearances to carry out evacuation flights in high-demand countries. The State Department said that these flights enabled it to focus its own resources to send chartered flights where "airspace, border closures, and internal curfews have been the most severe." While evacuations are still ongoing, the department estimated in late April that around 40% of U.S. citizens who were evacuated for reasons related to COVID-19 returned to the United States on commercial rescue flights. Congress authorizes funding for the evacuation-related activities through the Emergencies in the Diplomatic and Consular Service (EDCS) account, which is part of the annual Department of State, Foreign Operations, and Related Programs (SFOPS) appropriation. For FY2020, Congress appropriated $7.9 million for this account. Congress typically funds this account through no-year appropriations, thereby authorizing the State Department to indefinitely retain funds. The State Department is able to further fund emergency evacuations using transfer authorities provided by Congress. In recent SFOPS appropriations, for example, Congress has authorized the State Department to transfer and merge funds appropriated to the Diplomatic Programs, Embassy Security, Construction, and Maintenance, and EDCS accounts for emergency P.L. 116-123 , evacuations. In addition to the funds and transfer authorities provided in annual appropriations legislation, Congress appropriated an additional $588 million for State Department operations (including $264 million appropriated through P.L. 116-123 and $324 million appropriated through P.L. 116-136 ) to "prevent, prepare for, and respond to coronavirus," including by carrying out evacuations. P.L. 116-123 also increased the amount of funding the State Department is authorized to transfer from the Diplomatic Programs account to the EDCS account for emergency evacuations during FY2020 from $10 million to $100 million. <3.2.3. How many evacuations have been carried out due to the COVID-19 pandemic?> The State Department began arranging evacuations of U.S. government personnel and private U.S. citizens in response to the COVID-19 pandemic on January 28, 2020, when the department started evacuating over 800 American citizens from Wuhan, China. An additional 300 American citizens who were passengers aboard the Diamond Princess cruise ship were subsequently evacuated in February. When COVID-19 continued to spread and was declared a global pandemic by WHO, the State Department accelerated its efforts to evacuate Americans amid actions by countries to close their borders and implement mandatory travel restrictions. On March 19, 2020, the State Department established a repatriation task force to coordinate and support these efforts. As of May 11, 2020, the State Department had coordinated the repatriation of more than 85,000 Americans on 886 flights. The State Department's current Level 4 Global Health Advisory warns that while the department is "making every effort to assist U.S. citizens overseas who wish to return to the United States, funds "may become more limited or even unavailable." Some Members of Congress have applauded the State Department's efforts to scale up consular assistance to U.S. citizens abroad during the COVID-19 pandemic. Other Members have expressed concern that as COVID-19 spread worldwide, the State Department was slow to communicate with and provide options to Americans abroad seeking repatriation. <3.3. U.S. Agency for International Development (USAID)85> <3.3.1. Where is USAID providing COVID-19 assistance?> USAID is providing assistance to more than 100 affected and at-risk developing countries facing the threat of COVID-19. USAID identified these countries through a combination of the following criteria: trend of increasing confirmed cases of COVID-19, especially with evidence of local transmission; imported cases with high risk for local transmission due to connectivity to a hotspot; low scores on the Global Health Security Index classification of health systems and on the Global Health Security Agenda Joint External Evaluation, which measures compliance with IHR (2005); other vulnerabilities (unstable political situation, displaced populations); and the existence of other U.S. global health programs that could be leveraged. USAID is also providing funding to multilateral organizations, including the WHO, UNICEF, and the International Federation of the Red Cross and Red Crescent Societies for COVID-19 assistance, and to facilitate coordination with other donors. <3.3.2. What type of assistance does USAID provide for COVID-19 control?> On February 7, 2020, USAID committed $99 million from the Emergency Reserve Fund (ERF) for Contagious Infectious Diseases. USAID received $986 million from the first emergency supplemental appropriation and an additional $353 million from the second. Examples of activities to which USAID resources will be programed include assisting target countries to prepare their laboratories for COVID-19 testing, implementing a public-health emergency plan for points of entry, activating case-finding and event-based surveillance for influenza-like illnesses, training and equipping rapid-response teams, investigating cases and tracing the contacts of infected persons, and adapting health worker training materials for COVID-19. As of May 1, 2020, USAID pledged to provide $653 million for international COVID-19 response, $215 million of which has been obligated. The pledged amounts include $99 million from the ERF, $100 million from the Global Health Programs (GHP) account, $300 million in humanitarian assistance from the International Disease Assistance (IDA) account, and $153 million from the Economic Support Fund (ESF). <3.3.3. How do USAID COVID-19 responses relate to regular pandemic preparedness activities?> Congress appropriates funds for USAID global health security and pandemic preparedness activities through annual State, Foreign Operations, and Related Programs appropriations ( Table 4 ). From FY2009 through FY2019, the bulk of USAID's pandemic preparedness activities have been implemented through the Emerging Pandemic Threats (EPT) program. Those efforts comprised USAID's contribution towards advancing the Global Health Security Agenda (see " International Health Regulations ") and are being leveraged for COVID-19 responses worldwide. Key related activities include strengthening surveillance systems to detect and report disease transmission; upgrading veterinary and other national laboratories; strengthening programs to combat antimicrobial resistance (AMR) in the public health and animal-health sectors; training community health volunteers in epidemic control and designing community-preparedness plans; conducting simulation exercises to prepare for future outbreaks; and establishing or strengthening emergency supply-chain programs specially designed to deliver critically needed commodities (e.g., personal protective equipment) to affected communities during outbreaks. The PREDICT project was a key part of the EPT program. According to USAID, the second phase of the project, PREDICT-2 (2015-2019), helped nearly 30 countries detect and discover viruses with pandemic potential. The project has detected more than 1,100 unique viruses, 931 of which were novel viruses (such as Ebola and coronaviruses); sampled over 163,000 animals and people; and provided $207 million from 2009 through 2019. USAID has responded to 42 outbreaks through PREDICT-2, which ended in March 2020 (following a three-month extension). In May 2020, USAID announced that it will use the lessons learned through PREDICT to inform its new STOP Spillover project. The STOP Spillover project is aimed at building capacity in partner countries to stop the spillover of zoonotic diseases into humans. USAID aims to "award the STOP Spillover project by the end of September 2020, through a competitive process, as PREDICT sunsets as scheduled." <3.4. U.S. Centers for Disease Control and Prevention (CDC)90> <3.4.1. What role is CDC playing in international COVID-19 responses?> CDC has staff stationed in more than 60 countries who have been providing technical support, where relevant, and is receptive to bilateral requests for assistance or requests for assistance through the Global Outbreak Alert and Response Network (GOARN). CDC is working with WHO and other partners, including USAID and the Department of State, to assess needs and accelerate COVID-19 control, particularly by helping countries to implement WHO recommendations related to the diagnosis and care of patients, tracking the epidemic, and identifying people who might have COVID-19. Through supplemental appropriations ( P.L. 116-123 ), Congress provided CDC $300 million for global disease detection and emergency response. CDC plans to obligate $150 million of the funds by the end of FY2020. Related efforts will focus on disease surveillance, laboratory diagnostics, infection prevention and control, border health and community mitigation, and vaccine preparedness and disease prevention. CDC is reportedly working closely with USAID and Department of State to ensure a coordinated U.S. government approach to the COVID-19 pandemic. CDC is prioritizing countries based on the current status of COVID-19 in country and future trajectory of its spread; the ability to effectively implement activities given CDC presence, capacity and partnerships in the country; and the capacity to provide support to other countries in the region. CDC staff are working with colleagues in partner countries to conduct investigations that will help inform COVID-19 response efforts. <3.4.2. How do CDC COVID-19 responses relate to regular pandemic preparedness activities?> Through the Global Health Protection line item of annual Labor-HHS appropriations, CDC works to enhance public health capacity abroad and improve global health security, particularly through GHSA ( Table 5 ). CDC works to bolster global health security and pandemic preparedness in 19 countries by focusing on enhancing the core foundations of what CDC views as strong public health systems comprehensive disease surveillance and integrated laboratory systems, a strong public health workforce, and capable emergency management structures. Programs within CDC's global health security portfolio include the following: The Field Epidemiology Training Program (FETP) trains a global workforce of field epidemiologists to increase countries' ability to detect and respond to disease threats, address the global shortage of skilled epidemiologists, and deepen relationships between CDC and other countries. Over 70 countries have participated in FETP with more than 10,000 graduates. National Public Health Institutes (NPHI) help more than 26 partner countries carry out essential public health functions and ensure accountability for public health resources. The program focuses on improving the collection and use of public health data, as well as the development, implementation, and monitoring of public health programs. Global Rapid Response Team (GRRT) is a team of public health experts who remain ready to deploy for supporting emergency response and helping partner countries achieve core global health capabilities. The GRRT focuses on field-based logistics, communications, and management operations. Since the GRRT's inception, more than 500 CDC staff have provided over 30,000 person-days of response support. From January through March 2020, CDC staff has completed more than 100 deployments for COVID-19 response. Core and surge members support domestic deployments to quarantine stations and repatriation sites, international deployments, WHO and country office operations, and the Emergency Operations Center in Atlanta. The Public Health Emergency Management (PHEM) program trains public health professionals affiliated with international ministries of health on emergency management and exposes them to the CDC Public Health Emergency Operations Center. To date, the program has graduated 142 fellows from 37 countries (plus the African Union). <3.5. U.S. Department of Defense (DOD)> <3.5.1. What is the DOD global COVID-19 response?91> DOD is conducting medical surveillance for COVID-19 worldwide. Related activities entail daily monitoring of reported cases, including persons under investigation (PUI), confirmed cases, and locations of such individuals, as well as surveillance for COVID-19 at China's southern border. DOD is supporting the U.S. CDC with additional laboratory capabilities. The DOD Laboratory Network, which includes military facilities in the United States and in certain overseas locations, has made available to interagency network laboratories its "detection and characterization capabilities to support COVID-19-related activities across the globe." The Secretary of Defense also has directed geographic combatant commanders to "execute their pandemic plans in response to the [COVID-19] outbreak." <3.5.2. Emergency Appropriations for DOD Responses98> The Families First Coronavirus Response Act ( P.L. 116-127 ) became law on March 18, 2020. Title II of Division A of the act included $82 million for the Defense Health Program to waive all TRICARE cost-sharing requirements related to COVID-19. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136 ) became law on March 27, 2020. Title III of Division B of the act included $10.5 billion in emergency funding for DOD. Of the $10.5 billion, $4.9 billion (47%) is for the Defense Health Program (DHP), according to the bill text . The DHP funding included $1.8 billion for patient care and procurement of medical and protective equipment; $1.6 billion to increase capacity in military treatment facilities; $1.1 billion for private-sector care; and $415 million to develop vaccines and to procure diagnostic tests, according to a summary released by the Senate Appropriations Committee. H.R. 748 also provided $2.5 billion for the defense industrial base, including $1.5 billion in defense working capital funds and $1 billion in Defense Production Act purchases; $1.9 billion in operations and maintenance (O&M) funding for the Services, in part to support deployment of the hospital ships USNS COMFORT and USNS MERCY to ease civilian hospital demand by caring for non-COVID patients; and $1.2 billion in military personnel (MILPERS) funding for Army and Air National Guard personnel deployments. DOD has not detailed how much of the emergency funding may be used to support international activities related to COVID-19, though DOD has stated it is working with the Department of Health and Human Services and the Department of State to provide support in dealing with the pandemic. As part of missions that began in March, Air National Guard C-17 cargo aircraft have transported hundreds of thousands of coronavirus testing swabs from Italy to the United States. The swabs have been distributed to medical facilities around the country at the direction of the Department of Health and Human Services. <3.5.3. To what extent is COVID-19 affecting United States security personnel?104> The degree to which U.S. security operations around the world may be affected due to personnel becoming infected has yet to be determined. Numerous media reports suggest that various parts of the U.S. military have seen a significant number of servicemembers contract or die from COVID-19 related symptoms. Citing operational security concerns, on March 30, 2020 the Department of Defense (DOD) directed military service commanders not to share the number of personnel affected by the COVID-19. In justifying this policy the DOD stated, "We will not report the aggregate number of individual service member cases at individual unit, base or Combatant Commands. We will continue to do our best to balance transparency in this crisis with operational security." Also, as of April 1, 2020, reportedly the Department of Homeland Security had nearly 9,000 employees whose exposure to COVID-19 that has taken them out of the workforce, and deployed U.S. Naval vessels, such as the USS Theodore Roosevelt, have had their operational effectiveness called into question. <4. Regional Implications of and Responses to the COVID-19 Pandemic> <4.1. Asia> <4.1.1. What are the implications for U.S.-China relations?109> U.S.-China relations were fraught well before the outbreak of COVID-19, with the two governments engaging in a bitter trade war, competing for influence around the globe, and clashing over such issues as their activities in the South China Sea, China's human rights record, and China's Belt and Road Initiative. The pandemic appears to have increased the acrimony. On February 3, when the COVID-19 outbreak was at its peak in China, a spokesperson for China's Foreign Ministry blasted the United States for its response to the crisis there. "The U.S. government hasn't provided any substantive assistance to us, but it was the first to evacuate personnel from its consulate in Wuhan, the first to suggest partial withdrawal of its embassy staff, and the first to impose a travel ban on Chinese travelers," the spokesperson charged. "What it has done could only create and spread fear." Days later, Secretary of State Michael R. Pompeo announced the United States would make available up to $100 million in existing funds "to assist China and other impacted countries," and that the State Department had facilitated the delivery to China of 17.8 tons of personal protection equipment and medical supplies donated by the private sector. As COVID-19 transmission has accelerated in the United States, the Trump Administration has stepped up criticism of China's early response to the outbreak. Secretary Pompeo told an interviewer on March 24, "unfortunately, the Chinese Communist Party covered this up and delayed its response in a way that has truly put thousands of lives at risk." Spokespeople for the State Department and China's Foreign Ministry have traded COVID-19-related accusations on Twitter. On March 12, a Chinese spokesperson tweeted, "It might be US army who brought the epidemic to Wuhan." Secretary Pompeo accused China of waging a disinformation campaign "designed to shift responsibility," and President Trump for several days referred to COVID-19 as "the Chinese virus." On April 17, in announcing his decision to withhold U.S. funding from the World Health Organization, President Trump accused the multilateral institution of having "pushed China's misinformation about the virus, saying it was not communicable and there was no need for travel bans." Administration officials have also repeatedly suggested that a Chinese research institution may have been the source of the virus. On April 30, 2020, when asked if he had seen anything "that gives you a high degree of confidence that the Wuhan Institute of Virology was the origin of the virus," the President replied, "Yes, I have." The same day, the Office of the Director of National Intelligence stated that the intelligence community would continue efforts "to determine whether the outbreak began through contact with infected animals or if it was the result of an accident at a laboratory in Wuhan," indicating continuing uncertainties about the virus's origin. China has pushed back against U.S. allegations, including in a "Reality Check" document tweeted by a Chinese Foreign Ministry spokesperson responding to 24 U.S. allegations, which the spokesperson calls "lies." (The document argues, for example, that the Wuhan Institute of Virology "does not have the capability to design and synthesize a new coronavirus, and there is no evidence of pathogen leaks or staff infections in the Institute.") Chinese spokespeople have gone on the offensive in criticizing the U.S. response to COVID-19 and have doubled down on spreading a conspiracy theory that the virus could have originated in the United States. On May 8, a Chinese Foreign Ministry spokesperson tweeted, "The #US keeps calling for transparency & investigation. Why not open up Fort Detrick & other bio-labs for international review? Why not invite #WHO & int'l experts to the U.S. to look into #COVID19 source & response?" Some U.S.-based analysts have expressed alarm about the downward spiral in bilateral relations. Some see neither the United States nor China helping to coordinate a global response to the pandemic, and argue, "U.S.-China strategic competition is giving way to a kind of 'managed enmity' that is disrupting the world and forestalling the prospect of transnational responses to transnational threats." Others suggest, "There will be time later to assess the early mistakes of China and others in greater detail, but the virus is out there now and we should be tackling it together." Some have called for cooperation in vaccine development and distribution, and in addressing the economic crisis the virus is causing in the developing world." Writing in The Washington Post , China's Ambassador to the United States suggested on May 5 that China would still be open to cooperation. "Blaming China will not end this pandemic," he wrote. "On the contrary, the mind-set risks decoupling China and the United States and hurting our efforts to fight the disease, our coordination to reignite the global economy, our ability to conquer other challenges and our prospects of a better future." In a May 14, 2020, Fox News interview, President Trump said, however, that he had no desire to speak to China's leader Xi Jinping. He suggested that to punish China, "we could cut off the whole relationship." Apparently referring to the U.S. trade deficit with China, which was $378.6 billion in 2019, the President added, "You'd save $500 billion if you cut off the whole relationship." Several Members of Congress have introduced legislation criticizing China's response to the COVID-19 pandemic (see Appendix ). <4.1.2. What are the implications in Southeast Asia?125> Southeast Asia was one of the first regions to experience COVID-19 infections and the outbreak could have broad social, political, and economic implications in the months ahead and possibly years ahead. The region's countries are deeply tied together through trade and the movement of labor, links that could be reshaped if the outbreak leads to broad policy changes. Their economies have already been affected by disruptions to these links, and broad economic networks and supply chains could be reshaped if the outbreak leads to broad policy changes. As an example, Malaysia banned overseas travel on March 18, affecting approximately 300,000 Malaysians who work in neighboring Singapore. Malaysia, however, changed tack on April 14 and allowed Malaysians in Singapore to return if they agreed to be tested and placed in quarantine. In Singapore, widespread outbreaks among migrant laborers, mostly from South Asia, who live in crowded dormitories, have led to the region's largest number of COVID-19 infections. Other regional issues include the following: Indonesia and the Philippines, the region's two most populous nations, appear to be experiencing widening outbreaks and may have a significantly larger COVID-19 case count than their public health systems are able to detect and address. Malaysia and Thailand, which have undergone substantial political turmoil in recent years, have relatively new governments that could face legitimacy questions based on their responses to the pandemic and as their economies begin the process of opening. Some nations, including the Philippines and Cambodia, have taken actions that raise concerns about human rights and freedoms. Philippine President Rodrigo Duterte has imposed strict lockdown measures that one U.N. official criticized as "highly militarized," and these measures have resulted in more than 120,000 arrests, disproportionally affecting poor urban residents. Human rights groups have criticized a draft emergency order by Cambodia's government that would give it greater control over traditional and social media. Some of the region's poorest countries, including Burma and Laos, have reported relatively few COVID-19 cases, highlighting questions about transparency in nations that may be particularly vulnerable given their underdeveloped health systems. Much of the Southeast Asian diplomatic calendar, which drives regional cooperation on a wide range of issues including trade and public health, has been cancelled or has moved to virtual meetings. The International Institute for Strategic Studies (IISS) has cancelled this year's iteration of its annual Shangri-la Dialogue, slated for June 5-7, after consultations with the government of Singapore. <4.1.3. What are the implications in Central Asia?131> In Central Asia, the economic impacts of the pandemic may affect the roles of Russia and China in the region. Given disruptions to trade and cross-border movement, the pandemic could reverse recent progress on regional connectivity, a U.S. policy priority in Central Asia. The COVID-19 pandemic is placing significant economic pressure on Central Asian countries due to declines in domestic economic activity, economic disruptions in China and Russia, and the fall in hydrocarbon prices. China has cut the volume of natural gas imports from Central Asia due to falling demand, and analysts speculate that Chinese investment in the region may also shrink. Turkmenistan sends almost all of its gas exports to China and is particularly vulnerable, as the Turkmen government uses gas exports to service billions of dollars of Chinese loans. The economic impact of the pandemic will likely interrupt the flow of remittances from Russia, where millions of Kyrgyz, Tajik, and Uzbek citizens work as labor migrants, accounting for significant percentages of their countries' GDPs. Some measures implemented to combat the spread of COVID-19 could provide governments in the region with the means to suppress political and media freedoms. Human Rights Watch has stated that Central Asian governments are failing to uphold their human rights obligations by limiting access to information and arbitrarily enforcing pandemic-related restrictions. In Kazakhstan, authorities have detained government critics and journalists on suspicion of "disseminating knowingly false information during a state of emergency," a charge that can be punished by up to seven years in prison. Kyrgyz authorities restricted the ability of independent media outlets to report for over a month using provisions in the country's state of emergency. The government of Tajikistan has been suppressing information on the pandemic, refusing to answer media questions and blocking a website that crowdsources information on COVID-19 fatalities in the country. <4.1.4. What are the implications in South Asia?134> The seven countries of South Asia are home to about 1.8 billion people, nearly one-quarter of the world's population. In most South Asian countries, per capita spending on health care is relatively low and medical resources and capacities are limited. Dense populations and lack of hygiene are facilitating factors for pandemics, and with medical equipment needed to address the crisis in short supply, South Asia nations are likely to face serious risk. As of May 1, 2020, the United States had provided nearly $6 million in health assistance to help India slow the spread of COVID-19 and nearly $15 million to assist Pakistan's response. The COVID-19 crisis has put a broad hold on activities related to U.S.-India and regional multilateral security cooperation, as well as delayed sensitive negotiations on U.S.-India trade disputes. The postponement of a planned March visit to New Delhi by Secretary of Defense Mark Esper had led to worries by some of inertia in bilateral defense relations. With India and Pakistan still engaged in a deep-rooted militarized rivalry, any generalized South Asian crisis, especially in the disputed region of Kashmir, could lead to societal breakdowns and/or open interstate conflict between these two nuclear-armed countries. India. Several U.S. and Indian firms are cooperating on research for a coronavirus vaccine. India is home to several major vaccine manufacturers and is the world's leading producer of hydrocholoquine, an anti-malarial drug President Trump has touted as a potential treatment for COVID-19. In April, the U.S. President suggested that the United States might retaliate against India if New Delhi bans export of the drug and fails to fulfill an existing large-scale U.S. purchase order. India has agreed to allow limited exports. The COVID-19 crisis has led to more acute questioning of the political leadership in India, where since last year Prime Minister Narendra Modi has faced mass protests over new citizenship laws and persecution of Muslims. Reports indicate that the health pandemic is fueling greater oppression and persecution of Indian Muslims, with that community coming under blame for the pandemic from some quarters. Accusations also have arisen that the New Delhi government is using the pandemic as a cover for increased efforts to limit press freedoms. India's Jammu and Kashmir territory which came under a strict security lockdown in August 2019 and lost statehood in November reportedly faces a "double lockdown" with the pandemic and resulting severe physical and psychological hardships. The New Delhi government may be using the pandemic as cover to further consolidate its grip on the disputed Kashmir Valley. In Pakistan , Prime Minister Imran Khan was already dealing with widespread disaffection related to his government's performance and legitimacy. In late March, the powerful military "stepped in and sidelined" the civilian leadership after the Khan government's national pandemic response was criticized for perceived indecisiveness. By some accounts, the Pakistan government has also "caved in to the demands of clerics" regarding lockdown regulations. In Bangladesh , social distancing is difficult for many living in densely populated areas. In addition, over 1 million displaced Rohingya reside in overcrowded and unsanitary camps along Bangladesh's border with Burma. Of these Rohingya, approximately 630,000 live in the Kutupalong camp, which may be the world's largest refugee camp. The population density in the camps 104,000 people per square mile in Kutupalong poses challenges for social distancing, quarantine, and isolation. Any COVID-19 transmission in the camps would likely quickly overwhelm medical facilities and services, and because of the camps' porous perimeters, risk spreading into neighboring Bangladeshi towns and villages. Bangladesh reportedly quarantined a number of Rohingya on Bhansan Char island to prevent the spread of COVID-19. <4.1.5. What are the implications in Australia and New Zealand?145> In both Australia and New Zealand, relations with China have been further strained by the COVID-19 pandemic. In April 2020, Australia expressed its support for an international investigation into the origins and spread of the pandemic, a call that raised sensitivities in the PRC. China's Ambassador Cheng Jingye in an Australian newspaper interview warned "that pursuing an inquiry could spark a Chinese consumer boycott." Opposition Foreign Affairs spokesperson Penny Wong has signaled Labor's support of the government on the issue. In the view of one commentator, such attempts at "intimidation" and "economic coercion" make it "now plain for all to see that the CCP is waging political war on Australia, using trade as a weapon. This is Australia's moment of clarity." In May, China berated New Zealand for supporting Taiwan's participation at the World Health Organization. New Zealand Foreign Minister Winston Peters stated, "[w] e have to stand up for ourselves" when asked about China's response to New Zealand's position on Taiwan. <4.1.6. What are the implications for U.S. withdrawal from Afghanistan?151> The presence and spread of COVID-19 in Afghanistan is adding new confusion to the Afghan peace process, already complicated by an extended political crisis in Kabul. The February 29, 2020 agreement signed by U.S. and Taliban negotiators commits the United States to withdraw about 3,500 of the 12,000 troops it has in Afghanistan by mid-June 2020 (with commensurate drawdowns of international forces). There have since been conflicting reports about how the COVID-19 pandemic is impacting that timeline. Most notably, the United States announced on March 18 that it is pausing the movement of personnel into and out of theater due to concerns about COVID-19. More recent reports indicate that the withdrawal is proceeding apace, if not ahead of schedule, and NBC News reported in April 2020 that President Trump has called for further accelerating the withdrawal of U.S. troops out of Afghanistan because of the pandemic. The U.S.-Taliban agreement also called for negotiations between the Taliban and Afghan government representatives to begin by March 10, but thus far no formal negotiations have taken place or been scheduled. Some limited engagements were held over Skype, due to the pandemic, but talks are chiefly held up by a disputed prisoner exchange. Further spread of COVID-19 in Afghanistan could present opportunities for compromise and intra-Afghan cooperation. For example, Afghan government representatives have expressed support for Taliban efforts to combat the virus in areas they control. In addition, while the Taliban have reportedly targeted health workers in the past, a Taliban spokesman announced that the group "assures all international health organizations and WHO of its readiness to cooperate and coordinate with them in combatting" COVID-19, a commitment they appear to have upheld. At the same time, some observers dismiss the Taliban's response as a propagandistic attempt to undermine the legitimacy of the Afghan government, and charge that the Taliban's dramatic escalation of violence since February 2019 is the main factor impeding the country's response to the pandemic. Afghanistan may be at particularly high risk of a widespread COVID-19 outbreak, due in part to its weak public health infrastructure and its porous border with Iran, a regional epicenter of the pandemic where up to three million Afghan refugees live. More than 277,000 Afghans have returned to Afghanistan from Iran since January 1, 2020. <4.1.7. What COVID-19 containment lessons could be learned from Asia?> Asian governments outside mainland China were the first to deal with COVID-19. Five jurisdictions, in particular, have received wide praise for their COVID-19 control approaches: Taiwan, Hong Kong, South Korea, Australia, and New Zealand. Singapore was also praised for its initial actions to control the virus, although a large "second wave" of infections has pointed to vulnerabilities that even jurisdictions perceived as well-run still face. All of these jurisdictions have drawn on their experiences in addressing previous public health emergencies, including outbreaks caused by SARS, swine and avian flu, and MERS. Those experiences fostered bureaucratic and public attentiveness to public health challenges and prompted governments to develop active protocols for screening, testing, isolating infected individuals, and tracing their contacts. Prior experience may also have conditioned people in those places to follow standard infection control measures (frequent hand-washing, mask-wearing, and social distancing) and to more readily accept quarantines and movement restrictions. Some of these jurisdictions have begun the process of loosening restrictions related to COVID-19, which may provide lessons for the United States and others. Taiwan. Taiwan (which officially calls itself the Republic of China, or ROC), is located just 81 miles off the coast of mainland China. On December 31, 2019, the same day China notified the WHO China Office of pneumonia cases of unknown origin, Taiwan officials had begun to board planes arriving from Wuhan to evaluate passengers who had fever or pneumonia symptoms. Travel alerts, routine passenger screenings, and directives to self-quarantine soon followed, and by early February, Taiwan barred residents of mainland China from entry. Taiwan also extended indefinitely a suspension of cross-Strait flights from all but five airports in mainland China, previously set to expire at the end of April. On January 20, Taiwan both confirmed its first COVID-19 case and activated a Central Epidemic Command Center (CECC) to lead and coordinate the government's response to the COVID-19 crisis. The CECC is part of the National Health Command Center, a 24/7 central command headquarters created in 2004 following the SARS outbreak. The government also integrated its national health insurance, customs, and immigration databases to facilitate case identification and tracking. The concentration of public health expertise among Taiwan's top leaders likely contributed to the government's attentive response. Taiwan's vice president, vice president-elect, vice premier, and minister of health are all public health experts. The government has also issued strict and transparent guidance to contain the spread of the virus, which its citizens largely appear to have followed. Taiwan has tested widely for the virus, including mandatory tests for certain groups and tests for patients with respiratory illnesses that tested negative for the flu. Directives to conduct "self-health management" or self-quarantine have been enforced by harnessing cellphone location data and punishing violators with steep fines. The government's daily press conferences and frequent broadcasts of public service announcements have heightened public awareness and facilitated compliance with best practices. Taiwan also created informational apps, to help citizens track the spread of the virus and locate supplies of masks. In February and March, the government announced economic relief and stabilization measures, including approximately USD$2 billion to assist Taiwan industries affected by the outbreak, and payments totaling $465 to individuals who were quarantined or providing care for the quarantined. Hong Kong. Initially, the government of Hong Kong, a Special Administrative Region (HKSAR) of the People's Republic of China, resisted taking aggressive measures to prevent a COVID-19 outbreak. Public criticism of what many considered an insufficient and inconsistent initial response appears to have contributed to the government's subsequent decision to act. A newly formed union of doctors and nurses working for the Hong Kong Hospital Authority held a strike on February 3, 2020, demanding the HKSAR government close the city's border with mainland China, for example. The HKSAR government closed all but two of the land crossings with mainland China the next day. The government implemented a mandatory 14-day quarantine for all arrivals to Hong Kong on March 17, 2020, which remains in effect. The HKSAR government has also indefinitely closed Hong Kong's borders to all non-resident arrivals (except people from Mainland China, Macau and Taiwan who have not been to another country in the previous 14 days). The government has also developed an extensive range of public service announcements, web pages, and other modes of informing the public about COVID-19. Although the HKSAR government may have hesitated, Hong Kong's public quickly adopted social distancing and anti-contamination behaviors developed during previous viral outbreaks. Similarly, medical professionals quickly implemented anti-viral protocols. After 14 days without a confirmed local case of contagion and only a few "imported cases," on May 5, 2020, the HKSAR government began to selectively relax its restrictions, reopening government offices and selective businesses while maintaining the requirement to wear masks in public and prohibiting gatherings of more than eight people. The same day, it also announced that it would provide every Hong Kong resident with a free reusable face mask that complies with the American Society for Testing & Materials F2100 Level 1 Standard in terms of particle and bacterial filtration efficiency. The HKSAR government, however, also noted that restrictions may be reinstated if there is an increase in local cases. Singapore. Singapore, a Southeast Asian city-state of 5.7 million people, has offered lessons perceived as both positive and cautionary in its handling of the pandemic. Singapore was one of the first nations outside China to report COVID-19 cases, with its first infection reported on January 23. Public health experts have praised Singapore's rapid early actions, including extensive monitoring of cases and their contacts, temperature checks at building entrances, and clear public messaging. Singapore health officials conducted detailed interviews of affected individuals, requiring those who had come into contact with them to quarantine themselves. The Health Ministry developed the capacity to test more than 2,000 individuals a day. Individuals who come within two meters of an infected individual or spend 30 minutes with one are required to undergo testing and to quarantine or be placed under observation. Individuals found to have misled health officials are subject to criminal penalties including fines and the threat of imprisonment. The Health Ministry issues daily updates on individual cases and the numbers of people under care or protective quarantine, including details of where each individual who has tested positive lives. Despite its early successes curbing the spread, Singapore has experienced a significant "second wave" of cases, leading authorities to close schools and most businesses, steps that they had avoided earlier. Many of the new cases have come from crowded quarters where migrant workers live, and the expansion has left Singapore with Southeast Asia's largest number of COVID-19 infections, as of May 11. South Korea. After cases were confirmed in South Korea in late January, authorities pursued an aggressive testing regimen and public communication strategy. South Korea describes its strategy as the three "T"s: tracking, testing, and treatment. By early May, the number of new cases per day had fallen to 6.4. As of early May, nearly 660,000 citizens had been tested for the virus the highest rate of testing per capita in the world at over 600 sites, including pop-up facilities and drive-through sites. Results are generally provided within 24 hours. The case fatality ratio (1.64% as of March 30) has also been low, which health officials attribute to early detection and treatment, as well as universal health care. As of early May, South Korea has been able to stabilize the outbreak without lockdowns or wholesale travel bans, in part, experts argue, by being transparent and disseminating information about the virus' spread, including possible infections at the neighborhood level. President Moon Jae-in has stepped aside to allow national health officials to take the lead in delivering twice-daily messages to the public. After MERS killed 38 people in 2015, South Korea reformed its health policy by granting the government greater powers to monitor and track individual patients and to allow private companies to rapidly produce tests. Shortly after the COVID-19 outbreak hit, authorities were able to test 10,000 patients daily. Authorities can now test over 20,000 patients per day. Australia . Observers believe that Australia's mitigation efforts (including self-isolation, movement restrictions, a two-week quarantine for those entering the country), the public's general adherence to rules, and widespread testing and tracing of contacts may be responsible for a relatively successful effort to contain the pandemic in Australia. Australia reportedly has one of the highest per capita testing rates in the world. In April 2020, the Australian government launched "Covidsafe," an application that traces every person running it with other application users that have tested positive for COVID-19. Using Bluetooth, the app records others that have been within 1.5 meters for 15 minutes or more who also have the app. Within three days of its release, 3 million Australian had reportedly signed up for the app. New Zealand . New Zealand confirmed its first case of coronavirus on February 28, 2020. The late date of the first outbreak, New Zealand's relative isolation, swift early response, and widespread testing all appear to have helped New Zealand to effectively deal with the virus. On March 14, with only six confirmed COVID-19 cases in the country, Prime Minister Jacinda Ardern announced that all entering New Zealand would have to self-isolate for two weeks and that the existing travel ban for those coming from China and Iran would remain in place. From March 19, the New Zealand border has been closed to almost all travelers, with only New Zealand citizens, residents, and their immediate families allowed to enter the country. This was a significant move for the country, which has an estimated 4 million international visitors a year, and where tourism accounted for approximately 5.8% of GDP for the year ending March 2019. Since April 9, arrivals have been placed in "managed isolation facilities," and those deemed to be high risk have been placed in quarantine facilities. New Zealand has moved from lockdown to an easing of restrictions in a relatively short period of time. Prime Minister Ardern announced on March 23 that New Zealand would enter a level 4 lockdown on March 25, when it had less than 150 cases. New Zealand then moved to alert level 3 on April 27. It subsequently moved to alert level 2 on May 13, under which most businesses will be open, tertiary education will open, travel between regions of the country, and gatherings up to 10 people will be allowed. Border controls and physical distancing requirements will remain, wide scale testing will continue, and those unwell or who have been in contact with the sick will be isolated. New Zealand and Australia have reached an agreement to lift travel restrictions between their two countries and establish a Trans-Tasman COVID Safe Zone, or travel bubble, as soon as it is safe to do so. <4.2. Europe208> <4.2.1. How are European governments and the European Union (EU) responding?> On March 13, 2020, WHO officials characterized Europe as the new global epicenter of the COVID-19 pandemic, noting that more cases were being reported each day in Europe than were reported in China at the height of its epidemic. As of May 15, about 1.2 million infections and nearly 155,000 deaths had been reported across the 27-member European Union (EU) and United Kingdom (UK). Italy, Spain, and the UK have been particularly hard hit, but infection rates grew across Europe throughout the month of March. Ukraine, Russia, and other parts of the former Soviet Union also reported a growing number of new COVID-19 cases. Since mid-April, a growing number of European governments have expressed cautious optimism that their countries have passed the peak of the crisis. Many European countries, including France, Germany, Italy, and Spain, have announced and begun to implement staged "re-opening" plans, slowly rolling back some of the "lockdown" measures implemented in March. Government officials caution, however, that reopening measures are strictly conditions-based and could be halted if infection rates grow. European leaders have characterized the pandemic as Europe's biggest challenge since the Second World War, with potentially severe economic consequences and far-reaching social and political implications beyond the public health impact. European governments and the EU are enacting an array of policy responses. Authorities in most European countries initially imposed strict limitations on the movement of people and are undertaking significant fiscal and monetary measures. Key measures taken in Europe to combat the pandemic include the following: Initial " l ock downs" t ransitioning to c autious r eopening . On March 9, Italy became the first country to impose a nationwide quarantine, prohibiting "non-essential" movement within the country and closing all non-essential businesses; France, Germany, the United Kingdom, and others followed with similar restrictions. Almost all European countries closed schools and some types of businesses and have restricted public gatherings to varying degrees. Numerous European governments mobilized their military forces to assist response efforts, including constructing makeshift hospitals. In some countries, government authorities scaled back public transportation and introduced curfews. In mid-April, some European countries began announcing plans for a gradual reopening of their societies and economies in the coming months, but the pace of reopening measures vary across Europe, and leaders caution that such measures would be contingent on a clear reduction in infection rates. European governments have generally stressed the importance of a staged approach to reopening, allowing for regional differences depending on regional infection rates and hospital and testing capacity. They also have sought to implement widespread testing and contact tracing capacity. Economic stimulus . Many analysts predict that the COVID-19 pandemic could cause a financial crisis in Europe that might be several times worse than the 2008 global recession. European governments and the EU have announced an array of measures to mitigate a severe economic downturn. Measures include loan programs and credit guarantees for companies, income subsidies for affected workers, tax deferrals, and debt repayment deferments. On May 14, the Italian government announced a 55 billion (about $60 billion) stimulus plan. In France, President Emmanuel Macron has pledged to provide unlimited budgetary support to companies and workers, which the government says could cost upward of 45 billion ($48 billion). Germany has announced direct fiscal support of 236 billion (about $256 billion) and a 500 billion ($536 billion) loan program. Other countries have announced similar relief measures. On March 18, the European Central Bank, which manages the EU's common currency (the euro), announced a Pandemic Emergency Purchase Program (PEPP) of about 750 billion ($803 billion) aimed at calming markets and stemming a debt crisis in the Eurozone (the 19 EU member states that use the euro as their currency). On April 9, Eurozone leaders agreed to a new financial assistance package of at least 540 billion (roughly $590 billion). This package includes access to credit lines through the European Stability Mechanism (ESM, the Eurozone's "bail-out" fund) worth approximately 240 billion ($261 billion) for health-related costs, establishment of a European Investment Bank fund to back up to 200 billion ($219 billion) in loans for businesses, and a 100 billion ($110 billion) unemployment benefit support plan. Reaching consensus on this financial package was contentious and exposed divisions among EU member states. The package does not include establishing common EU debt instruments (or "corona bonds") one of the most controversial proposals supported by hardest-hit countries such as Italy, Spain, and France but EU leaders will likely continue to discuss this option and other potential economic measures. Border closures . Numerous European governments have enacted national border controls and some have restricted entry only to national citizens. These measures have complicated efforts to maintain the free movement of goods, services, and people (key elements of the EU's single market) on which the EU's highly integrated economy depends. National border controls and closures within the EU's internal border-free Schengen Area in which individuals may travel without passport checks among 22 EU member states and four non-EU countries resulted in long delays at several borders. On March 16, 2020, EU leaders agreed to implement a temporary ban on "non-essential travel" into the EU and the Schengen Area for most foreign nationals from outside countries (including the United States), partly in an effort to preserve freedom of movement within the EU. This ban on nonessential travel into the EU and the Schengen Area is expected to remain in place until at least June 15. Many analysts contend that the disparate national reactions to the COVID-19 pandemic are endangering the EU's single market and Schengen system, with possible long-term implications for the EU's future. <4.2.2. How is the pandemic affecting U.S.-European relations?> Managing the spread of COVID-19 has added new tensions to already strained U.S.-European relations. The EU a frequent target of criticism from President Trump expressed dismay with the announcement from the Trump Administration on March 11, 2020 of a travel ban on foreign nationals arriving in the United States from the Schengen Area. In a joint statement on March 12, EU leaders noted that COVID-19 was a global crisis that "requires cooperation rather than unilateral action" and expressed disapproval that the U.S. travel ban was imposed "without consultation." U.S. officials countered that the travel ban decision had to be taken quickly and was based on the WHO's assessment of sustained transmission in the Schengen Area. The Trump Administration subsequently extended the travel ban beyond the Schengen Area to the UK and Ireland. Nevertheless, some analysts on both sides of the Atlantic asserted that the U.S. travel ban was scapegoating the EU, threatened future U.S.-EU relations, and imperiled broader U.S.-European political and security alliances. Some European leaders and EU officials also object to certain elements of the U.S. international response to the COVID-19 pandemic. Many European policymakers have criticized President Trump's decision to halt U.S. funding to the WHO pending a review of its role in allegedly mismanaging the pandemic response. EU officials have expressed concern that U.S. economic sanctions are blocking humanitarian supplies for hard-hit countries such as Iran and Venezuela. Some European officials, including in Germany and France, have complained about U.S. efforts to outbid them in the global marketplace for facemasks and other critical medical equipment. Some critics have also bemoaned the lack of coordinated U.S.-European leadership in mobilizing a global response to control the pandemic and address its wider societal and economic consequences. <4.3. Africa220> <4.3.1. How are African governments responding?> As of May 12, 2020, all countries in sub-Saharan Africa ("Africa") except Lesotho had confirmed COVID-19-cases. South Africa had 11,000-plus cases, 25% of Africa's total. Most early cases were imported, notably from Europe, or linked to such cases. Africa's known COVID-19 caseloads have lagged those of more developed countries, and Africa's per capita incidence of COVID-19 remains very low in global comparison. Most countries in Africa, however, now have confirmed local COVID-19 transmission chains, and in some countries cases are surging. Prevention and mitigation strategies vary considerably in the region. Many governments have sought to increase COVID-19 testing capacity (though some have inadequate access to testing supplies), and to isolate confirmed and presumptive infected persons and trace their contacts. Many have improved their capacities in these areas since the start of the pandemic (see next section), in some cases building on lessons from past Ebola virus outbreak responses. Many African health systems, however, have limited capacities. Per capita ratios of doctors and health workers, rates of health spending, and hospital beds are some of the lowest globally, and supplies of healthcare goods (e.g., drugs, ventilators, and oxygen supplies) are low. Socioeconomic challenges also hinder prevention measures centering on hygiene (e.g., handwashing) and social distancing. Many Africans lack access to clean water or sanitation facilities, and live in high-density areas (e.g., informal urban settlements or displaced person camps). COVID-19 co-morbidity with other diseases widespread in the region (e.g., HIV and malaria) and/or chronic health problems (e.g., diabetes and malnutrition ) may increase the risk from COVID-19 in Africa. Most countries have launched public outreach campaigns centered on personal hygiene promotion, the use of facial masks, and social or physical distancing. Residential lockdowns, business restrictions, prohibitions on large gatherings, and school and university closures have been common. Some countries, however, have implemented only some of these various responses, or implemented them in limited geographic areas. Governments in multiple countries have authorized restrictive measures under pandemic national states of disaster or emergency. In several countries, security forces enforcing lockdowns and other restrictions have violated human rights, at times in the face of social unrest over the effects of these restrictive measures. In some countries, observers fear that incumbent regimes may use their emergency authorities to extend their powers or time in office, or, as some have, to restrict press freedoms or opposition activity. Given that many Africans make a precarious hand-to-mouth living in the informal sector, lockdowns have caused intense economic pain in the region, and governments have been eager to permit normal commercial activity to resume. A number of African governments began easing restrictive measures in late April, though in some countries, a spike in COVID-19 cases has accompanied or followed such actions. Experts are concerned that the pandemic's broader economic impacts could be particularly devastating in Africa, where many countries rely on tourism and/or commodity exports, notably to China. Both tourism and exports have declined sharply due to COVID-19-linked interruptions and declines in world economic activity, trade, and travel. In food import-dependent countries, food insecurity may also increase, due to these factors as well as lock-down linked restrictions. Remittances from abroad also have dropped. Africa's heavy reliance on imports of consumer and industrial goods from China may also suffer, alongside business sectors tied to these imports (e.g., digital technology and local retail sectors). Exports of mined and energy commodities, which comprise roughly 75% of African exports by value, may be particularly hard-hit. Africa's oil export-dependent countries may face a double threat: a global oil price collapse initially driven by a now-ended price war among selected producers and an ongoing collapse in global oil demand. African airlines also are suffering steep losses. Multiple central banks have acted to increase economy-wide liquidity and many governments are making resource reallocations or are slated to receive international assistance to finance COVID-19 responses. <4.3.2. How is the Africa CDC responding?> The African Union (AU) Africa Centres for Disease Control and Prevention (Africa CDC), at times in partnership with the WHO and other international actors, is helping African governments to enhance the capacity of their public health systems to detect and respond to COVID-19. Africa CDC support has centered on training personnel on disease detection and surveillance at national laboratories and ports of entry, providing COVID-19 test kits and other health commodities (e.g., personal protection equipment or PPE), and other health response capacity-building. The Africa CDC has provided COVID-19 detection training to at least 40 country labs, almost all of which are now able to independently test for the disease. These labs are supported by a regional COVID-19 specimen referral and verification system comprising expert labs in Senegal and South Africa, with ten more planned region-wide. The Africa CDC also has created a regional COVID-19 task force under a regional response plan, has activated its Emergency Operations Center and Incident Management System, and is aiding information sharing among AU member states. The Africa CDC also has trained epidemiologists in disease event tracking and risk analysis, including through its Regional Collaborating Centres (RCCs), and is providing COVID-19 medical and technical advice and pandemic briefings to AU member states. <4.4. Middle East and North Africa235> <4.4.1. How are Middle Eastern and North African governments responding?> As of May 2020, all 17 countries in the Middle East and North Africa region, in addition to the Palestinian territories, had confirmed local transmission of COVID-19. Iran was an early epicenter of the pandemic; as of May, Iranian cases represent roughly 40% of all confirmed cases in the region. The six Arab Gulf states also have emerged as a focal point; as of May these states (combined) also represent nearly 40% of the region's confirmed cases. Observers and U.S. government officials have expressed concern that some states have sought to downplay the extent of the spread of the virus in their countries. Many countries in the region also lack the capability to conduct comprehensive testing. Starting in March, many countries suspended international and domestic passenger flights, closed land and sea crossings with neighboring states, imposed curfews, and closed commercial, educational, and religious sites. Some governments also passed emergency legislation and expanded surveillance as part of their response to the pandemic. In some cases, observers argued that these measures may have been designed in part to suppress political opposition. In Egypt, parliament expanded the country's emergency law; Human Rights Watch warned that most of the new authorities granted to the government are unrelated to public health issues. In Algeria, the government of recently elected President Abdelmadjid Tebboune banned all public gatherings of more than two people, including protest rallies, which had been held weekly for political reforms since February 2019. In Israel, the government approved temporary emergency regulations for security officials to monitor COVID-19 patients and potential victims via their mobile phones. Economies in the region have been hard hit by the collapse in global energy prices and tourism. As in other regions, government efforts to contain the spread of the virus have also involved the suspension of most public commerce and trade, resulting in a severe blow to economic activity that is expected to generate increased unemployment. In April, the IMF projected that the region comprising the Middle East, North Africa, Afghanistan, and Pakistan would contract by 3.1% in 2020, with oil exporters in the region contracting by 4.2%. Rising unemployment, particularly concentrated among the youth, could have implications for political stability in the region. A prolonged global economic slowdown associated with COVID-19 also could dampen global demand for oil and natural gas resources exported from countries in the Middle East and North Africa for a prolonged period, with corresponding diminishing effects on export revenues and the fiscal health of some regional governments. Starting in late April, some countries began lifting some internal restrictions on movement and commercial activity including Tunisia, where nationwide lockdown measures appeared to contribute to a drop in new confirmed cases and Lebanon, where cases appeared to spike following the easing of restrictions. The WHO Eastern Mediterranean Regional (EMR) office warned, "Without careful planning, and in the absence of scaled up public health and clinical care capacities, [a] premature lifting of physical distancing measures is likely to lead to an uncontrolled resurgence in COVID 19 transmission and an amplified second wave of cases." The WHO has highlighted the particular risks posed by the spread of the virus to states such as Syria, Libya, and Yemen, noting that years of conflict, natural disasters, and previous outbreaks have left these countries with weakened health systems, shortages in health workers, and limited access to even the most basic medical care services. Millions of already vulnerable people in these countries are also more prone to infectious diseases due to overcrowded living conditions, weakened immunity due to years of food insecurity, and insufficient treatment for other underlying medical conditions. Many of these countries are also politically fragmented, resulting in limited humanitarian access to populations in some areas, and challenges in the sharing of information between controlling parties and WHO in a timely and transparent manner. In addition, other areas of elevated risk in the region include the following: The Gaza Strip . The Hamas-controlled Gaza Strip has reported 20 COVID-19 cases as of May 11, and officials from international organizations have voiced concerns about a possible outbreak given the acute humanitarian challenges in Gaza. The densely populated territory of nearly 2 million Palestinians has a weak health infrastructure and many other challenges related to sanitation and hygiene. On May 8, the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) updated an emergency flash appeal from $14 million to $93.4 million to prepare and respond to COVID-19-related needs for Palestinian refugees in Gaza, the West Bank, Jordan, Lebanon, and Syria through July 2020. The Trump Administration stopped U.S. contributions to UNRWA in 2018 and all bilateral aid to the West Bank and Gaza in 2019. For FY2020, Congress appropriated $75 million from the Economic Support Fund for humanitarian and development purposes in the West Bank and Gaza, and some Members of Congress have called for the Administration to obligate some of this assistance for Gaza. The Hajj (Saudi Arabia) . Each year, millions of Muslims travel to Saudi Arabia for a religious pilgrimage to Mecca. This journey, known as the Hajj , is a pillar of the Islamic faith. Saudi authorities have invested considerable attention and resources to averting infectious disease outbreaks during the Hajj , having faced 2009 H1N1 Pandemic, SARS, and MERS. In February 2020, Saudi leaders suspended umrah pilgrimage visits to the kingdom (which can be done at any time of year in contrast to the Hajj ) and limited access to holy sites in Mecca and Medina. In late March, Saudi officials asked Muslims to delay making Hajj travel plans until the effects of the pandemic were clearer. It remains to be seen whether the Hajj pilgrimage will go forward as scheduled in July and August 2020. U.S. Military Facilities . The United States maintains a significant military presence in the region, and has partnered closely with local forces. U.S. forces remain in Iraq and are consolidating base locations. U.S. training of Iraqi military personnel has been suspended due to COVID-19 risks, and U.S. officials stated in late March that future training would use "fewer bases with fewer people." <4.4.2. What are the implications for U.S.-Iran policy?> The spread of COVID-19 in Iran has raised questions about the possible effects of U.S. sanctions on Iran's response capacity. The Trump Administration's policy of "maximum pressure" on Iran imposes economic sanctions on every sector of Iran's economy. Iranian officials and some global health officials assert that the U.S. sanctions are weakening Iran's ability to contain the virus by reducing the availability of medical equipment. Sales to Iran of humanitarian items, including medicine and medical equipment, are generally exempt from U.S. sanctions. The reluctance of banks worldwide, however, to finance any transactions involving Iran, fearing penalties by the United States for sanctions violations, has reportedly affected Iran's ability to import all types of goods, including those that are exempt from sanctions. As the disease spread in Iran in February 2020, the United States has offered Iran an unspecified amount of assistance to help it deal with the outbreak, but Iran's government has refused the aid. In early March 2020, U.S. officials issued guidance indicating that transactions involving Iran's foreign exchange assets held abroad, when used to buy humanitarian items, would not face U.S. sanctions. However, the Administration opposes Iran's request for a $5 billion loan from the International Monetary Fund (IMF) that Iran says it needs to cope with the COVID-19 crisis; the Administration asserts that Iran has ample amounts of funds for medical imports and would use the loan proceeds to support pro-Iranian armed factions in various countries. Under the IMF's voting rules, the U.S. voting power is not sufficient to unilaterally veto specific IMF program requests, even though the United States has the largest share at the IMF and can veto major policy decisions at the IMF. Although over the past two decades Congress has supported increased sanctions on Iran, some Members of Congress have called on the Administration to relax sanctions on Iran, at least temporarily, to help Iran deal with the COVID-19 pandemic and thereby help curb the disease's broader spread. <4.5. Canada, Latin America, and the Caribbean256> <4.5.1. How is the Canadian government responding?> Canada's federal, provincial, and territorial governments have worked closely together to manage the country's response to the COVID-19 pandemic. While the federal government has provided broad public health guidelines intended to slow the spread of the virus, provincial and territorial governments have implemented varying measures in accordance with local conditions. As of early May 2020, all of the provinces had developed phased reopening plans, and some had begun loosening restrictions on certain business, education, and recreational activities while maintaining physical distancing guidelines. The federal, provincial, and territorial governments also have cooperated on efforts to secure personal protective equipment, testing materials, and other medical supplies. Nevertheless, provincial health services, which administer the Canadian health system, reportedly have experienced some shortages. Prime Minister Justin Trudeau has acknowledged that Canada's National Emergency Strategic Stockpile did not have sufficient supplies prior to the pandemic, but federal officials maintain that they have been able to fulfill every request for personal protective equipment received from the provinces. Prime Minister Trudeau has worked with the Canadian Parliament to enact a series of measures intended to mitigate the economic impact of the pandemic. As of late April 2020, their announced assistance measures amounted to an estimated C$146 billion ($104 billion) equivalent to about 7% of Canada's projected gross domestic product (GDP) for 2020. These include a new Canada Emergency Response Benefit that provides C$2,000 ($1,424) every 4 weeks for up to 16 weeks for workers who have lost their incomes due to COVID-19, and a new Canada Emergency Wage Subsidy that covers 75% of employees' wages, up to C$847 ($603) per week, for up to 12 weeks. Prime Minister Trudeau has signaled his intention to extend such programs as necessary. To provide additional support to the economy and financial system, the Bank of Canada cut its benchmark interest rate from 1.75% to 0.25%, and launched its first-ever quantitative easing program to purchase government and commercial debt. Canada's Parliamentary Budget Officer forecasts that the country's real GDP will contract by 12% in 2020, but expects an economic recovery to begin in the second half of the year. The Canadian and U.S. governments have coordinated decisions concerning their shared border. On March 21, they closed the border to all nonessential travel. Although the closure initially was to last 30 days, both governments agreed to extend it until May 21. The Canadian government reportedly has requested that the closure remain in place until June 21; several provincial governments are opposed to a quick reopening of the border given the scope of the COVID-19 outbreak in the United States. The Canadian and U.S. governments generally have prioritized keeping the border open to trade. In April 2020, however, the Trump Administration invoked the Defense Production Act of 1950 (50 U.S.C. 4501 et seq.) to restrict certain medical exports. Prime Minister Trudeau urged the United States not to interrupt the flow of essential goods and services, and the Administration ultimately exempted Canada from the export restrictions. <4.5.2. How are Latin American and Caribbean governments responding?> The ability of countries in Latin America and the Caribbean to mitigate a COVID-19 outbreak varies across the region, and responses have been diverse. The pandemic appears to have arrived in Latin American and the Caribbean later than many other regions and has yet to peak. A 2019 Global Health Security Index included Brazil, Argentina, Chile, and Mexico among countries most prepared for a pandemic, and considered Venezuela, Honduras, Jamaica, the Bahamas, Haiti, Guyana, Belize, and Guatemala to be among the least prepared. Although all countries in the region aspire to universal health coverage, many lack sufficient doctors, hospitals, medical supplies and other critical infrastructure, and face challenges of inequality and economic fragility as they grapple with the pandemic. The patchwork of response efforts across 33 countries, including a cautious lifting of control measures in some countries in May 2020, has relied on incomplete data to guide policy since most countries have not conducted widespread testing. In Mexico, Brazil, and Nicaragua, where presidents have downplayed the threat of the pandemic, many analysts suggest the actual level of infection is essentially unknown, with some independent estimates suggesting it is a magnitude higher than what health authorities have reported. The information available suggests some countries are suffering severe outbreaks, while others, such as Paraguay, appear to have relatively few cases. According to several observers, the region's vulnerability is heightened by diminished health spending and low government capacity, following several years of economic stagnation. Venezuela is of particular concern since protracted political and economic crises had already weakened its health system. An estimated 4.8 million Venezuelans have fled the country, and new immigration controls by neighboring countries are unlikely to stop Venezuelans from crossing the region's porous borders. As the most urbanized region in the world, Latin American and the Caribbean nations face challenges enforcing social distancing by quarantine and curfew. In some cities, such as Guayaquil, Ecuador, outbreaks have already overwhelmed medical systems. In rural areas, and urban slums, there is limited access to clean water and sewage treatment and minimal health infrastructure. Indigenous communities, Afro-descendants, migrants, refugees, and internally displaced persons often face formidable barriers to health care. Quarantine restrictions in some cases have created a dangerous rise in hunger and desperation since a large proportion of the population depends on daily earnings, often through informal employment, to make ends meet. Many governments have taken extraordinary measures to respond to the pandemic. Some have been accused of abuses of power and violations of human rights for arresting and imprisoning quarantine violators, harshly treating prison uprisings and jailed gang members (notably in El Salvador), and delaying elections. Many governments also have begun to implement far-reaching economic support measures, although their fiscal capacities to support businesses and bolster social safety nets varies considerably. The IMF estimates the region's economic growth will contract this year by 5.2%. <5. International Economic and Supply Chain Issues274> <5.1. What are the implications of the pandemic in China's economy?> COVID-19 emerged amidst an economic downturn in China with officials navigating U.S.-China bilateral tariffs, working to curb consumer inflation (due in part to domestic pork shortages resulting from African swine fever), and moving to rein in government spending and shadow lending. COVID-19 containment measures significantly slowed economic activity in China, and halted production almost entirely in some areas of the country, particularly Hubei province. In early February, China's central bank pumped $57 billion into the banking system, capped banks' interest rates on loans for major firms, and extended deadlines for banks to curb shadow lending. China's central bank is seeking to stabilize China's currency and shore up liquidity in China's banking system, which remains the primary channel through which the government is providing business relief. Despite these measures, China experienced a 6.8% contraction in GDP growth in the first quarter of 2020, the first GDP contraction recorded in China since China's National Bureau of Statistics began releasing quarterly GDP figures in 1992. Many firms in China are still struggling to return to full capacity as some restrictions on travel and distribution of goods and workers remain and additional reported pockets of outbreaks continue in different parts of China. In addition, COVID-19's global spread has led to a sharp global economic downturn and reduced global demand for Chinese exports. China's recovery is also constrained by a contraction in global transportation and logistics and tourism and services trade. The economic impact of COVID-19 has also raised questions about the capacity of the United States and China to implement the Phase One Trade Agreement signed in January 2020, which commits China to purchasing $200 billion in additional exports over the next two years. Recent analysis of both U.S. and Chinese first quarter trade data indicates that China is not on track to meet its purchase commitments according to U.S. trade data, China's imports of agricultural products, a major component of the purchase agreements, grew by a modest 3.2%, while China's imports of U.S. manufactured goods and energy shrank. Reports in China's state media have suggested that some elements of China's leadership might be considering invalidating and renegotiating the phase one agreement. <5.2. How is COVID-19 affecting the global economy and financial markets?> A growing list of economic indicators makes it clear that the viral outbreak is negatively affecting global economic growth on a scale that has not been experienced since at least the global financial crisis of 2008-2009. Global trade and GDP are forecast to decline sharply through at least the first half of 2020. The global pandemic is affecting a broad swath of international economic and trade activities, from services generally to tourism and medical supplies, global value chains, financial markets, and a range of social activities, to name a few. The health and economic crises could have a particularly negative impact on developing economies that are constrained by limited financial resources and where health systems could quickly become overloaded. The economic situation remains highly fluid. Labeling the projected decline in global economic activity as the Great Lockdown, the IMF forecasted on April 14, 2020 that the global economy could decline by 3.0% in 2020, before growing by 5.8% in 2021, constituting the "worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago." Estimates by the Organization for Economic Cooperation and Development (OECD) indicate the virus could trim global economic growth by as much as 2.0% per month if current conditions persist, or 24% on an annual basis. Global trade could also fall by 13% to 32%, depending on the depth and extent of the global economic downturn. Increasing rates of unemployment are raising the prospects of wide-spread social unrest and demonstrations in developed economies where lost incomes and health insurance are threatening living standards and in developing economies where populations reportedly are growing concerned over access to basic necessities and the prospects of rising levels of poverty. Over the seven-week period from mid-March to early May 2020, more than 33 million Americans filed for unemployment insurance. On May 8, 2020, the Bureau of Labor Statistics (BLS) reported that 20 million Americans lost their jobs in April 2020, pushing the total number of unemployed Americans to 23 million and raising the unemployment rate to 14.7%, the highest since the Great Depression of the 1930s. The report indicated that all major industry sectors experienced job losses, with the heaviest losses in the leisure and hospitality industries. Preliminary data indicate that U.S. GDP in the first quarter 2020 fell by 4.8% at an annual rate, the largest quarterly decline in GDP since the fourth quarter of 2008 during the global financial crisis. The U.S. economy is projected to contract by 5.9%, about twice the rate of decline experienced in 2009 during the financial crisis. The forecast assumes that the pandemic fades in the second half of 2020 and that the containment measures can be reversed. The IMF also argues that recovery of the global economy could be weaker than projected as a result of lingering uncertainty about possible contagion, lack of investor and consumer confidence, and permanent closure of businesses and shifts in the behavior of firms and households. Global trade, measured by trade volumes, slowed in the last quarter of 2019 and was expected to decline further in 2020, as a result of weaker global economic activity associated with the pandemic. Uncertainty about the length and depth of pandemic-related economic effects and the effectiveness of pandemic control measures are shaping perceptions of risk and volatility in financial markets and corporations. Financial markets worldwide, particularly in the United States, Asia, and Europe, are volatile as investors are concerned that the virus is creating a global crisis that could be prolonged and expansive. Similar to the 2008-2009 global financial crisis, central banks are rapidly becoming the lender of last resort and are attempting to address financial market volatility. Developments continue to evolve rapidly and the market dynamics have led some observers to question if these events mark the beginning of a full-scale global financial crisis. Financial market dislocation can potentially increase liquidity constraints and credit market tightening, as firms hoard cash, with negative effects on economic growth. In some financial markets, fund managers have started selling government securities to increase their cash reserves, pushing down government bond prices. Financial markets are also responding to increased government bond issuances in the United States and Europe to fund COVID-19-related spending, further increasing government debt. <5.3. How is COVID-19 affecting U.S. medical supply chains? 287> COVID-19 has revealed U.S. and global supply chain vulnerabilities across a range of sectors, particularly PPE, which relies directly on China-based manufacturing. During the 2002-2003 SARS outbreak, China accounted for 8% of global manufacturing exports; in 2018, China was the source of approximately 19% of global manufacturing exports, including intermediate goods vital to global manufacturing supply chains. An area of particular concern to Congress in the current environment is U.S. shortages of medical supplies including personal protective equipment (PPE) and pharmaceuticals as the United States steps up efforts to contain COVID-19 with limited domestic stockpiles and insufficient U.S. industrial capacity. Because of China's role as a global supplier of PPE, medical devices, antibiotics, and active pharmaceutical ingredients (API), reduced exports from China have led to shortages of critical medical supplies in the United States. According to China Customs data, in 2019 China exported $9.8 billion in medical supplies and $7.4 billion in organic chemicals a figure that includes active pharmaceutical ingredients and antibiotics to the United States. While there are no internationally agreed guidelines and standards for classifying these products, U.S. imports of pharmaceuticals, medical equipment and products, and related supplies are estimated to have been approximately $20.7 billion (or 9.2% of U.S. imports), according to CRS calculations using official U.S. data. In early February 2020, the Chinese government nationalized control of the production and distribution of medical supplies in China, directing all production for domestic use. The Chinese government also directed the national bureaucracy, local governments, and Chinese industry to secure supplies from the global market. This effort likely exacerbated medical supply shortages in the United States and other countries, particularly in the absence of domestic emergency measures that might have locked in domestic contracts, facilitated an earlier start to alternative points of production, and restricted exports of key medical supplies. In addition to formal and informal PPE export restrictions that China reportedly has placed on domestic producers of PPE, several prominent U.S. companies with PPE production capacity located in China, including 3M, have indicated they do not have PRC government authorization to export. As China's manufacturing sector recovers while the United States and other countries are grappling with COVID-19, the Chinese government may selectively release some medical supplies for overseas delivery. Those decisions are likely to be driven, at least in part, by political calculations, as has been the case with many countries around the world. <6. Issues for Congress295> The COVID-19 pandemic has raised questions about domestic and international preparedness and the appropriate responses to pandemic control. Although the United States has long-supported the delivery of PPE through its international pandemic preparedness programs, this practice has come into question while the numbers of COVID-19 cases and deaths climb in the United States. As of April 15, 2020, the United States had the highest number of COVID-19 cases and deaths worldwide, accounting for roughly 30% of all COVID-19 cases globally. In March, some Members of Congress began questioning the delivery of PPE by USAID to foreign countries while some governors and mayors reported shortages of the commodities. The United States provides annual funding for foreign assistance, approximately $20 billion of which is administered by USAID each year. USAID programs operate in more than 120 countries worldwide and are intended to meet specific development objectives. In many of these countries, widespread poverty, weak public institutions, and diverse pre-existing governance challenges are likely to be exacerbated by the pandemic. To preserve these investments and past policy progress, protect U.S. foreign policy interests in the region, save lives, and help combat the negative socioeconomic effects of the pandemic in the region, Congress may seek to address additional help aid recipients might request to control the pandemic and its effects. Congress might also consider how the pandemic may affect partner governments' absorption capacities, and the manner and degree to which U.S. assistance may complement or coincide with nationally-determined pandemic responses. Congress may also wish to consider how responding to the challenges created by the pandemic may reshape pre-existing U.S. aid priorities and how it may affect the ability of U.S. personnel to implement and oversee programs in the field. Relatedly, Congress may wish to ensure that U.S. responses are robustly coordinated with those of other donor governments and multilateral functional agencies and to ensure that such efforts are transparent and cost-effective, and that donor assistance is complementary and non-duplicative. The pandemic is also having other effects on foreign affairs that Congress might consider. Some have questioned, for example, how U.S. immigration policy might impact COVID-pandemic control efforts. Some Members of Congress and officials representing Latin American and Caribbean governments have expressed concern that COVID-19-related screening procedures for deportations are not sufficient to prevent the importation of COVID-19 cases from the United States and have asked the U.S. Immigration and Customs Enforcement (ICE) to suspend deportations. A number of people deported from the United States to Latin America have reportedly tested positive with COVID-19 or have reportedly been exposed to someone with COVID-19. Other Members of Congress continue to support the Administration's border policies, which the Administration maintains are conducted in a manner that accounts for the dangers of COVID-19. Congress continues to debate the extent to which the United States should contribute to multilateral organizations for COVID-19 control. Some Members, for example, are arguing for withholding contributions to the WHO, while others are urging the Administration to pay outstanding assessments to the organization and support ongoing WHO COVID-19 efforts. <6.1. Appendix. Supplemental Information> Selected Legislation Introduced or Enacted in the 116 th Congress Related to International COVID-19 Incidence or International Pandemic Preparedness H.Res. 962 , Expressing support for assisting East African countries afflicted by the plague of desert locusts . Referred to the House Committee on Foreign Affairs on May 8, 2020. S. 3669 , A bill to respond to the global COVID-19 pandemic, and for other purposes . Referred to the Senate Committee on Foreign Relations on May 7, 2020. S.Res. 567 , A resolution commending career professionals at the Department of State for their extensive efforts to repatriate United States citizens and legal permanent residents during the COVID-19 pandemic . Referred to the Senate Committee on Foreign Relations on May 7, 2020. S. 3600 , Li Wenliang Global Public Health Accountability Act of 2020 . Referred to the Senate Committee on Foreign Relations on May 5, 2020. S. 3598 , Repatriation Reimbursement Act . Referred to the Senate Committee on Commerce, Science, and Transportation on May 4, 2020. S. 3592 , Stop COVID Act of 2020 . Referred to the Senate Committee on the Judiciary on May 4, 2020. S. 3588 , Justice for Victims of Coronavirus Act . Referred to the Senate Committee on Foreign Relations on May 4, 2020. S.Res. 556 , A resolution designating May 1, 2020, as the "United States Foreign Service Day" in recognition of the men and women who have served, or are presently serving, in the Foreign Service of the United States, and honoring the members of the Foreign Service who have given their lives in the line of duty . Referred to the Senate Committee on the Judiciary on May 4, 2020. H.R. 6657 , WUHAN Rescissions Act . Referred to the House Committee on Appropriations on May 1, 2020. H.R. 6665 , To direct the Secretary of State, in consultation with the Secretary of Health and Human Services, to submit a report on the actions of the World Health Organization to address the spread of the virus responsible for COVID-19, and for other purposes . Referred to the House Committee on Foreign Affairs on May 1, 2020. H.Res. 944 , Expressing the sense of the House of Representatives that the People ' s Republic of China should be held accountable for its handling of COVID-19 . Referred to the House Committee on Foreign Affairs on April 28, 2020. H.R. 6610 , Director of Pandemic and Biodefense Preparedness and Response Act . Referred to the House Committee on Energy and Commerce, and in addition to the House Committees on Transportation and Infrastructure, Armed Services, Foreign Affairs, and Intelligence (Permanent Select), for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned on April 23, 2020. Referred to the Subcommittee on Economic Development, Public Buildings, and Emergency Management by the Committee on Transportation and Infrastructure on April 24, 2020. H.R. 6599 , COVID Research Act of 2020 . Referred to the Committee on Energy and Commerce, and in addition to the Committee on Science, Space, and Technology, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned on April 23, 2020. H.R. 6598 , SOS ACT Act . Referred to the Committee on Financial Services, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned on April 23, 2020. H.Res. 940 , Recognizing the commencement of Ramadan, the Muslim holy month of fasting and spiritual renewal, and commending Muslims in the United States and throughout the world for their faith . Referred to the House Committee on Foreign Affairs on April 23, 2020. H.Res. 939 , Supporting the World Bank Group to lead a worldwide COVID-19 economic recovery effort . Referred to the House Committee on Financial Service on April 23, 2020. H.R. 6595 , Expanding Vital American Citizen Services Overseas (EVACS) Act of 2020 . Referred to the House Committee on Foreign Affairs on April 22, 2020. H.R. 6541 , PPE Act of 2020 . Referred to the Committee on Energy and Commerce, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned on April 17, 2020. H.R. 6531 , Medical Supplies for Pandemics Act of 2020 . Referred to the House Committee on Energy and Commerce on April 17, 2020. H.R. 6524 , Compensation for the Victims of State Misrepresentations to the World Health Organization Act of 2020 . Referred to the House Committee on the Judiciary on April 17, 2020. H.R. 6522 , PPP Expansion Act of 2020 . Referred to the House Committee on Small Business on April 17, 2020. H.R. 6519 , Holding the Chinese Communist Party Accountable for Infecting Americans Act of 2020 . Referred to the House Committee on the Judiciary on April 17, 2020. H.Con.Res. 97 , Establishing the Joint Select Committee on the Events and Activities Surrounding China ' s Handling of the 2019 Novel Coronavirus . Referred to the House Committee on Rules on April 17, 2020. H.R. 6504 , To direct the Secretary of Health and Human Services, acting through the Director of the Centers for Disease Control and Prevention, to develop a plan to improve surveillance with respect to diseases that are viral pandemic threats, and for other purposes . Referred to the House Committee on Energy and Commerce on April 14, 2020. H.Res. 922 , Expressing the sense of the House of Representatives that all nations should permanently close live wildlife markets and that the People ' s Republic of China should cease spreading disinformation regarding the origins of coronavirus . Referred to the House Committee on Foreign Affairs, and in addition to the House Committees on Natural Resources, Agriculture, and Energy and Commerce on April 14, 2020. H.R. 6500 , To reduce Federal spending and fund the acquisition of unexpired personal protective equipment (including face masks) for the strategic national stockpile by terminating taxpayer financing of Presidential election campaigns . Referred to the House Committee on Ways and Means, and in addition to the Committee on House Administration, on April 14, 2020. H.R. 6481 , To rescind the appropriation made for migration and refugee assistance in the Coronavirus Aid, Relief, and Economic Security Act and redirect the funds to U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement . Referred to the House Committee on Appropriations on April 10, 2020. H.R. 6480 , To require the President, after the World Health Organization declares a global pandemic, to report to the Congress on the status of Federal planning to respond to the pandemic . Referred to the House Committee on Energy and Commerce, and in addition to the Committee on Financial Services on April 10, 2020. H.Res. 919 , Condemning the United Nations ' decision to appoint China a seat on its Human Rights Council . Referred to the House Committee on Foreign Affairs on April 10, 2020. H.R. 2166 , Global Health Security Act of 2019 . Directs the President to create the Global Health Security Agenda Interagency Review Council to implement the Global Health Security Agenda, an initiative launched by nearly 30 nations to address global infectious disease threats. Ordered to be reported on March 4, 2020, and introduced in the House on April 9, 2020. H.Res. 917 , Expressing the sense of the House of Representatives that the United States should withhold the contribution of Federal funds to the World Health Organization until Director-General Tedros Ghebreyesus resigns and an international commission to investigate the World Health Organization is established . Referred to the House Committee on Foreign Affairs on April 7, 2020. H.R. 6471 , To posthumously award a Congressional Gold Medal to Dr. Li Wenliang, in recognition of his efforts to save lives by drawing awareness to COVID-19 and his call for transparency in China . Referred to the House Committee on Financial Services, and in addition to the Committee on House Administration on April 7, 2020. H.R. 6429 , To establish in the Legislative Branch a National Commission on the Coronavirus Disease 201 9 Pandemic in the United States . Referred to the House Subcommittee on Economic Development, Public Buildings, and Emergency Management on April 6, 2020. H.R. 6440 , To establish the National Commission on the COVID-19 Pandemic . Referred to the House Committee on Energy and Commerce on April 3, 2020. P.L. 116-136 , Coronavirus Aid, Relief, and Economic Security Act or the CARES Act . Enacted H.R. 748 on March 27, 2020. H.R. 6410 , To direct the President to use authority under the Defense Production Act of 1950 to ensure an adequate supply of equipment necessary for limiting the spread of COVID-19 . Referred to the House Committee on Financial Services on March 27, 2020. H.R. 6398 , To provide for the expedited procurement of equipment needed to combat COVID-19 under the Defense Production Act of 1950 . Referred to the House Subcommittee on Economic Development, Public Buildings, and Emergency Management on March 27, 2020. H.R. 6406 , To require personal protective equipment to be included in the strategic national stockpile, and to require the Federal Government to procure such equipment from United States sources, and for other purposes . Referred to the Subcommittee on Economic Development, Public Buildings, and Emergency Management on March 27, 2020. H.R. 6405 , To direct the President, in consultation with the Secretary of the Treasury, to develop and carry out a strategy to seek reimbursement from the People's Republic of China of funds made available by the United States Government to address the Coronavirus Disease 2019 (COVID-19) . Referred to the House Committee on Foreign Affairs on March 26, 2020. S. 3586 , Eliminating Leftover Expenses for Campaigns from Taxpayers (ELECT) Act of 2020 . Referred to the Senate Committee on Finance on March 25, 2020. H.R. 6390 , To require the President to use authorities under the Defense Production Act of 1950 to require emergency production of medical equipment to address the COVID-19 outbreak . Referred to the House Committee on Financial Services on March 25, 2020. H.R. 6393 , To require the Secretary of Defense to submit to Congress a report on the reliance by the Department of Defense on imports of certain pharmaceutical products made in part or in whole in certain countries, to establish postmarket reporting requirements for pharmaceuticals, and for other purposes . Referred to the House Committee on Ways and Means, and in addition to the House Committees on Armed Services, Oversight and Reform, and Energy and Commerce on March 25, 2020. As of April 15, 2020, no text of the bill was available. S.Res. 552 , A resolution supporting an international investigation into the handling by the Government of the People's Republic of China of COVID-19 and the impact of handling COVID-19 in that manner on the people of the United States and other nations . Referred to the Senate Committee on Foreign Relations on March 24, 2020. H.Res. 907 and S.Res. 553 , Expressing the sense of the House of Representatives that the Government of the People's Republic of China made multiple, serious mistakes in the early stages of the COVID-19 outbreak that heightened the severity and spread of the ongoing COVID-19 pandemic, which include the Chinese Government's intentional spread of misinformation to downplay the risks of the virus, a refusal to cooperate with international health authorities, internal censorship of doctors and journalists, and malicious disregard for the health of ethnic minorities . Referred to the House Committee on Foreign Affairs on March 24, 2020. S. 3573 , American-Made Protection for Healthcare Workers and First Responders Act . Referred to the Senate Committee on Health, Education, Labor, and Pensions on March 24, 2020. S. 3570 , A bill to provide for the expedited procurement of equipment needed to combat COVID-19 under the Defense Production Act of 1950 . Referred to the Senate Committee on Banking, Housing, and Urban Affairs on March 23, 2020. S. 3568 , Medical Supply Chain Emergency Act of 2020 . Referred to the Senate Committee on Banking, Housing, and Urban Affairs on March 23, 2020. H.R. 6379 , Take Responsibility for Workers and Families Act, Referred to the House Committee on Appropriations , and in addition to the House Committees on the Budget, and Ways and Means on March 23, 2020. H.R. 6373 , To increase the amount available under the Defense Production Act of 1950 to respond to the coronavirus epidemic, and for other purposes . Referred to the House Committee on Financial Services on March 23, 2020. H.R. 6371 , To amend the Securities Exchange Act of 1934 to require issuers to disclose risks related to global pandemics, and for other purposes . Referred to the House Committee on Financial Services on March 23, 2020. H.R. 6319 , To establish a Congressional COVID-19 Aid Oversight Panel, to authorize the Special Inspector General for the Troubled Asset Relief Program to coordinate audits and investigations in connection with the receipt of Federal aid related to COVID-19, and for other purposes . Referred to the House Committee on Financial Services on March 23, 2020. H.Res. 906 , Calling on the President to invoke the Defense Production Act to respond to COVID-19 . Referred to the House Committee on Financial Services on March 23, 2020. S. 3548 , Coronavirus Aid, Relief, and Economic Security Act or the CARES Act . Referred to the Senate Committee on Finance on March 21, 2020. H.R. 6310 , To require the Secretary of Defense to make testing for the coronavirus disease 19 available to all members of the Armed Forces deployed to an area in which the United States Central Command has responsibility . Referred to the House Committee on Armed Services, March 19, 2020. H.R. 6482 , A bill to require the Secretary of Health and Human Services to maintain a list of the country of origin of all drugs marketed in the United States, to ban the use of Federal funds for the purchase of drugs manufactured in China, and for other purposes . Referred to the Senate Committee on Finance on March 19, 2020. S. 3538 , Strengthening America ' s Supply Chain and National Security Act . Referred to the Senate Committee on Finance, March 19, 2020. S. 3537 , Protecting Our Pharmaceutical Supply Chain from China Act of 2020 . Referred to the Senate Committee on Finance, March 19, 2020. S.Res. 547 , A resolution encouraging the President to use authorities provided by the Defense Production Act of 1950 to scale up the national response to the coronavirus crisis . Referred to the Senate Committee on Banking, Housing, and Urban Affairs, March 18, 2020. S. 3530 , A bill to amend the National Security Act of 1947 to require the President to designate an employee of the National Security Council to be responsible for pandemic prevention and response, and for other purposes. Referred to the Senate Committee on Homeland Security and Governmental Affairs on March 18, 2020. S. 3507 , A bill to require the Secretary of Defense to make testing for the coronavirus disease 19 available to all members of the Armed Forces deployed to an area in which the United States Central Command has responsibility. Referred to the Senate Committee on Armed Services on March 17, 2020. S. 3510 , A bill to transfer all border wall funding to the Department of Health and Human Services and USAID to combat coronavirus. Referred to the Committee on Homeland Security and Government Affairs on March 17, 2020. H.R. 6288 , Responsibly Responding to Pandemics Act . Referred to the House Subcommittee on Economic Development, Public Buildings, and Emergency Management, March 16, 2016. H.R. 6205 , Assistance for Workers Harmed by COVID-19 Act . Amends the Trade Act of 1974 to provide adjustment assistance to certain workers adversely affected by disruptions in global supply chains from COVID 19, and for other purposes. Referred to the House Committee on Ways and Means on March 11, 2020. P.L. 116-123 , Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. Provides $7.8 billion in supplemental appropriations to aid in domestic and global COVID-19 preparedness and response activities, including $6.5 billion for the Department of Health and Human Services (HHS), $0.02 billion for the Small Business Administration and $1.3 billion for foreign operations activities provided across several agencies and funding mechanisms. Parts of the HHS amounts are to be made available for international activities. Enacted H.R. 6074 on March 6, 2020. S.Amdt. 1506 , To rescind unobligated balances for certain international programs to offset the amounts appropriated in this bill to respond to the coronavirus outbreak. Motion to table the amendment was agreed to in the Senate on March 5, 2020. S.Res. 497 , A resolution commemorating the life of Dr. Li Wenliang and calling for transparency and cooperation from the Government of the People's Republic of China and the Communist Party . Agreed to in the Senate on March 3, 2020 without amendment and an amended preamble by unanimous consent. H.R. 6070 , Border Health Security Act of 2020 . To establish grant programs to improve the health of border area residents and for all hazards preparedness in the border area including bioterrorism, infectious disease, and noncommunicable emerging threats, and for other purposes. Referred to the House Committee on Energy and Commerce and Committee on Foreign Affairs on March 3, 2020. S.Res. 511 , A resolution supporting the role of the United States in helping save the lives of children and protecting the health of people in developing countries with vaccines and immunization through GAVI, the Vaccine Alliance . Referred to the Senate Committee on Foreign Relations, February 27, 2020. S.Res. 505 , A resolution expressing the sense of the Senate that the United States will continue to provide support to international partners to help prevent and stop the spread of coronavirus. Referred to the Senate Committee on Foreign Relations on February 13, 2020. H.R. 2166 and S. 3302 , Global Health Security Act of 2020 . Establishes a Special Advisor for Global Health Security within the Executive Office of the President to coordinate U.S. government global health security activities, convene and chair a Global Health Security Interagency Review Council, and submit a biannual report to Congress on related activities, among other things. Referred to the Senate Committee on Foreign Relations on February 13, 2020. H.R. 5730 , National Strategy for Pandemic Influenza Update Act . To direct the Homeland Security Council and the National Security Council, in consultation with Federal departments and agencies responsible for biodefense, to update the National Strategy for Pandemic Influenza, and for other purposes. Referred to the House Committees on Energy and Commerce, Armed Services, Foreign Affairs, Intelligence, and Agriculture on January 30, 2020. P.L. 116-22 , Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2019 . To advance research and development of innovative tools to improve pandemic preparedness, including directing the Secretary of Health and Human Services to submit a report to the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Energy and Commerce on U.S. efforts to coordinate with other countries and international partners during recent public health emergencies with respect to the research and advanced research on, and development of, qualified pandemic or epidemic products. Enacted S. 1379 on June 24, 2019. H.R. 269 , Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2019 . Related to S. 1379, which became P.L. 116-22 . Placed on Senate Legislative Calendar under General Orders, January 10, 2019.

In December 2019, hospitals in the city of Wuhan in China's Hubei Province began seeing cases of pneumonia of unknown origin. Chinese health authorities ultimately connected the condition, later named coronavirus disease 2019 (COVID-19), to a previously unidentified strain of coronavirus. The disease has spread to almost every country in the world, including the United States. WHO declared the outbreak a Public Health Emergency of International Concern on January 30, 2020; raised its global risk assessment to "Very High" on February 28; and labeled the outbreak a "pandemic" on March 11. In using the term pandemic, WHO Director-General Tedros Adhanom Ghebreyesus cited COVID-19's "alarming levels of spread and severity" and governments' "alarming levels of inaction." As of May 14, 2020, WHO had reported more than 4.2 million COVID-19 cases, including almost 300,000 deaths, of which more than 40% of all cases and 55% of all deaths were identified in Europe, and more than 30% of all cases and nearly 30% of all deaths were identified in the United States. Members of Congress have demonstrated strong interest in ending the pandemic domestically and globally. To date, Members have introduced dozens of pieces of legislation on international aspects of the pandemic (see the Appendix ). Individual countries are carrying out not only domestic but also international efforts to control the COVID-19 pandemic, with the WHO issuing guidance, coordinating some international research and related findings, and coordinating health aid in low-resource settings. Countries are following (to varying degrees) WHO policy guidance on COVID-19 response and are leveraging information shared by WHO to refine national COVID-19 plans. The United Nations (U.N.) Office for the Coordination of Humanitarian Affairs (UNOCHA) is requesting almost $7 billion to support COVID-19 efforts by several U.N. entities. International financial institutions (IFIs), including the International Monetary Fund (IMF), the World Bank, and the regional development banks, are mobilizing their financial resources to support countries grappling with the COVID-19 pandemic. The IMF has announced it is ready to tap its total lending capacity, about $1 trillion, to support governments responding to COVID-19. The World Bank can mobilize about $150 billion over the next 15 months, and the regional development banks are also preparing new programs and redirecting existing programs to help countries respond to the economic ramifications of COVID-19. On January 29, 2020, President Donald Trump announced the formation of the President's Coronavirus Task Force, led by the Department of Health and Human Services (HHS) and coordinated by the White House National Security Council (NSC). On February 27, the President appointed Vice President Michael Pence as the Administration's COVID-19 task force leader, and the Vice President subsequently appointed the President's Emergency Plan for AIDS Relief (PEPFAR) Ambassador Deborah Birx as the "White House Coronavirus Response Coordinator." On March 6, 2020, the President signed into law the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020, P.L. 116-123 , which provides $8.3 billion for domestic and international COVID-19 response. The Act includes $300 million to continue the U.S. Centers for Disease Control and Prevention's (CDC) global health security programs and a total of $1.25 billion for the U.S. Agency for International Development (USAID) and Department of State. Of those funds, $985 million is designated for foreign assistance accounts, including $435 million specifically for Global Health Programs. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136 , which contains emergency funding for U.S. international COVID-19 responses, including $258 million to USAID through the International Disaster Assistance (IDA) account and $350 million to the State Department through the Migration and Refugee Assistance (MRA) account ( P.L. 116-127 ). The pandemic presents major consequences for foreign aid, global health, diplomatic relations, the global economy, and global security. Regarding foreign aid, Congress may wish to consider how the pandemic might reshape pre-existing U.S. aid priorities—and how it may affect the ability of U.S. personnel to implement and oversee programs in the field. The pandemic is also raising questions about deportation and sanction policies, particularly regarding Latin America and the Caribbean and Iran. In the 116 th Congress, Members have introduced legislation to respond to the COVID-19 pandemic in particular and to address global pandemic preparedness in general. This report focuses on global implications of and responses to the COVID-19 pandemic, and is organized into four broad parts that answer common questions regarding: (1) the disease and its global prevalence, (2) country and regional responses, (3) global economic and trade implications, and (4) issues that Congress might consider. For information on domestic COVID-19 cases and related responses, see CRS Insight IN11253, Domestic Public Health Response to COVID-19: Current Status and Resources Guide , by Kavya Sekar and Ada S. Cornell.

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<1. Introduction> The Immigration and Nationality Act (INA) authorizes and in some cases requires the Department of Homeland Security (DHS) to detain non-U.S. nationals (aliens) arrested for immigration violations that render them removable from the United States. The immigration detention regime serves two primary purposes. First, detention may ensure an apprehended alien's presence at his or her removal hearing and, if the alien is ultimately ordered removed, makes it easier for removal to be quickly effectuated. Second, in some cases detention may serve the additional purpose of alleviating any threat posed by the alien to the safety of the community while the removal process is under way. The INA's detention framework, however, is multifaceted, with different rules turning on whether the alien is seeking initial admission into the United States or was lawfully admitted into the country; whether the alien has committed certain criminal offenses or other conduct rendering him or her a security risk; and whether the alien is being held pending removal proceedings or has been issued a final order of removal. In many cases detention is discretionary, and DHS may release an alien placed in formal removal proceedings on bond, on his or her own recognizance, or under an order of supervision pending the outcome of those proceedings. But in other instances, such as those involving aliens who have committed specified crimes, there are only limited circumstances when the alien may be released from custody. This report outlines the statutory and regulatory framework governing the detention of aliens, from an alien's initial arrest and placement in removal proceedings to the alien's removal from the United States. In particular, the report examines the key statutory provisions that specify when an alien may or must be detained by immigration authorities and the circumstances when an alien may be released from custody. The report also discusses the various legal challenges to DHS's detention power and some of the judicially imposed restrictions on that authority. Finally, the report examines how these legal developments may inform Congress as it considers legislation that may modify the immigration detention framework. <2. Legal and Historical Background> <2.1. The Federal Immigration Authority and the Power to Detain Aliens> The Supreme Court has long recognized that the federal government has "broad, undoubted power over the subject of immigration and the status of aliens," including with respect to their admission, exclusion, and removal from the United States. This authority includes the power to detain aliens pending determinations as to whether they should be removed from the country. The Court has predicated this broad immigration power on the government's inherent sovereign authority to control its borders and its relations with foreign nations. Notably, the Court has "repeatedly emphasized that 'over no conceivable subject is the legislative power of Congress more complete than it is over' the admission of aliens," and that "Congress may make rules as to aliens that would be unacceptable if applied to citizens." Despite the government's broad immigration power, the Supreme Court has repeatedly declared that aliens who have physically entered the United States come under the protective scope of the Due Process Clause of the Fifth Amendment, which applies "to all 'persons' within the United States, including aliens, whether their presence here is lawful, unlawful, temporary, or permanent." Due process protections generally include the right to a hearing and a meaningful opportunity to be heard before deprivation of a liberty interest. And one of the core protections of the Due Process Clause is the "[f]reedom from bodily restraint." But while the Supreme Court has recognized that due process considerations may constrain the federal government's exercise of its immigration power, there is some uncertainty regarding when these considerations may be consequential. Generally, aliens seeking initial entry into the United States typically have more limited constitutional protections than aliens present within the country. The Supreme Court has long held that aliens seeking entry into the United States have no constitutional rights regarding their applications for admission, and the government's detention authority in those situations seems least constrained by due process considerations. Thus, in Shaughnessy v. United States ex rel. Mezei , the Supreme Court upheld the indefinite detention of an alien who was denied admission into the United States following a trip abroad. The Court ruled that the alien's "temporary harborage" on Ellis Island pending the government's attempts to remove him did not constitute an "entry" into the United States, and that he could be "treated as if stopped at the border." Nevertheless, some courts have suggested that the constitutional limitations that apply to arriving aliens pertain only to their procedural rights regarding their applications for admission, but do not foreclose the availability of redress when fundamental liberty interests are implicated . Thus, some lower courts have concluded that arriving aliens have sufficient due process protections against unreasonably prolonged detention, and distinguished Mezei as a case involving the exclusion of an alien who potentially posed a danger to national security that warranted the alien's detention. Furthermore, regardless of the extent of their due process protections, detained arriving aliens may be entitled to at least some level of habeas corpus review, in which courts consider whether an individual is lawfully detained by the government. But due process considerations become more significant once an alien has physically entered the United States. As discussed above, the Supreme Court has long recognized that aliens who have entered the United States, even unlawfully, are "persons" under the Fifth Amendment's Due Process Clause. That said, the Court has also suggested that "the nature of that protection may vary depending upon [the alien's] status and circumstance." In various opinions, the Court has suggested that at least some of the constitutional protections to which an alien is entitled may turn upon whether the alien has been admitted into the United States or developed substantial ties to this country. Consequently, the government's authority to detain aliens who have entered the United States is not absolute. The Supreme Court, for instance, construed a statute authorizing the detention of aliens ordered removed to have implicit temporal limitations because construing it to allow the indefinite detention of aliens ordered removed at least in the case of lawfully admitted aliens later ordered removed would raise "serious constitutional concerns." Declaring that the government's immigration power "is subject to important constitutional limitations," the Court has determined that the Due Process Clause limits the detention to "a period reasonably necessary to secure removal." Additionally, while the Supreme Court has recognized the government's authority to detain aliens p ending formal removal proceedings, the Court has not decided whether the extended detention of aliens during those proceedings could give rise to a violation of due process protections. But some lower courts have concluded that due process restricts the government's ability to indefinitely detain at least some categories of aliens pending determinations as to whether they should be removed from the United States. In sum, although the government has broad power over immigration, there are constitutional constraints on that power. These constraints may be most significant with regard to the detention of lawfully admitted aliens within the country, and least powerful with regard to aliens at the threshold of initial entry into the United States. <2.2. Development of Immigration Laws Concerning Detention> From the outset, U.S. federal immigration laws have generally authorized the detention of aliens who are subject to removal. The first U.S. law on alien detention was the Alien Enemies Act in 1798, which subjected certain aliens from "hostile" nations during times of war to being detained and removed. But Congress passed no other laws on the detention of aliens for nearly a century. Starting in 1875, however, Congress enacted a series of laws restricting the entry of certain classes of aliens (e.g., those with criminal convictions), and requiring the detention of aliens who were excludable under those laws until they could be removed. In construing the government's detention authority, the Supreme Court in 1896 declared that "[w]e think it clear that detention or temporary confinement, as part of the means necessary to give effect to the provisions for the exclusion or expulsion of aliens, would be valid." Over the next few decades, Congress continued to enact laws generally mandating the detention and exclusion of proscribed categories of aliens seeking entry into the United States, as well as aliens physically present in the United States who became subject to removal. In 1952, Congress passed the INA, which distinguished between aliens physically arriving in the United States and those who had entered the country. Aliens arriving in the country who were found ineligible for entry were subject to "exclusion," and those already present in the United States who were found to be subject to expulsion were deemed "deportable." For aliens placed in exclusion proceedings, detention generally was required, unless immigration authorities, based on humanitarian concerns, granted the alien "parole," allowing the alien to enter and remain in the United States pending a determination on whether he or she should be admitted. In the case of deportable aliens, detention originally was authorized but not required, and aliens in such proceedings could be released on bond or "conditional parole." Congress later amended the INA to require, in deportation proceedings, the detention of aliens convicted of aggravated felonies, and authorized their release from custody only in limited circumstances, such as when the alien was a lawful permanent resident (LPR) who did not pose a threat to the community or a flight risk. In 1996, Congress enacted the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA), which made sweeping changes to the federal immigration laws. IIRIRA replaced the INA's exclusion/deportation framework, which turned on whether an alien had physically entered the United States, with a new framework that turned on whether an alien had been lawfully admitted into the country by immigration authorities. Aliens who had not been admitted, including those who may have unlawfully entered the country, could be barred entry or removed from the country based on specified grounds of inadmissibility listed under INA Section 212. Aliens who had been lawfully admitted, however, could be removed if they fell under grounds of deportability specified under INA Section 237. A standard, "formal" removal proceeding was established for deportable aliens and most categories of inadmissible aliens. But IIRIRA created a new "expedited removal" process that applied to a subset of inadmissible aliens. This process applies to arriving aliens and certain aliens who recently entered the United States without inspection, when those aliens lack valid entry documents or attempted to procure their admission through fraud or misrepresentation. IIRIRA generally authorized (but did not require) immigration authorities to detain aliens believed to be removable pending those aliens' formal removal proceedings, but permitted their release on bond or "conditional parole." IIRIRA, however, required the detention of aliens who were inadmissible or deportable based on the commission of certain enumerated crimes or for terrorist-related grounds, generally with no possibility of release from custody. IIRIRA also generally required the detention of "applicants for admission," including aliens subject to expedited removal, pending determinations as to whether they should be removed (such aliens, however, could still be paroled into the United States by immigration officials in their discretion). This mandatory detention requirement has been applied even if those aliens were subsequently transferred to formal removal proceedings. Finally, IIRIRA created a detention scheme in which aliens with final orders of removal became subject to detention during a 90-day period pending their removal, and the government could (but was not required to) continue to detain some of those aliens after that period. A table showing the development of these immigration detention laws can be found in Table A-1 . <3. Modern Statutory Detention Framework> Since IIRIRA's enactment, the statutory framework governing detention has largely remained constant. This detention framework is multifaceted, with different rules turning on whether the alien is seeking admission into the United States or was lawfully admitted within the country; whether the alien has committed certain enumerated criminal or terrorist acts; and whether the alien has been issued a final administrative order of removal. Four provisions largely govern the current immigration detention scheme: 1. INA Section 236(a) generally authorizes the detention of aliens pending formal removal proceedings and permits (but does not require) aliens who are not subject to mandatory detention to be released on bond or their own recognizance; 2. INA Section 236(c) generally requires the detention of aliens who are removable because of specified criminal activity or terrorist-related grounds; 3. INA Section 235(b) generally requires the detention of applicants for admission (e.g., aliens arriving at a designated port of entry) who appear subject to removal; and 4. INA Section 241(a) generally mandates the detention of aliens during a 90-day period after formal removal proceedings, and authorizes (but does not require) the continued detention of certain aliens after that period. While these statutes apply to distinct classes of aliens at different phases of the removal process, the statutory detention framework "is not static," and DHS's detention authority "shifts as the alien moves through different phases of administrative and judicial review." This section explores these detention statutes and their implementing regulations, including administrative and judicial rulings that inform their scope and application. (Other detention provisions in the INA that apply to small subsets of non-U.S. nationals, such as alien crewmen, or arriving aliens inadmissible for health-related reasons, are not addressed in this report. ) A table providing a comparison of these major INA detention statutes can be found in Table A-2 . <3.1. Discretionary Detention Under INA Section 236(a)> INA Section 236(a) is the "default rule" for aliens placed in removal proceedings. The statute is primarily administered by Immigration and Customs Enforcement (ICE), the agency within DHS largely responsible for immigration enforcement in the interior of the United States. Section 236(a) authorizes immigration authorities to arrest and detain an alien pending his or her formal removal proceedings. Detention under INA Section 236(a) is discretionary, and immigration authorities are not required to detain an alien subject to removal unless the alien falls within one of the categories of aliens subject to mandatory detention (e.g., aliens convicted of specified crimes under INA Section 236(c), discussed later in this report). If ICE arrests and detains an alien under INA Section 236(a), and the alien is not otherwise subject to mandatory detention, the agency has two options: 1. it "may continue to detain the arrested alien" pending the removal proceedings; or 2. it "may release the alien" on bond in the amount of at least $1500, or on "conditional parole." Generally, upon release (whether on bond or conditional parole), the alien may not receive work authorization unless the alien is otherwise eligible (e.g., the alien is an LPR). And ICE may at any time revoke a bond or conditional parole and bring the alien back into custody. In the event of an alien's release, ICE may opt to enroll the alien in an Alternatives to Detention (ATD) program, which allows ICE the ability to monitor and supervise the released alien to ensure his or her eventual appearance at a removal proceeding. <3.1.1. Initial Custody Determination and Administrative Review> Following the arrest of an alien not subject to mandatory detention, an immigration officer may, at any time during formal removal proceedings, determine whether the alien should remain in custody or be released. But when an alien is arrested without a warrant, DHS regulations provide that the immigration officer must make a custody determination within 48 hours of the alien's arrest, unless there is "an emergency or other extraordinary circumstance" that requires "an additional reasonable period of time" to make the custody determination. DHS has defined "emergency or other extraordinary circumstance" to mean a "significant infrastructure or logistical disruption" (e.g., natural disaster, power outage, serious civil disturbance); an "influx of large numbers of detained aliens that overwhelms agency resources"; and other unique facts and circumstances "including, but not limited to, the need for medical care or a particularized compelling law enforcement need." After ICE's initial custody determination, an alien may, at any time during the removal proceedings, request review of that decision at a bond hearing before an immigration judge (IJ) within the Department of Justice's (DOJ's) Executive Office for Immigration Review. While the alien may request a bond hearing, INA Section 236(a) does not require a hearing to be provided at any particular time. If there is a bond hearing, regulations specify that it "shall be separate and apart from, and shall form no part of, any deportation or removal hearing or proceeding." During these bond proceedings, the IJ may, under INA Section 236(a), determine whether to keep the alien in custody or release the alien, and the IJ also has authority to set the bond amount. Following the IJ's custody decision, the alien may obtain a later bond redetermination only "upon a showing that the alien's circumstances have changed materially since the prior bond redetermination." Both the alien and DHS may appeal the IJ's custody or bond determination to the Board of Immigration Appeals (BIA), the highest administrative body charged with interpreting federal immigration laws. The filing of an appeal generally will not stay the IJ's decision or otherwise affect the ongoing removal proceedings. The BIA, however, may stay the IJ's custody determination on its own motion or when DHS appeals that decision and files a motion for a discretionary stay. Moreover, if ICE had determined that the alien should not be released or had set bond at $10,000 or greater, any order of the IJ authorizing release (on bond or otherwise) is automatically stayed upon DHS's filing of a notice of intent to appeal with the immigration court within one business day of the IJ's order, and the IJ's order will typically remain held in abeyance pending the BIA's decision on appeal. <3.1.2. Standard and Criteria for Making Custody Determinations> Following the enactment of IIRIRA, the DOJ promulgated regulations to govern discretionary detention and release decisions under INA Section 236(a). These regulations require the alien to "demonstrate to the satisfaction of the officer that . . . release would not pose a danger to property or persons, and that the alien is likely to appear for any future proceeding." Based on this regulation, the BIA has held that the alien has the burden of showing that he or she should be released from custody, and "[o]nly if an alien demonstrates that he does not pose a danger to the community should an [IJ] continue to a determination regarding the extent of flight risk posed by the alien." Some federal courts, however, have held that if an alien's detention under INA Section 236(a) becomes prolonged, a bond hearing must be held where the burden shifts to the government to prove that the alien's continued detention is warranted. For example, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit ) has reasoned that, given an individual's "substantial liberty interest" in avoiding physical restraint, the government should prove by clear and convincing evidence that the detention is justified. The Supreme Court has not yet addressed the proper allocation of the burden of proof for custody determinations under INA Section 236(a). On the one hand, the Court has held that the statute does not itself require the government to prove that an alien's continued detention is warranted or to afford the alien a bond hearing. On the other hand, the Court has not decided whether due process considerations nonetheless compel the government to bear the burden of proving that the alien should remain in custody if detention becomes prolonged. While INA Section 236(a) and its implementing regulations provide standards for determining whether an alien should be released from ICE custody, they do not specify the factors that may be considered in weighing a detained alien's potential danger or flight risk. But the BIA has instructed that an IJ may consider, among other factors, these criteria in assessing an alien's custody status: whether the alien has a fixed address in the United States; the alien's length of residence in the United States; whether the alien has family ties in the United States; the alien's employment history; the alien's record of appearance in court; the alien's criminal record, including the extent, recency, and seriousness of the criminal offenses; the alien's history of immigration violations; any attempts by the alien to flee prosecution or otherwise escape from authorities; and the alien's manner of entry to the United States. The BIA and other authorities have generally applied these criteria in reviewing custody determinations. In considering an alien's danger to the community or flight risk, "any evidence in the record that is probative and specific can be considered." The BIA has also instructed that, in deciding whether an alien presents a danger to the community and should not be released from custody, an IJ should consider both direct and circumstantial evidence of dangerousness, including whether the facts and circumstances raise national security considerations. In addition, although bond proceedings are "separate and apart from" formal removal proceedings, evidence obtained during a removal hearing "may be considered during a custody hearing so long as it is made part of the bond record." <3.1.3. Limitations to Administrative Review of Custody Determinations> Under DOJ regulations, an IJ may not determine the conditions of custody for classes of aliens subject to mandatory detention. In these circumstances, ICE retains exclusive authority over the alien's custody status. These limitations apply to arriving aliens in formal removal proceedings (including arriving aliens paroled into the United States); aliens in formal removal proceedings who are deportable on certain security and related grounds (e.g., violating espionage laws, criminal activity that "endangers public safety or national security," terrorist activities, severe violations of religious freedom); and aliens in formal removal proceedings who are subject to mandatory detention under INA Section 236(c) based on the commission of certain enumerated crimes. Although aliens who fall within these categories may not request a custody determination before an IJ, they may still seek a redetermination of custody conditions from ICE. In addition, aliens detained under INA Section 236(c) based on criminal or terrorist-related conduct may request a determination by an IJ that they do not properly fall within that designated category, and that they are thus entitled to a bond hearing. <3.1.4. Judicial Review of Custody Determinations> An alien may generally request review of ICE's custody determination at a bond hearing before an IJ, and the alien may also appeal the IJ's custody decision to the BIA. INA Section 236(e), however, expressly bars judicial review of a decision whether to detain or release an alien who is subject to removal: The Attorney General's discretionary judgment regarding the application of this section shall not be subject to review. No court may set aside any action or decision by the Attorney General under this section regarding the detention or release of any alien or the grant, revocation, or denial of bond or parole. Even so, the Supreme Court has determined that, absent clear congressional intent, INA provisions barring judicial review do not foreclose the availability of review in habeas corpus proceedings because "[i]n the immigration context, 'judicial review' and 'habeas corpus' have historically different meanings." Thus, despite INA Section 236(e)'s limitation on judicial review, the Court has held that the statute does not bar federal courts from reviewing, in habeas corpus proceedings, an alien's statutory or constitutional challenge to his detention. The Court has reasoned that an alien's challenge to "the statutory framework" permitting his detention is distinct from a challenge to the "discretionary judgment" or operational "decision" whether to detain the alien, which is foreclosed from judicial review under INA Section 236(e). Lower courts have similarly held that they retain jurisdiction to review habeas claims that raise constitutional or statutory challenges to detention. For that reason, although a detained alien may not seek judicial review of the government's discretionary decision whether to keep him or her detained, the alien may challenge the legal authority for that detention under the federal habeas statute. The Supreme Court has also considered whether a separate statute, INA Section 242(b)(9), bars judicial review of detention challenges. That statute provides: Judicial review of all questions of law and fact, including interpretation and application of constitutional and statutory provisions, arising from any action taken or proceeding brought to remove an alien from the United States under this subchapter shall be available only in judicial review of a final order [of removal] under this section. The Court has construed INA Section 242(b)(9) as barring review of three specific actions (except as part of the review of a final order of removal): (1) an order of removal, (2) the government's decision to seek removal (including the decision to detain the alien), and (3) the process by which an alien's removability would be determined. But the Court has declined to read the statute as barring all claims that could technically "arise from" one of those three actions. Thus, the Court has held that INA Section 242(b)(9) does not bar review of claims challenging the government's authority to detain aliens because such claims do not purport to challenge an order of removal, the government's decision to seek removal, or the process by which an alien's removability is determined. <3.2. Mandatory Detention of Criminal Aliens Under INA Section 236(c)> While INA Section 236(a) generally authorizes immigration officials to detain aliens pending their formal removal proceedings, INA Section 236(c) requires the detention of aliens who are subject to removal because of specified criminal or terrorist-related grounds. <3.2.1. Aliens Subject to Detention Under INA Section 236(c)> INA Section 236(c)(1) covers aliens who fall within one of four categories: 1. An alien who is inadmissible under INA Section 212(a)(2) based on the commission of certain enumerated crimes, including a crime involving moral turpitude, a controlled substance violation, a drug trafficking offense, a human trafficking offense, money laundering, and any two or more criminal offenses resulting in a conviction for which the total term of imprisonment is at least five years. 2. An alien who is deportable under INA Section 237(a)(2) based on the conviction of certain enumerated crimes, including an aggravated felony, two or more crimes involving moral turpitude not arising out of a single scheme of criminal misconduct, a controlled substance violation (other than a single offense involving possession of 30 grams or less of marijuana), and a firearm offense. 3. An alien who is deportable under INA Section 237(a)(2)(A)(i) based on the conviction of a crime involving moral turpitude (generally committed within five years of admission) for which the alien was sentenced to at least one year of imprisonment. 4. An alien who is inadmissible or deportable for engaging in terrorist activity, being a representative or member of a terrorist organization, being associated with a terrorist organization, or espousing or inciting terrorist activity. The statute instructs that ICE "shall take into custody any alien" who falls within one of these categories "when the alien is released [from criminal custody], without regard to whether the alien is released on parole, supervised release, or probation, and without regard to whether the alien may be arrested or imprisoned again for the same offense." <3.2.2. Prohibition on Release from Custody Except in Special Circumstances> While INA Section 236(c)(1) requires ICE to detain aliens who are removable on enumerated criminal or terrorist-related grounds, INA Section 236(c)(2) provides that ICE "may release an alien described in paragraph (1) only if" the alien's release "is necessary to provide protection to a witness, a potential witness, a person cooperating with an investigation into major criminal activity, or an immediate family member or close associate of a witness, potential witness, or person cooperating with such an investigation," and the alien shows that he or she "will not pose a danger to the safety of other persons or of property and is likely to appear for any scheduled proceeding." Under the statute, "[a] decision relating to such release shall take place in accordance with a procedure that considers the severity of the offense committed by the alien." Without these special circumstances, an alien detained under INA Section 236(c) generally must remain in custody pending his or her removal proceedings. Furthermore, given the mandatory nature of the detention, the alien may not be released on bond or conditional parole, or request a custody redetermination at a bond hearing before an IJ. <3.2.3. Limited Review to Determine Whether Alien Falls Within Scope of INA Section 236(c)> Although an alien detained under INA Section 236(c) has no right to a bond hearing before an IJ, DOJ regulations allow the alien to seek an IJ's determination "that the alien is not properly included" within the category of aliens subject to mandatory detention under INA Section 236(c). The BIA has determined that, during this review, the IJ should conduct an independent assessment, rather than a "perfunctory review," of DHS's decision to charge the alien with one of the specified criminal or terrorist-related grounds of removability under INA Section 236(c). According to the BIA, the alien is not "properly included" within the scope of INA Section 236(c) if the IJ concludes that DHS "is substantially unlikely to establish at the merits hearing, or on appeal, the charge or charges that would otherwise subject the alien to mandatory detention." If the IJ determines that the alien is not properly included within INA Section 236(c), the IJ may then consider whether the alien is eligible for bond under INA Section 236(a). <3.2.4. Constitutionality of Mandatory Detention> The mandatory detention requirements of INA Section 236(c) have been challenged as unconstitutional but, to date, none of these challenges have succeeded. In Demore v. Kim , an LPR (Kim) who had been detained under INA Section 236(c) for six months argued that his detention violated his right to due process because immigration authorities had made no determination that he was a danger to society or a flight risk. The Ninth Circuit upheld a federal district court's ruling that INA Section 236(c) was unconstitutional. The Ninth Circuit determined that INA Section 236(c) violated Kim's right to due process as an LPR because it afforded him no opportunity to seek bail. The Supreme Court reversed the Ninth Circuit's decision, holding that mandatory detention of certain aliens pending removal proceedings was "constitutionally permissible." The Court noted that it had previously "endorsed the proposition that Congress may make rules as to aliens that would be unacceptable if applied to citizens," and the Court also cited its "longstanding view that the Government may constitutionally detain deportable aliens during the limited period necessary for their removal proceedings, . . ." The Court concluded that "Congress, justifiably concerned that deportable criminal aliens who are not detained continue to engage in crime and fail to appear for their removal hearings in large numbers, may require that persons such as [Kim] be detained for the brief period necessary for their removal proceedings." The Court also distinguished its 2001 decision in Zadvydas v. Davis , where it declared that "serious constitutional concerns" would be raised if lawfully admitted aliens were indefinitely detained after removal proceedings against them had been completed. The Court reasoned that, unlike the post-order of removal detention statute at issue in Zadvydas , INA Section 236(c) "governs detention of deportable criminal aliens pending their removal proceedings ," and thus "serves the purpose of preventing deportable criminal aliens from fleeing prior to or during their removal proceedings, . . ." Yet in Zadvydas , removal was "no longer practically attainable" for the detained aliens following the completion of their proceedings, and so their continued detention "did not serve its purported immigration purpose." The Court further distinguished Zadvydas because that case involved a potentially indefinite period of detention, while detention under INA Section 236(c) typically lasts for a "much shorter duration" and has a "definite termination point" the end of the removal proceedings. Although the Supreme Court in Demore ruled that mandatory detention pending removal proceedings is not unconstitutional per se, the Court did not address whether there are any constitutional limits to the duration of such detention under INA Section 236(c). Some lower courts, however, have construed Demore to apply only to relatively brief periods of detention. Ultimately, in Jennings v. Rodriguez , the Supreme Court held that DHS has the statutory authority to indefinitely detain aliens pending their removal proceedings, but did not decide whether such prolonged detention is constitutionally permissible. <3.2.5. Meaning of "When the Alien Is Released"> INA Section 236(c)(1) instructs that ICE "shall take into custody any alien" who falls within one of the enumerated criminal or terrorist-related grounds " when the alien is released " from criminal custody. And under INA Section 236(c)(2), ICE may not release "an alien described in paragraph (1)" except for witness protection purposes. In its 2019 decision in Nielsen v. Preap , the Supreme Court held that INA Section 236(c)'s mandatory detention scheme covers any alien who has committed one of the enumerated criminal or terrorist-related offenses, no matter when the alien had been released from criminal incarceration. The Court observed that INA Section 236(c)(2)'s mandate against release applies to "an alien described in paragraph (1)" of that statute, and that INA Section 236(c)(1), in turn, describes aliens who have committed one of the enumerated crimes. The Court determined that, although INA Section 236(c)(1) instructs that such aliens be taken into custody "when the alien is released," the phrase "when . . . released" does not describe the alien, and "plays no role in identifying for the [DHS] Secretary which aliens she must immediately arrest." The Court thus held that the scope of aliens subject to mandatory detention under INA Section 236(c) "is fixed by the predicate offenses identified" in INA Section 236(c)(1), no matter when the alien was released from criminal custody. The Court also opined that, even if INA Section 236(c) requires an alien to be detained immediately upon release from criminal custody, ICE's failure to act promptly would not bar the agency from detaining the alien without bond. The Court relied, in part, on its 1990 decision in United States v. Montalvo-Murillo , which held that the failure to provide a criminal defendant a prompt bond hearing as required by federal statute did not mandate the defendant's release from criminal custody. Citing Montalvo-Murillo , the Court in Preap recognized the principle that if a statute fails to specify a penalty for the government's noncompliance with a statutory deadline, the courts will not "'impose their own coercive sanction.'" In short, the Court declared , "it is hard to believe that Congress made [ICE's] mandatory detention authority vanish at the stroke of midnight after an alien's release" from criminal custody. The Court thus reversed a Ninth Circuit decision that had restricted the application of INA Section 236(c) to aliens detained "promptly" upon their release from criminal custody, but noted that its ruling on the proper interpretation of INA Section 236(c) "does not foreclose as-applied challenges that is, constitutional challenges to applications of the statute as we have now read it." In sum, based on the Court's ruling in Preap , INA Section 236(c) authorizes ICE to detain covered aliens without bond pending their formal removal proceedings, regardless of whether they were taken into ICE custody immediately or long after their release from criminal incarceration. That said, the Court has left open the question of whether the mandatory detention of aliens long after their release from criminal custody is constitutionally permissible. <3.3. Mandatory Detention of Applicants for Admission Under INA Section 235(b)> The INA provides for the mandatory detention of aliens who are seeking initial entry into the United States, or who have entered the United States without inspection, and who are believed to be subject to removal. Under INA Section 235(b), an "applicant for admission," defined to include both an alien arriving at a designated port of entry and an alien present in the United States who has not been admitted, is generally detained pending a determination about whether the alien should be admitted into the United States. The statute thus covers aliens arriving at the U.S. border (or its functional equivalent), as well as aliens who had entered the United States without inspection, and are later apprehended within the country. The statute's mandatory detention scheme covers (1) applicants for admission who are subject to a streamlined removal process known as "expedited removal" and (2) applicants for admission who are not subject to expedited removal, and who are placed in formal removal proceedings. <3.3.1. Applicants for Admission Subject to Expedited Removal> INA Section 235(b)(1) provides for the expedited removal of arriving aliens who are inadmissible under INA Section 212(a)(6)(C) or (a)(7) because they lack valid entry documents or have attempted to procure admission by fraud or misrepresentation. The statute also authorizes the Secretary of Homeland Security to expand the use of expedited removal to aliens present in the United States without being admitted or paroled if they have been in the country less than two years and are inadmissible on the same grounds. Based on this authority, DHS has employed expedited removal mainly to (1) arriving aliens; (2) aliens who arrived in the United States by sea within the last two years, who have not been admitted or paroled by immigration authorities; and (3) aliens found in the United States within 100 miles of the border within 14 days of entering the country, who have not been admitted or paroled by immigration authorities. More recently, however, DHS has expanded the use of expedited removal to aliens who have not been admitted or paroled, and who have been in the United States for less than two years (a legal challenge to this expansion is pending at the time of this report's publication). Generally, an alien subject to expedited removal may be removed without a hearing or further review unless the alien indicates an intention to apply for asylum or a fear of persecution if removed to a particular country. If the alien indicates an intention to apply for asylum or a fear of persecution, he or she will typically be referred to an asylum officer within DHS's U.S. Citizenship and Immigration Services (USCIS) to determine whether the alien has a "credible fear" of persecution or torture. If the alien establishes a credible fear, he or she will be placed in "formal" removal proceedings under INA Section 240, and may pursue asylum and related protections. <3.3.1.1. Detention During Expedited Removal Proceedings> INA Section 235(b)(1) and DHS regulations provide that an alien "shall be detained" pending a determination on whether the alien is subject to expedited removal, including during any credible fear determination; and if the alien is found not to have a credible fear of persecution or torture, the alien will remain detained until his or her removal. Typically, the alien will be initially detained by Customs and Border Protection (CBP) for no more than 72 hours for processing (e.g., fingerprints, photographs, initial screening), and the alien will then be transferred to ICE custody pending a credible fear determination if the alien is subject to expedited removal and requests asylum or expresses a fear of persecution. Under INA Section 212(d)(5), however, DHS may parole an applicant for admission (which includes an alien subject to expedited removal) on a case-by-case basis "for urgent humanitarian reasons or significant public benefit." Based on this authority, DHS has issued regulations that allow parole of an alien in expedited removal proceedings, but only when parole "is required to meet a medical emergency or is necessary for a legitimate law enforcement objective." <3.3.1.2. Aliens Who Establish a Credible Fear of Persecution or Torture> INA Section 235(b)(1) provides that aliens who establish a credible fear of persecution or torture "shall be detained for further consideration of the application for asylum" in formal removal proceedings. The alien will typically remain in ICE custody during those proceedings. As noted above, DHS retains the authority to parole applicants for admission, and typically will interview the alien to determine his or her eligibility for parole within seven days after the credible fear finding. Under DHS regulations, the following categories of aliens may be eligible for parole, provided they do not present a security or flight risk: persons with serious medical conditions; women who have been medically certified as pregnant; juveniles (defined as individuals under the age of 18) who can be released to a relative or nonrelative sponsor; persons who will be witnesses in proceedings conducted by judicial, administrative, or legislative bodies in the United States; and persons "whose continued detention is not in the public interest." Under DHS regulations, a grant of parole ends upon the alien's departure from the United States, or, if the alien has not departed, at the expiration of the time for which parole was authorized. Parole may also be terminated upon accomplishment of the purpose for which parole was authorized or when DHS determines that "neither humanitarian reasons nor public benefit warrants the continued presence of the alien in the United States." For some time, the BIA took the view that aliens apprehended after unlawfully entering the United States (i.e., not apprehended at a port of entry), and who were first screened for expedited removal but then placed in formal removal proceedings following a positive credible fear determination, were not subject to mandatory detention under INA Section 235(b)(1). Instead, the BIA determined, these aliens could be released on bond under INA Section 236(a) because, unlike arriving aliens, they did not fall within the designated classes of aliens who are ineligible for bond hearings under DOJ regulations. Thus, the BIA concluded, INA Section 235(b)(1)'s mandatory detention scheme "applie[d] only to arriving aliens." In 2019, Attorney General (AG) William Barr overturned the BIA's decision and ruled that INA Section 235(b)(1)'s mandatory detention scheme applies to all aliens placed in formal removal proceedings after a positive credible fear determination, regardless of their manner of entry. The AG reasoned that INA Section 235(b)(1) plainly mandates that aliens first screened for expedited removal who establish a credible fear "shall be detained" until completion of their formal removal proceedings, and that the INA only authorizes their release on parole. The AG also relied on the Supreme Court's 2018 decision in Jennings v. Rodriguez , which construed INA Section 235(b) as mandating the detention of covered aliens unless they are paroled. Finally, the AG concluded, even though nonarriving aliens subject to expedited removal are not expressly barred from seeking bond under DOJ regulations, that regulatory framework "does not provide an exhaustive catalogue of the classes of aliens who are ineligible for bond." In a later class action lawsuit, the U.S. District Court for the Western District of Washington ruled that INA Section 235(b)(1)'s mandatory detention scheme is unconstitutional, and that aliens apprehended within the United States who are first screened for expedited removal and placed in formal removal proceedings following a positive credible fear determination are "constitutionally entitled to a bond hearing before a neutral decisionmaker" pending consideration of their asylum claims. The court thus ordered the government to (1) provide bond hearings within seven days of a bond hearing request by detained aliens who entered the United States without inspection, were first screened for expedited removal, and were placed in formal removal proceedings after a positive credible fear determination; (2) release any aliens within that class whose detention time exceeds that seven-day limit and who did not have a bond hearing; and (3) if a bond hearing is held, require DHS to prove that continued detention is warranted to retain custody of the alien. The DOJ has appealed the district court's ruling to the Ninth Circuit. The Ninth Circuit has stayed the lower court's injunction pending appeal insofar as it requires the government to hold bond hearings within seven days, to release aliens whose detention time exceeds that limit, and to require DHS to have the burden of proof. But the court declined to stay the lower court's order that aliens apprehended within the United States who are initially screened for expedited removal, and placed in formal removal proceedings after a positive credible fear determination, are "constitutionally entitled to a bond hearing." Thus, the Ninth Circuit's order "leaves the pre-existing framework in place" in which unlawful entrants transferred to formal removal proceedings after a positive credible fear determination were eligible for bond hearings. As a result of the district court's ruling, aliens apprehended within the United States who are initially screened for expedited removal and transferred to formal removal proceedings following a positive credible fear determination remain eligible to seek bond pending their formal removal proceedings. On the other hand, arriving aliens who are transferred to formal removal proceedings are not covered by the court's order, and generally must remain detained pending those proceedings, unless DHS grants parole. <3.3.2. Applicants for Admission Who Are Not Subject to Expedited Removal> INA Section 235(b)(2) covers applicants for admission who are not subject to expedited removal. This provision would thus cover, for example, unadmitted aliens who are inadmissible on grounds other than those described in INA Section 212(a)(6)(C) and (a)(7) (e.g., because the alien is deemed likely to become a public charge, or the alien has committed specified crimes). The statute would also cover aliens who had entered the United States without inspection, but who are not subject to expedited removal because they were not apprehended within two years after their arrival in the country. The INA provides that aliens covered by INA Section 235(b)(2) "shall be detained" pending formal removal proceedings before an IJ. As discussed above, however, DHS may parole applicants for admission pending their removal proceedings, and agency regulations specify circumstances in which parole may be warranted (e.g., where detention "is not in the public interest"). Absent parole, aliens covered by INA Section 235(b)(2) generally must be detained and cannot seek their release on bond. <3.4. Detention of Aliens Following Completion of Removal Proceedings Under INA Section 241(a)> INA Section 241(a) governs the detention of aliens after the completion of removal proceedings. The statute's detention authority covers two categories of aliens: (1) aliens with a final order of removal who are subject to detention during a 90-day "removal period" pending efforts to secure their removal; and (2) certain aliens who may (but are not required to) be detained beyond the 90-day removal period. The Supreme Court has construed the post-order of removal detention statute as having implicit temporal limitations. <3.4.1. Detention During 90-Day Removal Period> INA Section 241(a)(1) provides that DHS "shall remove" an alien ordered removed "within a period of 90 days," and refers to this 90-day period as the "removal period." The statute specifies that the removal period "begins on the latest of the following": The date the order of removal becomes administratively final. If the alien petitions for review of the order of removal, and a court orders a stay of removal, the date of the court's final order in the case. If the alien is detained or confined for nonimmigration purposes (e.g., criminal incarceration), the date the alien is released from that detention or confinement. INA Section 241(a)(2) instructs that DHS "shall detain" an alien during the 90-day removal period. The statute also instructs that "[u]nder no circumstance during the removal period" may DHS release an alien found inadmissible on criminal or terrorist-related grounds under INA Section 212(a)(2) or (a)(3)(B) (e.g., a crime involving moral turpitude); or who has been found deportable on criminal or terrorist-related grounds under INA Section 237(a)(2) or (a)(4)(B) (e.g., an aggravated felony conviction). The former Immigration and Naturalization Service (INS) previously issued guidance interpreting these provisions as only authorizing, but not requiring, the detention of "non-criminal aliens" during the 90-day removal period. There is no indication that DHS has rescinded that policy. But according to the agency, the statute generally requires the detention during the removal period of terrorists and aliens who have committed the specified crimes enumerated in the statute. Under this policy, however, if a criminal alien subject to mandatory detention has been granted withholding of removal or protection under the Convention Against Torture (CAT), the alien may be released if the agency is not pursuing the alien's removal. While INA Section 241(a)(1) specifies a 90-day removal period, it also provides that this period may be extended beyond 90 days and that the alien may remain in detention during this extended period "if the alien fails or refuses to make timely application in good faith for travel or other documents necessary to the alien's departure or conspires or acts to prevent the alien's removal subject to an order of removal." INA Section 241(a)(3) provides that, if the alien either "does not leave or is not removed within the removal period," the alien will be released and "subject to supervision" pending his or her removal. DHS regulations state that the order of supervision must specify the conditions of release, including requirements that the alien (1) periodically report to an immigration officer and provide relevant information under oath; (2) continue efforts to obtain a travel document and help DHS obtain the document; (3) report as directed for a mental or physical examination; (4) obtain advance approval of travel beyond previously specified times and distances; and (5) provide ICE with written notice of any change of address. <3.4.2. Continued Detention Beyond Removal Period> Typically, an alien with a final order of removal is subject to detention during the 90-day removal period, and must be released under an order of supervision if the alien does not leave or is not removed within that period. INA Section 241(a)(6), however, states that an alien "may be detained beyond the removal period" if the alien falls within one of three categories: 1. an alien ordered removed who is inadmissible under INA Section 212(a) (e.g., an arriving alien who lacks valid entry documents); 2. an alien ordered removed who is deportable under INA Sections 237(a)(1)(C) (failure to maintain or comply with conditions of nonimmigrant status), 237(a)(2) (specified crimes including crimes involving moral turpitude, aggravated felonies, and controlled substance offenses), or 237(a)(4) (security and terrorist-related grounds); or 3. an alien whom DHS has determined "to be a risk to the community or unlikely to comply with the order of removal." DHS regulations provide that, before the end of the 90-day removal period, ICE will conduct a "custody review" for a detained alien who falls within one of the above categories, and whose removal "cannot be accomplished during the period, or is impracticable or contrary to the public interest," to determine whether further detention is warranted after the removal period ends. The regulations list factors that ICE should consider in deciding whether to continue detention, including the alien's disciplinary record, criminal record, mental health reports, evidence of rehabilitation, history of flight, prior immigration history, family ties in the United States, and any other information probative of the alien's danger to the community or flight risk. ICE may release the alien after the removal period ends if the agency concludes that travel documents for the alien are unavailable (or that removal "is otherwise not practicable or not in the public interest"); the alien is "a non-violent person" and likely will not endanger the community; the alien likely will not violate any conditions of release; and the alien does not pose a significant flight risk. Upon the alien's release, ICE may impose certain conditions, including (but not limited to) those specified for the release of aliens during the 90-day removal period, such as periodic reporting requirements. If ICE decides to maintain custody of the alien, it may retain custody authority for up to three months after the expiration of the 90-day removal period (i.e., up to 180 days after final order of removal). At the end of that three-month period, ICE may either release the alien if he or she has not been removed (in accordance with the factors and criteria for supervised release), or refer the alien to its Headquarters Post-Order Detention Unit (HQPDU) for further custody review. If the alien remains in custody after that review, the HQPDU must conduct another review within one year (i.e., 18 months after final order of removal), and (if the alien is still detained) annually thereafter. <3.4.3. Constitutional Limitations to Post-Order of Removal Detention> Although INA Section 241(a) authorizes (and in some cases requires) DHS to detain an alien after removal proceedings, the agency's post-order of removal detention authority has been subject to legal challenge, particularly when the alien remained detained indefinitely pending efforts to secure his or her removal to another country. Eventually, in Zadvydas v. Davis , a case involving the prolonged detention of lawfully admitted aliens who had been ordered removed, the Supreme Court interpreted the statute consistently with due process principles to limit detention generally to a six-month period after a final order of removal. In Zadvydas , the Supreme Court considered whether INA Section 241(a)'s post-order of removal detention statute should be construed as having an implicit time limitation to avoid serious constitutional concerns. The Court determined that "[a] statute permitting indefinite detention of an alien would raise a serious constitutional problem" under the Due Process Clause. The Court reasoned that "[f]reedom from imprisonment from government custody, detention, or other forms of physical restraint lies at the heart of the liberty that Clause protects," and found no justifications for the indefinite detention of aliens whose removal is no longer practicable. While the Court recognized that a potentially indefinite detention scheme may be upheld if it is "limited to specially dangerous individuals and subject to strong procedural protections," INA Section 241(a)(6)'s post-removal period detention scheme was different because it applied "broadly to aliens ordered removed for many and various reasons, including tourist visa violations." The Court thus concluded that the statute could not be lawfully construed as authorizing indefinite detention. Notably, the Court rejected the government's contention that indefinite detention pending removal was constitutionally permissible under Shaughnessy v. United States ex rel. Mezei , which, many decades earlier, had upheld the indefinite detention on Ellis Island of an alien denied admission into the United States and ordered excluded. The Zadvydas Court distinguished Mezei , which involved an alien considered at the threshold of entry, because "once an alien enters the country, the legal circumstance changes, for the Due Process Clause applies to all 'persons' within the United States, including aliens, whether their presence here is lawful, unlawful, temporary, or permanent." The Zadvydas Court determined there was no indication that Congress had intended to confer immigration authorities with the power to indefinitely confine individuals ordered removed. Although INA Section 241(a)(6) states that an alien "may be detained" after the 90-day removal period, the Court reasoned, the statute's use of the word "may" is ambiguous and "does not necessarily suggest unlimited discretion." For these reasons, applying the doctrine of constitutional avoidance, the Court held that INA Section 241(a)(6) should be construed as authorizing detention only for "a period reasonably necessary to secure removal." The Court thus construed the statute as having an implicit temporal limitation of six months following a final order of removal. If that six-month period elapses, the Court held, the alien generally must be released from custody if he "provides good reason to believe that there is no significant likelihood of removal in the reasonably foreseeable future." In Clark v. Martinez , the Supreme Court considered whether the presumptive six-month time limitation established in Zadvydas applied to aliens who had not been lawfully admitted into the United States, and who were being detained after their 90-day removal periods had lapsed. The Court concluded that the time limitation read into INA Section 241(a)(6) for deportable aliens in Zadvydas equally applied to inadmissible aliens. But unlike in Zadvydas, the Court did not rest its decision on matters of constitutional avoidance. Instead, the majority opinion (written by Justice Scalia, who had dissented in Zadvydas ), relied on the principle of statutory construction that a provision should have the same meaning in different circumstances. "[B]ecause the statutory text provides for no distinction between admitted and nonadmitted aliens," the Martinez Court reasoned, the provision should be interpreted as having the same, presumptive six-month time limit for both categories of aliens. In reaching this conclusion, the Supreme Court rejected the government's invitation to construe the detention statute differently when applied to unadmitted aliens, which the government contended was proper because of the limited constitutional protections available to such aliens. The majority stated that "[b]e that as it may, it cannot justify giving the same detention provision a different meaning when such aliens are involved." <3.4.4. Post-Zadvydas Regulations Addressing Likelihood of Removal and Special Circumstances Warranting Continued Detention> Following the Supreme Court's decision in Zadvydas , the former INS issued regulations that established "special review procedures" for aliens who remain detained beyond the 90-day removal period. Under these rules, an alien may "at any time after a removal order becomes final" submit a written request for release because there is no significant likelihood of removal in the reasonably foreseeable future. The HQPDU will consider the alien's request and issue a decision on the likelihood of the alien's removal. Generally, if the HQPDU determines that there is no significant likelihood of removal, ICE will release the alien subject to any appropriate conditions. But if the HQPDU concludes that there is a significant likelihood of the alien's removal in the reasonably foreseeable future, the alien will remain detained pending removal. The regulations provide, however, that even if the HQPDU concludes that there is no significant likelihood of the alien's removal in the reasonably foreseeable future, the alien may remain detained if "special circumstances" are present. The regulations list four categories of aliens whose continued detention may be warranted because of special circumstances: (1) aliens with "a highly contagious disease that is a threat to public safety"; (2) aliens whose release "is likely to have serious adverse foreign policy consequences for the United States"; (3) aliens whose release "presents a significant threat to the national security or a significant risk of terrorism"; and (4) aliens whose release "would pose a special danger to the public." Some courts, though, have ruled that the former INS exceeded its authority by issuing regulations allowing the continued detention of aliens in "special circumstances." Both the Fifth and Ninth Circuits have concluded that the Supreme Court in Zadvydas never created an exception for the indefinite detention post-order of removal of aliens considered particularly dangerous. Instead, these courts concluded, the Supreme Court had merely suggested that it might be within Congress's power to enact a law allowing for the prolonged detention of certain types of aliens following an order of removal, not that Congress had done so when it enacted INA Section 241(a)(6), which does not limit its detention authority to "specific and narrowly defined groups." The Tenth Circuit, on the other hand, has ruled that the former INS's interpretation of the statute to permit indefinite detention in special circumstances was reasonable. The Supreme Court has not yet considered whether INA Section 241(a)(6) authorizes indefinite post-order of removal detention in special circumstances. <4. Select Legal Issues Concerning Detention> As the above discussion reflects, DHS has broad authority to detain aliens who are subject to removal, and for certain classes of aliens (e.g., those with specified criminal convictions) detention is mandatory with no possibility of release except in limited circumstances. Further, while the Supreme Court has recognized limits to DHS's ability to detain aliens after removal proceedings, the Court has recognized that the governing INA provisions appear to allow the agency to detain aliens potentially indefinitely pending those proceedings. But some have argued that the prolonged detention of aliens during their removal proceedings without bond hearings is unconstitutional. Moreover, the government's ability to detain alien minors, including those accompanied by adults in family units, is currently limited by a binding settlement agreement known as the Flores Settlement, which generally requires the release of minors in immigration custody. Apart from concerns raised by prolonged detention, there has been criticism over the lack of regulations governing the conditions of confinement. Additionally, for aliens detained by criminal law enforcement authorities, DHS's authority to take custody of such aliens for immigration enforcement purposes through "immigration detainers" has been subject to legal challenge. The following sections provide more discussion of these developing issues. <4.1. Indefinite Detention During Removal Proceedings> In Zadvydas v. Davis , discussed above, the Supreme Court in 2001 ruled that the indefinite detention of aliens after the completion of removal proceedings raised "a serious constitutional problem," at least for those who were lawfully admitted, and thus construed INA Section 241(a)(6)'s post-order of removal detention provision as containing an implicit six-month time limitation. In 2003, the Court in Demore v. Kim held that the mandatory detention of aliens pending removal proceedings under INA Section 236(c) was "constitutionally permissible," but did not decide whether there were any constitutional limits to the duration of such detention. Later, though, some lower courts ruled that the prolonged detention of aliens pending removal proceedings raised similar constitutional issues as those raised after a final order, and, citing Zadvydas , construed INA Section 236(c) as containing an implicit temporal limitation. In 2018, the Supreme Court held in Jennings v. Rodriguez that the government has the statutory authority to indefinitely detain aliens pending their removal proceedings, but left the constitutional questions unresolved. The Jennings case involved a class action by aliens within the Central District of California who had been detained under INA Sections 235(b), 236(c), and 236(a), in many cases for more than a year. The plaintiffs claimed that their prolonged detention without a bond hearing violated their due process rights. In 2015, the Ninth Circuit upheld a permanent injunction requiring DHS to provide aliens detained longer than six months under INA Sections 235(b), 236(c), and 236(a) with individualized bond hearings. The court expressed concern that the detention statutes, if construed to permit the indefinite detention of aliens pending removal proceedings, would raise "constitutional concerns" given the reasoning of the Supreme Court in Zadvydas . Although the Supreme Court in Demore had upheld DHS's authority to detain aliens without bond pending removal proceedings, the Ninth Circuit construed Demore's holding as limited to the constitutionality of "brief periods" of detention, rather than cases when the alien's detention lasts for extended periods. Recognizing the constitutional limits placed on the federal government's authority to detain individuals, the Ninth Circuit, as a matter of constitutional avoidance, ruled that the INA's detention statutes should be construed as containing implicit time limitations. The court therefore interpreted the mandatory detention provisions of INA Sections 235(b) and 236(c) to expire after six months' detention, after which the government's detention authority shifts to INA Section 236(a) and the alien must be given a bond hearing. The court also construed INA Section 236(a) as requiring bond hearings every six months. In addition, the court held that continued detention after an initial six-month period was permitted only if DHS proved by clear and convincing evidence that further detention was warranted. In Jennings , the Supreme Court rejected as "implausible" the Ninth Circuit's construction of the challenged detention statutes. The Court determined that the Ninth Circuit could not rely on the constitutional avoidance doctrine to justify its interpretation of the statutes. The Court distinguished Zadvydas , which the Ninth Circuit had relied on when invoking the constitutional avoidance doctrine, because the post-order of removal detention statute at issue in that case did not clearly provide that an alien's detention after the 90-day removal period was required. According to the Jennings Court, the statute at issue in Zadvydas was sufficiently open to differing interpretations that reliance on the constitutional avoidance doctrine was permissible. But the Jennings Court differentiated the ambiguity of that detention statute from INA Sections 235(b) and 236(c), which the Court held were textually clear in generally requiring the detention of covered aliens until the completion of removal proceedings. And the Court also observed that nothing in INA Section 236(a) required bond hearings after an alien was detained under that authority, or required the government to prove that the alien's continued detention was warranted after an initial six-month period. According to the Court, the Ninth Circuit could not construe the statutes to require bond hearings simply to avoid ruling on whether they passed constitutional muster. Having rejected the Ninth Circuit's interpretation of INA Sections 235(b), 236(a), and 236(c) as erroneous, the Court remanded the case to the lower court to address, in the first instance, the plaintiffs' constitutional claim that their indefinite detention under these provisions violated their due process rights. In short, the Jennings Court held that the government has the statutory authority to detain aliens potentially indefinitely pending their removal proceedings, but did not decide whether such indefinite detention is unc onstitutional . While the Supreme Court has not yet addressed the constitutionality of indefinite detention during removal proceedings, the Court had indicated in Demore v. Kim that aliens may be "detained for the brief period necessary for their removal proceedings." And in a concurring opinion in Demore , Justice Kennedy declared that a detained alien "could be entitled to an individualized determination as to his risk of flight and dangerousness if the continued detention became unreasonable or unjustified." After the Jennings decision, some lower courts have concluded that the detention of aliens during removal proceedings without a bond hearing violates due process if the detention is unreasonably prolonged. Some courts have applied these constitutional limitations to the detention of aliens arriving in the United States who are placed in removal proceedings, reasoning that, although such aliens typically have lesser constitutional protections than aliens within the United States, they have sufficient due process rights to challenge their prolonged detention. In reaching this conclusion, some courts have addressed the Supreme Court's 1953 decision in Shaughnessy v. United States ex rel. Mezei , which upheld the detention without bond of an alien seeking entry into the United States. These courts determined that Mezei is distinguishable because, in that case, the alien had already been ordered excluded when he challenged his detention, and the alien potentially posed a danger to national security that warranted his confinement. In addition, while the Jennings Court held that INA Section 236(a) does not mandate that a clear and convincing evidence burden be placed on the government in bond hearings, some courts have concluded that the Constitution requires placing the burden of proof on the government in those proceedings. At some point, whether in the Jennings litigation or another case, the Supreme Court may decide whether the indefinite detention of aliens pending removal proceedings is constitutionally permissible. In doing so, the Court may also reassess the scope of constitutional protections for arriving aliens seeking initial entry into the United States. The Court may also decide whether due process compels the government to prove that an alien's continued detention is justified at a bond hearing. The Court's resolution of these questions may clarify its view on the federal government's detention authority. <4.2. Detention of Alien Minors> As discussed, DHS has broad authority to detain aliens pending their removal proceedings, and in some cases detention is mandatory except in certain limited circumstances. But a 1997 court settlement agreement (the " Flores Settlement") currently limits the period in which an alien minor (i.e., under the age of 18) may be detained by DHS. Furthermore, under federal statute, an unaccompanied alien child (UAC) who is subject to removal is generally placed in the custody of the Department of Health and Human Services' Office of Refugee Resettlement (ORR), rather than DHS, pending his or her removal proceedings. In 2019, DHS promulgated a final rule that purports to incorporate these limitations with some modifications. The Flores Settlement originates from a 1985 class action lawsuit brought by a group of UACs apprehended at or near the border, who challenged the conditions of their detention and release. The parties later settled the plaintiffs' claims regarding the conditions of their detention, but the plaintiffs maintained a challenge to the INS's policy of allowing their release only to a parent, legal guardian, or adult relative. In 1993, following several lower court decisions, the Supreme Court in Reno v. Flores upheld the INS's release rule, reasoning that the plaintiffs had no constitutional right to be released to any available adult who could take legal custody, and that the INS's policy sufficiently advanced the government's interest in protecting the child's welfare. Ultimately, in 1997, the parties reached a settlement agreement that created a "general policy favoring release" of alien minors in INS custody. Under the Flores S ettlement, the government generally must transfer within five days a detained minor to the custody of a qualifying adult or a nonsecure state-licensed facility that provides residential, group, or foster care services for dependent children. But the alien's transfer may be delayed "in the event of an emergency or influx of minors into the United States," in which case the transfer must occur "as expeditiously as possible." In 2001, the parties stipulated that the Flores Settlement would terminate "45 days following [the INS's] publication of final regulations implementing this Agreement." In 2008, Congress enacted the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (TVPRA), which "partially codified the Flores Settlement by creating statutory standards for the treatment of unaccompanied minors." Under the TVPRA, a UAC must be placed in ORR's custody pending formal removal proceedings, and typically must be transferred to ORR within 72 hours after DHS determines that the child is a UAC. Following transfer to ORR, the agency generally must place the UAC "in the least restrictive setting that is in the best interest of the child," and may place the child with a sponsoring individual or entity who "is capable of providing for the child's physical and mental well-being." In 2015, the Flores plaintiffs moved to enforce the Flores Settlement, arguing that DHS (which had replaced the former INS in 2003) violated the settlement by adopting a no-release policy for Central American families and confining minors in secure, unlicensed family detention facilities. In response, the government argued that the Flores Settlement did not apply to accompanied minors. In an order granting the plaintiffs' motion, the federal district court ruled that the Flores Settlement applied to both accompanied and unaccompanied minors, and that accompanying parents generally had to be released with their children. In a later order, the court determined that, upon an "influx of minors into the United States," DHS may "reasonably exceed" the general five-day limitation on detention, and suggested that 20 days may be reasonable in some circumstances. In 2016, the Ninth Circuit upheld the district court's ruling that the Flores Settlement applies to both accompanied and unaccompanied minors, but held that the settlement does not require DHS to release parents along with their children. In any event, the effect of the Flores Settlement has been that DHS typically will release family units in their entirety pending removal proceedings, apparently because of the risks and difficulties that releasing the children only (while keeping the parents in detention) would pose, and the absence of a state licensing scheme for family detention facilities. Moreover, a federal district court has ruled that a "government practice of family separation without a determination that the parent was unfit or presented a danger to the child" likely violates due process. On August 23, 2019, DHS published a final rule that it claims "parallel[s] the relevant and substantive terms of the Flores Settlement" with some important modifications. Among other things, the rule c reates an alternative federal licensing scheme for DHS family detention facilities (which are not eligible for state licensing) that would enable DHS to detain minors together with their accompanying parents throughout the removal proceedings. This modification arguably conflicts with the Flores Settlement's " general policy favoring release" of alien minors from government custody. Yet DHS argues that the modification is compelled by changed circumstances, including the increased number of family unit apprehensions since 1997, and that detaining families together pending their removal proceedings "will enable DHS to maintain family unity " while enforcing federal immigration laws . Under the terms of the 2001 stipulation, the Flores Settlement will terminate 45 days after the government publishes final regulation s "implementing the A greement. " The key question in the Flores litigation likely will be whether the final rule " implement [s] the Agreement" within the meaning of the settlement's termination provision. If the court overseeing the Flores Settlement concludes that the rule meets that criteria, the DHS rule will effectively supersede the Flores Settlement. That said, w hile the final rule modifies the Flores Settlement to some degree, it largely incorporates the terms of that agreement . Thus, if the rule is upheld, DHS's detention authority over alien minors would remain subject to some constraints . <4.3. Conditions of Confinement> Although the INA describes when an alien subject to removal may be detained and released from custody, neither the INA nor its implementing regulations currently provide any specific standards for the conditions of confinement. ICE, however, has developed "Performance-Based National Detention Standards" (PBNDS) governing the treatment of detained aliens. These standards apply to all ICE detention facilities, contract detention facilities, and state or local government facilities used by ICE through intergovernmental service agreements. The PBNDS require, among other things, clean and safe facilities; adequate food services; access to medical care; adequate bedding and personal hygiene; reasonable disability accommodations; communication and language assistance; access to telephone and mail; visitation rights; access to recreational programs; religious accommodations; work opportunities; and access to legal materials. In addition, CBP, the DHS component with primary responsibility for immigration enforcement along the border, has created similar standards governing the detention of aliens in CBP custody (e.g., arriving aliens in expedited removal proceedings). While the Supreme Court has generally addressed challenges to the duration of immigration detention, the Court has not addressed challenges to the conditions of immigration confinement. Lower courts, however, have considered detained aliens' constitutional challenges to the conditions of their confinement, generally under the standard applicable to pretrial detention in criminal cases. Under that standard, a detainee's conditions of confinement violate his or her right to due process if they amount to "punishment." To meet that threshold, a detainee must show that prison officials intended to punish him or her, or that the conditions of detention are not reasonably related to a legitimate governmental objective. More specifically, in cases involving claims of inadequate medical treatment, courts have typically analyzed such claims under the "deliberate indifference" standard. This standard looks to whether the detaining authority "knows of and disregards an excessive risk to inmate health or safety." In addition, even though aliens seeking initial entry into the United States typically have lesser constitutional protections than aliens within the United States, some courts have held that aliens detained at the border have substantive due process protections, such as the right to be free from "inhumane treatment" or "gross physical abuse." These cases suggest that aliens detained at the border may sometimes challenge the conditions of their confinement. In the past, some courts have rejected constitutional challenges to the conditions of immigration detention (or, in some cases, conditions of release), concluding that, while the alleged conditions may have been unpleasant or restrictive, they did not amount to a due process violation. As the Supreme Court once stated in a case about pretrial detention, "[l] oss of freedom of choice and privacy are inherent incidents of confinement in such a facility. And the fact that such detention interferes with the detainee's understandable desire to live as comfortably as possible and with as little restraint as possible during confinement does not convert the conditions or restrictions of detention into 'punishment.'" Other courts, however, have ruled unconstitutional conditions of immigration confinement that are particularly unreasonable, such as the deprivation of medical care and other basic necessities. As for minors, the Flores Settlement provides that those apprehended by DHS may be detained only in a "safe and sanitary" facility. The Flores Settlement also requires that state-licensed facilities comply with applicable state child welfare laws and building codes, and provide various services including routine medical care and education. In a few instances, the federal district court overseeing the Flores litigation has ruled that DHS violated the Flores Settlement by exposing minors to substandard conditions. Additionally, Congress, through appropriations legislation, has imposed certain requirements on the conditions of detention. For example, Congress has directed CBP and ICE to report their compliance with applicable detention facility standards (such as the PBNDS), and to provide certain other detention-related information, including the average length of detention and any instances in which an individual has died while in DHS custody. Thus, while federal statutes or regulations generally do not specify the standards for immigration detention, there are some important legal constraints on the treatment of detained aliens. <4.4. Immigration Detainers> Generally, upon issuing an administrative warrant, ICE may arrest and detain an alien pending a determination about whether the alien should be removed from the United States. But if an alien is in criminal custody by state or local law enforcement officers (LEOs) (e.g., if an alien is arrested by local police), ICE may take custody of the alien through the use of an "immigration detainer." An immigration detainer is a document by which ICE advises the LEOs of its interest in individual aliens whom the LEOs are detaining, and requests the LEOs to take certain actions that could facilitate removal (e.g., holding the alien temporarily, notifying ICE before releasing the alien). ICE's predecessor agency, the INS, had long issued detainers for potentially removable aliens in criminal custody. Eventually, in 1986, Congress enacted the Anti-Drug Abuse Act, which, among other things, explicitly authorized the use of detainers for deportable aliens who were arrested for violating controlled substance laws. Citing this authority, as well as its general immigration enforcement powers under the INA, the INS promulgated two separate regulations on detainers, one governing aliens arrested for controlled substance offenses, and another governing aliens arrested for other criminal offenses. In 1997, the INS merged both regulations into one, and that regulation is currently codified at 8 C.F.R. 287.7. The detainer regulation, as amended, provides the following: Any authorized immigration officer may at any time issue a Form I-247, Immigration Detainer-Notice of Action, to any other Federal, State, or local law enforcement agency. A detainer serves to advise another law enforcement agency that the Department seeks custody of an alien presently in the custody of that agency, for the purpose of arresting and removing the alien. The detainer is a request that such agency advise the Department, prior to release of the alien, in order for the Department to arrange to assume custody, in situations when gaining immediate physical custody is either impracticable or impossible. The regulation further instructs that, upon issuance of a detainer, the LEO "shall maintain custody of the alien for a period not to exceed 48 hours" beyond the time when the alien would have otherwise been released (excluding Saturdays, Sundays, and holidays) to facilitate transfer of custody to ICE. Although the detainer regulation instructs that LEOs "shall maintain custody" of an alien, reviewing courts have construed the regulation as being permissive rather than mandatory. For example, the Third Circuit has reasoned that the regulation calls a detainer a "request," that INA Section 287(d) does not require state or local LEOs to detain aliens subject to removal, and that DHS's (and the former INS's) policy statements have construed detainers as being "requests rather than mandatory orders." And the Third Circuit has also ruled that construing immigration detainers as mandatory would run afoul of the "anti-commandeering" principles of the Tenth Amendment, which prohibits the federal government from compelling state and local officials to enforce a federal regulatory scheme. As a result of judicial construction of the detainer regulation, LEOs may (but need not) notify ICE about an alien's release date and hold the alien pending transfer to ICE. Given the permissive nature of detainers, some state and local jurisdictions have restricted compliance with detainers except in limited circumstances (e.g., the alien has been convicted of or charged with a serious crime). Despite these restrictions, ICE generally issues detainers "[r]egardless of whether a federal, state, local, or tribal [LEO] regularly cooperates" with the detainer request. While DHS regulations authorize immigration detainers for removable aliens in criminal custody, courts have addressed legal challenges to the continued detention of aliens who would have otherwise been released from criminal custody (e.g., on bail, upon completion of sentence), but who remain detained pending their transfer to ICE. For example, in the past, ICE issued detainers so long as there was "reason to believe" the alien was subject to removal. But some courts have invalidated, on statutory or constitutional grounds, the use of detainers that are based only on ICE's representations about an alien's removability or the initiation of an investigation into the alien's immigration status. In Moreno v. Napolitano , a federal district court ruled that ICE's issuance of a detainer without an administrative arrest warrant exceeded its statutory authority under the INA absent a determination that the alien was likely to escape before a warrant could be obtained. In Morales v. Chadbourne , which involved the detention of a naturalized U.S. citizen, the First Circuit held that a detainer constitutes a new arrest under the Fourth Amendment, and must be supported by probable cause of the alien's removability. And in Orellana v. Nobles County , a federal district court held that a detainer claiming a "reason to believe" that an alien is subject to removal "does not provide a constitutionally sufficient basis" to detain an alien absent a "particularized assessment" of the alien's likelihood of escaping. In response to these court rulings, ICE in 2017 created new immigration detainer guidelines. Among other things, ICE officers "must establish probable cause to believe that the subject is an alien who is removable from the United States before issuing a detainer." And the detainer must come with either an administrative arrest warrant or a warrant of removal (if the alien has been ordered removed) signed by an authorized ICE officer. Despite ICE's revised detainer policy, some courts have held that, under the Fourth Amendment, immigration detainers supported by probable cause that an alien is removable still do not justify the alien's continued detention by state or local LEOs unless there is probable cause that the alien has committed a criminal offense giving those LEOs a basis to detain the alien for criminal prosecution. These rulings are largely informed by the Supreme Court's 2012 decision in Arizona v. United States , which held that a state statute authorizing police officers unilaterally to arrest an alien suspected of being removable was preempted by federal law, which exclusively gave the authority to enforce civil immigration laws to federal immigration officers. So these courts reason, because state and local LEOs generally lack the authority to enforce civil immigration laws, they may not hold an alien under an immigration detainer unless there is an independent basis such as probable cause of a crime to justify the continued detention. In City of El Cenizo v. Texas , however, the Fifth Circuit held that state and local LEOs do not need probable cause of a crime to hold an alien pursuant to an immigration detainer. The court reasoned that many state laws permit seizures without probable cause of a crime, such as those relating to mentally ill individuals, and that "civil removal proceedings necessarily contemplate detention absent proof of criminality." The circuit court also distinguished Arizona because that case "involved unilateral status-determinations [by the state] absent federal direction ," while a detainer "always requires a predicate federal request before local officers may detain aliens for the additional 48 hours." Courts are thus divided over whether immigration detainers are permissible under the Fourth Amendment. Some courts have held that a detainer need be supported only by probable cause of an alien's removability to avoid constitutional violations, while other courts require probable cause of criminal activity before an alien may be held pending transfer to ICE. Given that ICE considers detainers to be integral to its efforts to arrest and remove aliens convicted of specified crimes, the split in court opinion on the circumstances when detainers may be honored could have significant consequences for ICE's enforcement policies in different jurisdictions. <5. Conclusion> DHS generally has substantial authority to detain aliens who are subject to removal. But the governing laws on detention may differ depending on the circumstances, including (1) whether the alien is seeking initial admission into the United States or had been lawfully admitted into the country; (2) the type of removal proceedings in which the alien is placed; (3) whether the alien has committed specified criminal or terrorist-related activity; (4) whether the alien is a UAC or falls within some other category subject to special rules for detention; and (5) whether the alien is being held for formal removal proceedings or has been ordered removed and is awaiting effectuation of the removal order. Typically, DHS may detain aliens who are placed in formal removal proceedings, but may release the alien on bond, on his or her own recognizance, or under an order of supervision pending the outcome of those proceedings. In some cases, such as those involving aliens who have committed specified crimes, or aliens arriving in the United States who are placed in expedited removal proceedings, detention is mandatory and the alien may not be released from custody except in limited circumstances. Furthermore, DHS generally must detain aliens who have received final orders of removal for up to 90 days while their removal is effectuated, and the agency retains the discretion to detain certain classes of aliens after that 90-day period has lapsed. However, there are some constraints on DHS's detention power. The Supreme Court has determined that the indefinite detention of aliens after formal removal proceedings would raise "serious constitutional concerns," at least for those who were lawfully admitted into the United States and became subject to removal. And while the Court has recognized that governing statutes confer broad authority to DHS to detain aliens without bond pending their removal proceedings, some lower courts have held that due process requires the government to provide detained aliens with bond hearings after prolonged periods of detention and to prove that any continued detention is justified. Furthermore, DHS's ability to detain family units pending their proceedings remains constrained by the Flores Settlement, which limits the length of detention of alien minors. In addition, while detention litigation has largely centered on the duration of detention, detained aliens have also sometimes brought challenges to the conditions of their confinement. And more recently, some courts have imposed restrictions on DHS's ability to take custody of aliens in state or local law enforcement custody through immigration detainers. As courts continue to grapple over the scope of DHS's detention power, Congress may consider legislative proposals that would either limit or expand that authority. For instance, some recent bills would end mandatory detention entirely, afford all aliens the opportunity to be released on bond pending removal proceedings, and require DHS to prove that any continued detention is warranted. Certain bills would also require DHS to promulgate regulations for detention facilities; require the periodic inspection of those facilities; or impose standards governing the conditions of detention, such as requiring medical screenings and access to food, water, shelter, and hygiene. As for custody determinations, some bills would require DHS to consider ATD programs instead of bond or conditional parole, and require placing some aliens in such programs (e.g., asylum applicants). Other bills would generally require the release of aliens considered "vulnerable," such as those who are detained with children, and limit the amount of any bond. In addition, some bills would create time limitations for an IJ to conduct bond hearings, and require periodic bond hearings while an alien remains in custody. Conversely, some bills would specify that an alien may be detained for an indefinite period pending removal proceedings, and require the alien to prove by clear and convincing evidence that he or she is not a flight or escape risk in order to be released. Some bills would also expand the classes of aliens subject to mandatory detention to include aliens present in the United States without inspection, criminal gang members, and aliens arrested for (but not yet convicted of) specified crimes. Other bills would override the Flores Settlement effectively to extend INA Section 235(b)(1)'s mandatory detention scheme governing applicants for admission to family units. Finally, some bills would clarify DHS's detainer authority to provide that ICE may issue detainers so long as there is probable cause that an alien is removable. In short, as reviewing courts continue to test the outer limits to DHS's detention authority, Congress may consider additional legislative options that inform the scope of that authority. <5.1. Appendix.> The following tables provide (1) an overview of the development of U.S. immigration detention laws, and (2) a comparison of the various detention regimes under current law.

The Immigration and Nationality Act (INA) authorizes—and in some cases requires—the Department of Homeland Security (DHS) to detain non-U.S. nationals (aliens) arrested for immigration violations that render them removable from the United States. An alien may be subject to detention pending an administrative determination as to whether the alien should be removed, and, if subject to a final order of removal, pending efforts to secure the alien's removal from the United States. The immigration detention scheme is multifaceted, with different rules that turn on several factors, such as whether the alien is seeking admission into the United States or has been lawfully admitted into the country; whether the alien has engaged in certain proscribed conduct; and whether the alien has been issued a final order of removal. In many instances DHS maintains discretion to release an alien from custody. But in some instances, such as when an alien has committed specified crimes, the governing statutes have been understood to allow release from detention only in limited circumstances. The immigration detention scheme is mainly governed by four INA provisions that specify when an alien may be detained: 1. INA Section 236(a) generally authorizes the detention of aliens pending removal proceedings and permits aliens who are not subject to mandatory detention to be released on bond or on their own recognizance; 2. INA Section 236(c) generally requires the detention of aliens who are removable because of specified criminal activity or terrorist-related grounds after release from criminal incarceration; 3. INA Section 235(b) generally requires the detention of applicants for admission, such as aliens arriving at a designated port of entry as well as certain other aliens who have not been admitted or paroled into the United States, who appear subject to removal; and 4. INA Section 241 (a) generally requires the detention of aliens during a 90-day period after the completion of removal proceedings and permits (but does not require) the detention of certain aliens after that period. These provisions confer substantial authority upon DHS to detain removable aliens, but that authority has been subject to legal challenge, particularly in cases involving the prolonged detention of aliens without bond. DHS's detention authority is not unfettered, and due process considerations may inform the duration and conditions of aliens' detention. In 2001, the Supreme Court in Zadvydas v. Davis construed the statute governing the detention of aliens following an order of removal as having implicit, temporal limitations. The Court reasoned that construing the statute to permit the indefinite detention of lawfully admitted aliens after their removal proceedings would raise "serious constitutional concerns." In 2003, however, the Court in Demore v. Kim ruled that the mandatory detention of certain aliens pending their removal proceedings, at least for relatively brief periods, was constitutionally permissible. The interplay between the Zadvydas and Demore rulings has called into question whether the constitutional standards for detention prior to a final order of removal differ from those governing detention after a final order is issued. Several lower courts have interpreted Demore to mean that mandatory detention pending removal proceedings is not per se unconstitutional, but that Zadvydas cautions that if this detention becomes "prolonged" it may not comport with due process requirements. Additionally, some lower courts have recognized constraints on DHS's detention power that the Supreme Court has not yet considered. For instance, some courts have ruled that the Due Process Clause requires aliens in removal proceedings to have bond hearings when detention becomes prolonged, where the government bears the burden of proving that the alien's continued detention is justified. In addition, a settlement agreement known as the " Flores Settlement," which is enforced by a federal district court, currently limits DHS's ability to detain alien minors who are subject to removal. Further, while litigation concerning immigration detention has largely centered on the duration of detention, some courts have considered challenges to the conditions of immigration confinement, generally under the standards applicable to pretrial detention in criminal cases. Some courts have also restricted DHS's ability to take custody of aliens detained by state or local law enforcement officials upon issuance of "immigration detainers." In short, while DHS generally has broad authority over the detention of aliens, that authority is not without limitation. As courts continue to grapple with legal and constitutional challenges to immigration detention, Congress may consider legislative options that clarify the scope of the federal government's detention authority.

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The National Oceanic and Atmospheric Administration (NOAA) currently supports natural, nature-based, or green infrastructure and other related types of features (hereinafter referred to as nature-based infrastructure) as part of its statutory mandates to support, research, restore, and conserve natural resources. Practitioners and decisionmakers have been using the term nature-based infrastructure and supporting nature-based infrastructure features since at least the late 2000s (although these types of features have been assigned various names over time). Nature-based infrastructure may continue to be appealing due to (1) stakeholder emphasis on infrastructure features that benefit both humans and the environment in multiple ways and (2) recognition that infrastructure may be longer lasting if it can adjust to changing environmental conditions in the short and long terms. Members of Congress may consider whether and how to support nature-based infrastructure activities at federal agencies, including NOAA, with these objectives, among others, in mind. This report describes how NOAA characterizes nature-based infrastructure and the agency's current activities supporting research and implementation of nature-based infrastructure. The report also discusses potential issues for Congress including (1) definitions of nature-based infrastructure in statute, (2) NOAA's authority to support nature-based infrastructure, (3) how NOAA coordinates with other federal agencies and nonfederal entities on nature-based infrastructure activities, and (4) how NOAA funds nature-based infrastructure activities and its total nature-based infrastructure-related expenditures. <1. Nature-Based Infrastructure as Defined by NOAA> NOAA has defined natural infrastructure and nature-based infrastructure in NOAA Administrative Order (NAO) 216-117: NOAA National Habitat Policy. NOAA defines natural infrastructure as "healthy ecosystems, including forests, wetlands, floodplains, dune systems, and reefs, which provide multiple benefits to communities, including storm protection through wave attenuation or flood storage capacity and enhanced water services and security." Similarly, NOAA defines nature-based infrastructure as "engineered systems where natural features are combined with more hard or structural engineering approaches to create a hybrid system." However, across NOAA's publicly accessible documents and websites, the agency appears to use the terms nature-based infrastructure, natural infrastructure, and green infrastructure interchangeably. Table 1 lists several types of nature-based infrastructure features as identified by NOAA. According to NOAA, nature-based infrastructure projects may include features that are completely natural, such as open lands and trees, or may incorporate varying degrees of hard or "gray" steel and concrete structures, such as bulkheads ( Figure 1 ). Often, multiple types of nature-based infrastructure features are combined within a project. The selection of nature-based infrastructure features often depends on a combination of available funding, space constraints, land or roof availability, technical feasibility, hydrologic impact, and community acceptance, among other factors. According to NOAA, nature-based infrastructure can provide several benefits in addition to flood, erosion, and runoff management, such as improved water quality, wildlife habitat, opportunity for groundwater recharge, recreation uses, and aesthetic appeal, among others. The extent to which nature-based infrastructure features provide these benefits is partially dependent on the location and types of features used. <2. NOAA's Nature-Based Infrastructure Activities> NOAA's National Habitat Policy (NAO 216-117) directs the agency to protect, maintain, and restore ocean, coastal, and Great Lakes ecosystems by "applying natural and nature-based infrastructure," among other activities. According to the agency, this work is supported by a variety of statutory mandates and authorities. Congress has not defined in statute nature-based or related terms for NOAA, nor has it explicitly directed NOAA to broadly support nature-based features or related activities across the agency. NOAA's nature-based infrastructure activities fall primarily under three line offices: the National Marine Fisheries Service (NMFS), National Ocean Service (NOS), and Office of Oceanic and Atmospheric Research (OAR). According to NOAA, many of the agency's nature-based infrastructure activities are related to restoration and conservation projects; the projects are typically local or regional in scale and take place within coastal or Great Lakes states. NMFS's Restoration Center administers the community-based restoration grant program with congressionally appropriated funds to support nature-based infrastructure activities, among other restoration activities, implemented by institutions of higher education; nonprofit and for-profit organizations; U.S. territories; and state, local, and tribal governments. The NOAA Restoration Atlas, a project-tracking database, lists over 2,000 community-based restoration projects, many of which include nature-based infrastructure features and multiple benefits. For instance, the Restoration Center provided funds for the planting of marshgrass along the coast of Northumberland County, VA, to reduce shoreline erosion and improve fish habitat ( Figure 2 ). Several programs and activities under NOS support research and implementation of nature-based infrastructure. For example, the Coral Reef Conservation Program, National Coastal Zone Management Program, and National Estuarine Research Reserve System provide technical assistance and administer competitive grant programs to a variety of entities, such as institutions of higher education; nonprofit organizations; and local, state, and tribal governments, among others. Coastal scientists with NOAA's National Centers for Coastal Ocean Science have estimated the economic value of nature-based infrastructure to stabilize coastlines along the Pacific Northwest. Additionally, the Damage Assessment, Remediation, and Restoration Program, a program with components in both NMFS and NOS, supports nature-based infrastructure implementation through funds recovered in settlements or litigation. For example, it has supported the design and implementation of a living shoreline with breakwaters in Pensacola, FL, to (1) create and restore salt marsh and reef habitat and (2) protect and stabilize the shoreline, with funds from the BP Deepwater Horizon spill settlement ( Figure 3 ). Under OAR, the Climate Program Office and the National Sea Grant College Program (Sea Grant) both support research and implementation of nature-based infrastructure through competitive grant programs on a variety of topics, including nature-based infrastructure. For example, the Climate Program Office has awarded grants to institutions of higher learning and agencies within state government to support the development and application of methodologies to value nature-based infrastructure. Sea Grant also may support research or provide technical assistance for nature-based infrastructure projects. For instance, Alaska Sea Grant organized trainings in "Green Infrastructure for Coastal Resilience" for municipal and borough planners, designers, landscape architects, public housing authority planners, academics, and nonprofits. In another case, New York Sea Grant funded the monitoring of nature-based shoreline erosion management measures in various regions of New York. Additional NOAA programs may have roles related to nature-based infrastructure, such as reviewing projects that may use nature-based infrastructure and providing underlying data for decisionmaking. For example, the NMFS Office of Protected Resources is often involved in reviewing nature-based infrastructure projects that may affect protected species under NOAA's jurisdiction. NOAA may also direct appropriated funding to nonfederal organizations, such as the National Fish and Wildlife Foundation, to support nature-based infrastructure activities. For example, NOAA provides funds and program oversight to the foundation's National Coastal Resilience Fund, which in FY2019 funded grants to "create, expand, and restore natural systems in areas that will both increase protection for communities from coastal storms, sea- and lake-level changes, inundation, and coastal erosion while also improving valuable habitats for fish and wildlife species," among other objectives. <3. Potential Policy Issues for Congress> <3.1. Definitions in Statute> Congress has not defined the term nature-based infrastructure , or similar terms, in statute for NOAA as it has for USACE and EPA. For example, in P.L. 114-322 Congress defined natural and nature-based features and directed USACE to consider the features when studying the feasibility of flood risk management, hurricane and storm damage reduction, and ecosystem restoration projects (33 U.S.C. 2289a). In P.L. 115-436 , which amended the Clean Water Act, Congress defined green infrastructure and directed EPA to promote green infrastructure use, among other activities (33 U.S.C. 1362(27) and 33 U.S.C. 1377a). Congress may consider whether and how to define the term and the types of nature-based infrastructure for NOAA. Some Members of Congress have proposed definitions within the context of new NOAA programs. For example, H.R. 1317 in the 116 th Congress would provide definitions for natural , nature-based , and nonstructural features to be used as criteria for new NOAA financial assistance programs. Two other nearly identical bills in the 116 th Congress, H.R. 3115 and S. 1730 , define the term living shoreline for the use within a new agency-administered grant program. A NOAA-specific definition of nature-based infrastructure and similar terms in statute may help the agency prioritize and manage its nature-based infrastructure activities. A definition also could potentially limit the types of nature-based infrastructure, by inhibiting the development and adoption of new designs and features that are not captured in a statutory definition. Further, a NOAA-specific definition may conflict with other federal agency definitions for nature-based infrastructure. Congress may consider whether one definition should be used among all federal agencies to minimize the potential for confusion. A single definition across all federal agencies, however, could conflict with the various missions and activities of the different federal agencies. <3.2. Authorities for Nature-Based Infrastructure> Congress has directed NOAA to support, research, restore, and conserve natural resources in a variety of statutes. Congress has not enacted authorities specifically for nature-based infrastructure activities; however, NOAA has interpreted some of its authorities to include support for nature-based infrastructure activities. For example, in 2009 Congress directed NOAA to create the Coastal and Estuarine Land Conservation Program (CELCP) under the Coastal Zone Management Act (CZMA; P.L. 111-11 , 16 U.S.C. 1456-1 and 1456d). Congress established the CELCP to provide grants to nonfederal entities to protect "important coastal and estuarine areas that have significant conservation, recreation, ecological, historical, or aesthetic values" (16 U.S.C. 1456d), which may include natural or open lands, identified by NOAA as nature-based infrastructure in Table 1 . Similarly, Congress instructed NOAA to conduct and support "activities to conserve coral reefs and coral reef ecosystems" (16 U.S.C. 6401-6409). NOAA has identified coral reefs as a type of nature-based infrastructure ( Table 1 ); coral reefs have been shown to buffer waves and provide protection from shoreline erosion. Some stakeholders contend that NOAA is already authorized to support nature-based infrastructure features through its existing statutes. Others in Congress, however, have proposed legislation that would expand the type of nature-based infrastructure activities NOAA currently supports. For example, in the 116 th Congress, H.R. 1317 would direct NOAA to "improve the resilience of the built and natural environment to natural disasters and climate change" by using natural, nature-based, and nonstructural features, among other features. Another bill, H.R. 3115 , would require NOAA to administer grants for "designing and implementing ... living shorelines; and ... innovative uses of natural materials and systems to protect coastal communities, habitats, and natural system functions," among other provisions. Expanding NOAA's authority for nature-based infrastructure activities has been met with some opposition. For example, some in Congress have argued that a new NOAA grant program that H.R. 3115 would authorize "strays from the long-standing Congressional intent of providing eligible coastal states and territories the flexibility to design programs that best address local challenges by inserting federal priorities into a state-run program." <3.3. Coordination of Nature-Based Infrastructure Activities> NOAA often supports nature-based infrastructure activities alongside other federal and nonfederal partners. For example, the agency has provided financial and technical support to the aforementioned Pensacola Bay Living Shoreline Project, which also receives support from the Florida Department of Environmental Protection. In addition, NOAA has been a part of several federal interagency and interorganizational efforts to better understand and support nature-based infrastructure. For instance, NOAA was a part of the federal Coastal Green Infrastructure and Ecosystem Services Task Force established in response to Hurricane Sandy Rebuilding Strategy recommendations. The task force was co-chaired by NOAA and the U.S. Geological Survey and resulted in the development of a 2015 report. Report recommendations focused on "coastal green infrastructure" metrics, production functions (e.g., how can the United States better track how ecosystem changes may impact infrastructure), ecosystem-service valuation, social factors, and decisionmaking support. NOAA also has been a member of the interorganizational Systems Approach to Geomorphic Engineering (SAGE) working group. SAGE includes representatives from federal and state agencies, academic and research institutes, nongovernmental organizations, and the private sector. SAGE is a "community of practice" and aims to share advances in the science, engineering, policy, and financing of nature-based infrastructure across organizations. For example, organizations, including NOAA, have been a part of SAGE pilot projects in selected locations working to address issues such as shoreline loss using nature-based infrastructure. SAGE also brings organizations together to discuss technical, policy, and financial issues through periodic meetings and serves as a public resource aggregator by compiling links to technical guidance, conference proceedings, research, and other materials. Congress may deliberate whether and how to direct NOAA to manage nature-based infrastructure activities within the agency or with non-NOAA organizations in specific ways. For example, Congress may require NOAA to coordinate its nature-based infrastructure within an intra-agency working group or task force. Alternatively, Congress could establish an advisory board or similar group to provide recommendations for better intra-agency, interagency, and interorganizational coordination. For coordination with organizations outside of NOAA, Congress may authorize in statute an already established working group, such as SAGE, or create a new group focused on nature-based infrastructure. Some stakeholders may argue that a statutory requirement for NOAA to coordinate with federal and nonfederal partners may facilitate information sharing, promote the efficient use of available funding, and streamline permitting across federal agencies. Others may argue that unless Congress specifically authorizes NOAA to support nature-based infrastructure activities, the agency should (1) focus resources solely on meeting current congressional directives and/or (2) coordinate at their own discretion. <3.4. Funding for Nature-Based Infrastructure> Congress funds NOAA to support, research, restore, and conserve natural resources primarily through the annual appropriations process. NOAA reports its spending to Congress on a program-by-program basis, but nature-based infrastructure activities are not tracked specifically as line items in either the agency's annual budget request or in congressional appropriations bills and reports. For example, Congress appropriated $68 million to the National Sea Grant College Program in FY2019; however, NOAA does not track what portion of that funding was used to support nature-based infrastructure activities. Similarly, NOAA does not report the proportion of funding supporting nature-based infrastructure activities in other NOAA programs. Congress may consider requiring NOAA to track and/or report its spending on nature-based infrastructure activities. Other federal agencies also likely do not track spending related to nature-based infrastructure activities, and Congress may consider requiring all federal agencies to report their nature-based infrastructure expenditures. Congress has sometimes required federal agencies to submit crosscut budgets detailing individual agency expenditures (e.g., USACE water resources research and technology institutes expenditures as required under 42 U.S.C. 10303) as well as some interagency expenditures (e.g., Great Lakes restoration activity expenditures as required under 33 U.S.C. 1268a). Stakeholders hold different views about whether or how Congress should fund nature-based infrastructure activities. Congress could continue to appropriate funds that support NOAA's core capabilities and mission, without specifying they be used for nature-based infrastructure activities. Alternatively, Congress could, for example, appropriate funds for existing or new NOAA programs that provide grants to nonfederal entities explicitly for research and implementation of nature-based infrastructure. Several bills introduced in the 116 th Congress address funding for nature-based infrastructure activities in various ways. For example, H.R. 3115 would create a new grant program to fund the installation of living shorelines, a type of nature-based infrastructure feature. H.R. 1317 would (1) issue a U.S. Postal Service semipostal stamp and use some of its proceeds to fund prize competitions and research catalog development, and (2) authorize appropriations for capitalization funds to establish state community resilience revolving funds for the implementation of nature-based infrastructure, among other projects. S. 2284 would establish the Carbon Dividend Trust Fund with requisite fund transfers to federal agencies. As proposed in S. 2284 , NOAA's portion of the fund transfer would support several programs, including a coastal resiliency program that would be required to prioritize the consideration of natural and nature-based infrastructure. However, some Members of Congress have argued that the establishment of new grant programs, such as the living shoreline grant program in H.R. 3115 , are "duplicative and wasteful," as Congress already appropriates funding to NOAA that may be used to support nature-based infrastructure.

The National Oceanic and Atmospheric Administration (NOAA) currently supports natural, nature-based, or green infrastructure and other related types of features (hereinafter referred to as nature-based infrastructure) as part of its statutory mandates to support, research, restore, and conserve natural resources. NOAA's nature-based activities primarily fall under three line offices: the National Marine Fisheries Service, National Ocean Service, and Office of Oceanic and Atmospheric Research. NOAA uses the term nature-based infrastructure and other related terms interchangeably to describe natural systems or engineered systems that mimic natural processes built to minimize flooding, erosion, and runoff. Nature-based infrastructure projects may include features that are completely natural, such as open lands and trees (e.g., coastal mangroves), or may incorporate varying degrees of hard or "gray" steel and concrete structures, such as seawalls. Often, multiple types of nature-based infrastructure features are combined within a project. Stakeholder selection of nature-based infrastructure features may depend on a combination of factors, including available funding, space constraints, technical feasibility, hydrologic impact, and community acceptance, among other factors. According to NOAA, nature-based infrastructure can provide several benefits such as flood, erosion, and runoff management, wave buffering, improved water quality, wildlife habitat, opportunity for groundwater recharge, recreation uses, and aesthetic appeal, among others. The extent to which nature-based infrastructure features provide these benefits is partially dependent on the types of features used and the location. Historically, Congress has directed funding to some federal agencies for the design and construction of hard infrastructure, such as breakwaters, revetments, and bulkheads or seawalls that provide a measurable and expected level of flood, erosion, and runoff management. However, these features also have demonstrated limitations and some unintended consequences. Researchers and practitioners have studied the potential impacts and benefits of hard structures relatively well, whereas similar research on nature-based infrastructure is ongoing. Practitioners and decisionmakers have been using the term nature-based infrastructure and supporting nature-based infrastructure features since at least the late 2000s (although these types of features have likely been studied and implemented under various terms for several decades). Nature-based infrastructure may continue to be appealing due to (1) stakeholder emphasis on infrastructure features that benefit both humans and the environment in multiple ways and (2) recognition that infrastructure may be longer lasting if it can adjust to changing environmental conditions in the short and long terms. Members of Congress may consider whether and how federal agencies, including NOAA, can support nature-based infrastructure activities by federal agencies. Congress has neither defined nature-based infrastructure in statutes related to NOAA activities nor directed in statute that the agency support such activities. Congress has provided some statutory direction related to nature-based infrastructure for the U.S. Army Corps of Engineers (USACE) and the Environmental Protection Agency (EPA). Congress may consider whether to define nature-based infrastructure for NOAA or explicitly authorize NOAA to support nature-based infrastructure in specific cases, similar to USACE and EPA, or require NOAA to consider nature-based infrastructure activities across the agency. Congress also may consider requiring federal (and federal with nonfederal) coordination of nature-based infrastructure activities in an existing federal working group (e.g., the System Approach to Geomorphic Engineering community of practice), a new group, or other mechanism. Finally, as NOAA does not identify its nature-based infrastructure activities as separate budget line items, Congress may consider (1) directing NOAA, and other federal agencies, to report its nature-based infrastructure spending and (2) whether to retain existing or establish new mechanisms to fund nature-based infrastructure activities at NOAA.

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<1. Role of Congress> Congress is responsible for funding, establishing rules regulating the Army, and conducting oversight of a number of functions including manning, equipping, training, and readiness. On an annual basis, shortly after the President's Budget Request is transmitted to Congress, congressional defense authorizing committees and subcommittees typically hold three separate oversight hearings focused on (1). the Army's budget request; (2). the Army's posture; and (3). Army modernization. In addition to these three hearings, Congress sometimes conducts additional hearings on a wide variety of topics to include specific weapons systems under development and other Army efforts, programs, or initiatives. The Army's 2019 Modernization Strategy, intended to guide Army modernization efforts through at least 2035, is arguably ambitious and proposes the development of a number of new weapons systems and capabilities that could also have implications for force structure as well. In its oversight role of the Army's modernization process, Congress may consider a common oversight architecture that provides both an element of continuity for hearings and a standard by which Congress might evaluate the efficacy of the Army Modernization Plan. <2. What is the Purpose of the Army's Modernization Strategy?1> The 2019 Army Modernization Strategy (AMS) aims to transform the Army into a force that can operate in the air, land, maritime, space, and cyberspace domains (i.e. multi-domain), by 2035. The previous 2018 AMS Report to Congress introduced the Army's six materiel modernization priorities (see below). The 2019 AMS expands the Army's approach beyond those six priorities, outlining a more holistic approach to modernization while maintaining the Army's six Materiel Modernization Priorities from the 2018 AMS. Army Modernization involves modernizing 1) how they fight (doctrine, tactics, techniques, and procedures); 2) what they fight with (equipment); and 3) who they are (Army culture and personnel). This report will focus on the "what they fight with" component of Army Modernization as well as associated force structure issues. <3. Multi-Domain Operations (MDO)3> The Army wants to transform itself into a force capable of implementing its new proposed operational concept referred to as Multi-Domain Operations (MDO) described below. <3.1. MDO Challenges 9> According to the Army, in order to successfully execute MDO, the Army will need to change how it physically postures the force and how it organizes units. In addition, the Army says it will require new authorities and the ability to employ new capabilities and emerging technologies. The Army, in addition to integrating fully with the other Services, will need access to national-level capabilities and require a high level of day-to-day Interagency involvement to successfully prosecute MDO. In this regard, MDO would require not only Department of Defense (DOD) "buy in" and resources, but would also need similar support from the other members of the Interagency and Congress as well. <3.2. National Security Strategy, National Defense Strategy, National Military Strategy, and the Army Strategy11> The Army's Modernization Strategy is part of a hierarchy of strategies intended, among other things, to inform the Service's respective modernization plans. These strategies include: National Security Strategy (NSS): published by the Administration, it is intended to be a comprehensive declaration of global interests, goals, and objectives of the United States relevant to national security. National Defense Strategy (NDS): published by DOD, it establishes objectives for military planning in terms of force structure, force modernization, business processes, infrastructure, and required resources (funding and manpower). National Military Strategy (NMS): published by the Chairman of the Joint Chiefs of Staff (CJCS), it supports the aims of the NSS and implements the NDS. It describes the Armed Forces' plan to achieve military objectives in the near term and provides the vision for ensuring they remain decisive in the future. The NMS is a classified document. The Army Strategy : articulates how the Army achieves its objectives and fulfills its Title 10 duties to organize, train, and equip the Army for sustained ground combat. The Army Strategy provides guidance for budget planning and programming across multiple Future Year Defense Programs (FYDP). All strategies share a common theme, that of "return to great power competition" which posits that "Russia and China are competitors to the United States and both nations are looking to overturn the current rules-based international order." This requires the U.S. military to focus its doctrine and resources on countering this perceived threat. In this regard, the aforementioned strategies also re-focus the Service's modernization efforts towards defeating the perceived Chinese and Russian military threat. <4. A Potential Oversight Framework> As previously noted, the possibility exists for a variety of Army Modernization-hearings spanning a number of different Congresses. In this regard, a common oversight architecture could potentially provide both an element of continuity and a means by which Congress might evaluate the progress of the Army's modernization efforts. Such a potential architecture might examine: Is the Army's Modernization Strategy appropriate given the current and projected national security environment? Is the Army's Modernization Strategy achievable given a number of related concerns? Is the Army's Modernization Strategy affordable given current and predicted future resource considerations? To support this potential oversight architecture, a number of topics for discussion are provided for congressional consideration. <4.1. Is the Army's Modernization Strategy Appropriate?> <4.1.1. Does the Army's Modernization Strategy Support the National Security, National Defense, and National Military Strategies?> The Army contends its modernization strategy addresses the challenges of the future operational environment and directly supports the 2018 National Defense Strategy's (NDS) line of effort, "Build a More Lethal Force." The congressionally established Commission on the National Defense Strategy for the United States (Section 942, P.L. 114-328 ) questions this assertion, noting: We came away troubled by the lack of unity among senior civilian and military leaders in their descriptions of how the objectives described in the NDS are supported by the Department's readiness, force structure, and modernization priorities , as described in the Future Years Defense Program (FYDP) and other documents. (Emphasis added.) While the Commission's finding is directed at DOD as a whole, it suggests there are questions concerning how modernization priorities and plans support the National Defense Strategy and, by association, the National Security and Military strategies as well. While the aforementioned strategic documents all feature the central theme of "return to great power competition" vis- -vis Russia and China, it is not readily apparent to many observers how the Army's modernization priorities directly support this goal. In this regard, a more detailed examination of the Army's new Modernization Strategy's alignment with the National Security, National Defense, and National Military Strategies could prove beneficial to policymakers. <4.1.2. Does the Army's Modernization Strategy Address the Military Strategies of Peer Competitors?> While it can be considered essential that the Army's Modernization Strategy aligns with and supports the National Security, National Defense, and National Military strategies of the United States, it can be argued that of equal importance is whether the Army's Modernization Strategy takes into account the military strategies of peer competitors. A May 2019 study offers a summary of Russian and Chinese strategies and suggests a U.S. response: The core of both countries' challenge to the U.S. military lies in what are commonly called anti-access/area denial (A2/AD) systems: in more colloquial terms, a wide variety of missiles, air defenses, and electronic capabilities that could destroy or neutralize U.S. and allied bases, surface vessels, ground forces, satellites, and key logistics nodes within their reach. Both China and Russia have also developed rapidly deployable and fearsomely armed conventional forces that can exploit the openings that their A2/AD systems could create. Despite these advances, both China and Russia still know that, for now, they would be defeated if their attacks triggered a full response by the United States. The key for them is to attack and fight in a way that Washington restrains itself enough for them to secure their gains. This means ensuring that the war is fought on limited terms such that the United States will not see fit to bring to bear its full weight. Focused attacks designed to pick off vulnerable members of Washington's alliance network are the ideal offensive strategy in the nuclear age, in which no one can countenance the consequences of total war. The most pointed form of such a limited war strategy is the fait accompli. Such an approach involves an attacker seizing territory before the defender and its patron can react sufficiently and then making sure that the counterattack needed to eject it would be so risky, costly, and aggressive that the United States would balk at mounting it not least because its allies might see it as unjustified and refuse to support it. Such a war plan, if skillfully carried out in the Baltics or Taiwan, could checkmate the United States. The U.S. military must shift from one that surges to battlefields well after the enemy has moved to one that can delay, degrade, and ideally deny an adversary's attempt to establish a fait accompli from the very beginning of hostilities and then defeat its invasion. This will require a military that, instead of methodically establishing overwhelming dominance in an active theater before pushing the enemy back, can immediately blunt the enemy's attacks and then defeat its strategy even without such dominance. From an operational perspective, new systems developed as part of the Army's Modernization Strategy would potentially need to not only provide a technological improvement over legacy systems but also support the Army's operational concept in this case Multi Domain Operations (MDO) intended to counter Russia and China. A detailed examination of how these systems directly counter Russian and Chinese military capabilities and strategies could prove beneficial to policymakers. <4.1.3. Is the Army's Modernization Strategy Relevant to Other Potential Military Challenges?> In February 2011, then-Secretary of Defense Robert Gates told West Point Cadets; We can't know with absolute certainty what the future of warfare will hold, but we do know it will be exceedingly complex, unpredictable, and as they say in the staff colleges "unstructured." Just think about the range of security challenges we face right now beyond Iraq and Afghanistan: terrorism and terrorists in search of weapons of mass destruction, Iran, North Korea, military modernization programs in Russia and China, failed and failing states, revolution in the Middle East, cyber, piracy, proliferation, natural and man-made disasters, and more. And I must tell you, when it comes to predicting the nature and location of our next military engagements, since Vietnam, our record has been perfect. We have never once gotten it right, from the Mayaguez to Grenada, Panama, Somalia, the Balkans, Haiti, Kuwait, Iraq, and more we had no idea a year before any of these missions that we would be so engaged. If former Secretary of Defense Gates' admonition that we have never accurately predicted our next military engagement holds true, it is a distinct possibility that a direct conventional confrontation with Russia or China posited by the National Security Strategy might not come to pass. In the case of China, it has been suggested it is more likely U.S. and Chinese interests will clash in the form of proxy wars and insurgencies as opposed to a great power war. The recent U.S. Iranian confrontation is an example of such a non-great power military challenge with the potential for a rapid escalation or a protracted proxy war. With this in mind, some may consider any strategy not relevant to other potential military challenges other than great power war to be ill-conceived. To insure the Army's new Modernization Strategy is relevant, an examination of how its applies to potential adversaries other than China and Russia as well as other possible military challenges not related to great power competition could be useful to policymakers. <4.1.4. Does the Army's Modernization Strategy Complement the Other Service's Modernization Strategies?> According to the Army's Strategy: The Army Mission our purpose remains constant: To deploy, fight, and win our Nation's wars by providing ready, prompt, and sustained land dominance by Army forces across the full spectrum of conflict as part of the Joint Force. As part of this Joint Force, it can be argued the Army's Modernization Strategy should complement the modernization strategies of the other Services and vice versa. In order for the Service's modernization strategies to complement one another, a joint war-fighting concept is essential and, at present, no such a concept is agreed by all Services. According to the Army: A Joint war-fighting concept would provide a common framework for experimentation and validation of how the joint force must fight, what capabilities each of the services must have, and how the Joint force should be organized further allowing civilian leaders to make cross-service resource decisions. While the Army favors and is promoting MDO for adoption by the other Services, the Air Force is focusing on Multi Domain Command and Control, the Navy on Distributed Maritime Operations, and the Marine Corps on the Marine Corps Operating Concept. While these operating concepts share some common themes such as great power competition and a need to be able to operate in a variety of domains, they differ in approach but not to an extent where a common joint warfighting concept could not be agreed upon. Despite this lack of a common joint warfighting concept, the Army claims its modernization programs are aligned with the other Services. Army leadership has noted that "the three of us [Army, Air Force, and the Department of the Navy] are completely aligned," citing the "development of a hypersonic weapon as a good example." While the Army might be collaborating now more than ever with the Air Force and Navy as it claims, collaborating at the programmatic level does not necessarily constitute a complementary relationship of the Service's modernization strategies. In this regard, Congress might decide to examine the relationship between the Service's modernization strategies to insure they are complementary. <4.2. Is the Army's Modernization Strategy Achievable?> <4.2.1. What is the Scope of the Army's Modernization Strategy?> Army officials reportedly have identified 31 modernization initiatives not all of them programs of record intended to support the Army's six modernization priorities. The Army notes that "there are interdependencies among the 31 initiatives which need to fit together in an overall operational architecture." Examples of a few of the higher-visibility initiatives grouped by modernization priority include: Long Range Precision Fires: Strategic Long Range Cannon (SLRC). Precision Strike Missile (PrSM). Extended Range Cannon Artillery (ERCA). Next Generation Combat Vehicle: (NGCV) : Optionally Manned Fighting Vehicle (OMFV). Robotic Combat Vehicle (RCV): 3 variants. Armored Multi-Purpose Vehicle (AMPV). Mobile Protected Firepower (MPF). Decisive Lethality Platform (DLP). Future Vertical Lift: Future Attack Reconnaissance Aircraft (FARA). Future Attack Unmanned System (FUAS). Future Long Range Assault Aircraft. Air And Missile Defense: Maneuver Short-Range Air defense (M-SHORAD). Indirect Fire Protection Capability (IFPC). Soldier Lethality: Next Generation Squad Weapons Automatic Rifle (NGSW-AR). Next Generation Squad Weapons Rifle (NGSW-R). While some of these initiatives are currently in development and procurement, others are still in the requirements definition and conceptual phase. With so many initiatives and interdependencies, it is reasonable to ask "can the Army's modernization effort survive the failure of one or more of the 31 initiatives?" Another potential way of gauging if the Army is "overreaching" would be to establish how much modernization is required before the Army considers itself sufficiently modernized to successfully implement MDO as currently envisioned. One question for the Army might be "What are the Army's absolute "must-have" systems or capabilities to ensure the Army can execute MDO at its most basic level?" <4.2.2. Are the Army's Modernization Priorities Correct?> In March 2019 testimony to the Senate Armed Services Committee, then Secretary of the Army Mark Esper and Chief of Staff of the Army Mark Milley stated: To guide Army Futures Command, the Army established a clear set of modernization priorities that emphasize rapid maneuver, overwhelming fires, tactical innovation, and mission command. Our six modernization priorities will not change , and they underscore the Army's commitment to innovate for the future. We have one simple focus to make Soldiers and units more capable and lethal. Over the last year, we identified $16.1B in legacy equipment programs that we could reinvest towards 31 signature systems that are critical to realizing Multi-Domain Operations and are aligned with these priorities. While the Army's prioritization of and commitment to its modernization initiatives can be viewed as essential to both resourcing and executing the Army's Modernization Strategy, some defense experts have questioned the Army's modernization priorities. For example, the Heritage Foundation's August 2019 report "Rebuilding America's Military Project: The United States Army," suggests different modernization priorities: Given the dependence of MDO on fires and the poor state of Army fire systems, the inclusion and first placement of long-range precision fires is logical. Based on the importance of the network to MDO and the current state of Army tactical networks, logically the network should come next in priority. Third, based on the severely limited current capabilities, should come air and missile defense, followed by soldier lethality in fourth. Next-generation combat vehicles are fifth; nothing has come forward to suggest that there is a technological advancement that will make a next-generation of combat vehicles significantly better. Finally, the last priority should be future vertical lift, although a persuasive argument could be made to include sustainment capabilities instead. Nowhere in the MDO concept is a compelling case made for the use of Army aviation, combined with the relative youth of Army aviation fleets. Aside from differing opinions from defense officials and scholars, world events might also suggest the need to re-evaluate the Army's modernization priorities. One example is the September 14, 2019 attack against Saudi Arabian oil facilities, believed to have been launched from Iran, which employed a combination of unmanned aerial vehicles (UAVs) and cruise missiles. It has been pointed out U.S. forces are ill-prepared to address this threat although the Army has a variety of programs both underway and proposed to mitigate this vulnerability. If the September 14, 2019 attacks are replicated not only in the region but elsewhere by other actors, it might make a compelling case to reprioritize Army air and missile defense from fifth out of six modernization priorities to a higher level to address an evolving and imminent threat. Apart from the Army's stated modernization priorities, there might also be other technologies or systems that merit inclusion based on changing world events. <4.2.3. How will the Army Manage its Modernization Strategy?> First established in 2018, Army Futures Command (AFC) is intended to: Modernize the Army for the future-will integrate the future operational environment, threat, and technologies to develop and deliver future force requirements, designing future force organizations, and delivering materiel capabilities. According to the Army's 2019 Modernization Strategy: Modernization is a continuous process requiring collaboration across the entire Army, and Army Futures Command brings unity of effort to the Army's modernization approach. AFC, under the strategic direction of Headquarters, Department of the Army (HQDA), develops and delivers future concepts, requirements, and organizational designs based on its assessment of the future operating environment. AFC works closely with the Army's modernization stakeholders to integrate and synchronize these solutions into the operational force. While this broad statement provides a basic modernization management concept, it does not address specific authorities and responsibilities for managing Army modernization. Many in Congress have expressed concerns with the relationship between AFC and the Assistant Secretary of the Army for Acquisitions, Logistics, and Technology (ASA (ALT)) who has a statutory role in the planning and resourcing of acquisition programs. The Senate Appropriations Committee's report accompanying it's version of the Department of Defense Appropriations Bill, 2020, directs the Army to clearly define modernization responsibilities: ARMY ACQUISITION ROLES AND RESPONSIBILITIES The Committee has supported efforts by the Army to address modernization shortfalls and deliver critically needed capabilities to the warfighter through establishment of Cross-Functional Teams [CFTs] and ultimately the stand-up of Army Futures Command [AFC]. However, questions remain on the roles and responsibilities of AFC and the Assistant Secretary of the Army (Acquisition, Logistics & Technology) [ASA(ALT)]. As an example, the Committee recently learned of a newly created Science Advisor position within AFC, which seems to be duplicative of the longstanding role of the Deputy Assistant Secretary of the Army for Research and Technology. Additionally, the Committee was concerned to learn that funding decisions on investment accounts, to include science and technology programs, would be directed by AFC rather than ASA(ALT). While the Committee supports AFC's role in establishing requirements and synchronizing program development across the Army, it affirms that ASA(ALT) has a statutory role in the planning and resourcing of acquisition programs. The ASA(ALT) should maintain a substantive impact on the Army's long-range investments, not just serve as a final approval authority. Therefore, the Committee directs the Secretary of the Army to provide a report that outlines the roles, responsibilities, and relationships between ASA(ALT) and AFC to the congressional defense committees not later than 90 days after enactment of this act. The report shall include a clear description of the responsibilities of each organization throughout the phases of the planning, programming, budgeting, and execution of resources . (Emphasis added.) While the Army has placed significant emphasis on the "revolutionary" nature of AFC and its role in modernization, questions may remain about whether AFC will provide a significant level of "value added" to Army modernization and not encroach on the statutory responsibilities of the ASA (ALT) as well as other major Army organizations having a role in modernization. <4.2.4. How Long Will It Take to Fully Implement the Army's Modernization Strategy?> According to the Army's 2019 Modernization Strategy, the Army plans to build a "MDO ready force by 2035." In order for this goal to be achieved, the Army assumes that: The Army's budget will remain flat, resulting in reduced spending power over time. Demand for Army forces will remain relatively constant while it executes this strategy. Research and development will mature in time to make significant improvements in Army capabilities by 2035. Adversary modernization programs will stay on their currently estimated trajectories in terms of capability levels and timelines. It is not clear if "MDO ready" equates to a "fully modernized" Army or if a certain undefined level of modernization is sufficient for the Army to successfully execute MDO. Originally, Army officials were hoping to field the M-2 Bradley replacement the Optionally Manned Fighting Vehicle (OMFV) by 2026. They also planned to field one brigade's worth of OMFVs per year meaning that it would have taken until 2046 to field OMFVs to all Armored Brigade Combat Teams (ABCTs). On January 16, 2020, the Army decided to cancel the current OMFV solicitation and revise and re-solicit the OMFV requirements on a competitive basis at an unspecified time in the future. Given this cancellation, it may take longer than 2046 to field all OMFVs unless significant budgetary resources are applied to the program. With the Army's somewhat optimistic assumptions about the budget, demand for forces, mature research and development, and the pace of adversary modernization, as well as the scope and complexity of overall Army Modernization, some policymakers may raise questions about whether a full realization of Army modernization initiatives is possible by 2035. <4.2.5. What Kind of Force Structure Will Be Required to Support Modernization?> In order to support MDO, Army officials reportedly noted in March 2019 that the Army was preparing to make major force structure changes within the next five years. These force structure changes will also be needed to support Army Modernization as new weapons systems could likely require new units and might also mean that existing units are deactivated or converted to different kinds of units. Potential questions for policymakers include: What kinds of new units will be required as a result of Army Modernization? Will existing units be deactivated or converted to support Army Modernization? Will additional endstrength be required to support Army Modernization or will fewer soldiers be needed? Will new Military Operational Specialties (MOSs) be required to support Army Modernization? How will new units be apportioned between the Active and Reserve Components? Where will these new units be stationed in the United States and overseas? Will new training ranges or facilities be required to support Army Modernization? <4.3. Is the Army's Modernization Strategy Affordable?> Army officials have said they eliminated, reduced, or consolidated almost 200 legacy weapon systems catalogued in the Future Years Defense Program (FYDP) as part of an effort to shift more than $30 billion to programs related to the "Big Six" modernization priorities. The budget review process, known as "Night Court," was initiated by then-Army Secretary Mark Esper. Army officials have said additional reviews will yield lower levels of savings. They have also acknowledged uncertainty in budget assumptions, including total projected funding for the service and long-term costs for modernization priorities as they shift from research, development, test, and evaluation (RDT&E) to procurement activities. Army Lieutenant General James Pasquarette, Deputy Chief of Staff of the Army for Programs (G-8), has said: Our strategy right now assumes a topline that's fairly flat. I'm not sure that's a good assumption. So, when the budget does go down ... will we have the nerve to make the hard choices to protect future readiness? Often that's the first lever we pull we try and protect end-strength and current readiness at the cost of future readiness.... We don't really have a clear picture of what those bills are right now [for long-term costs of modernization priorities].... There are unrealized bills out there that we're going to have to figure out how to resource and so, right now, I think they're underestimated. Some policymakers and observers have raised questions about the affordability of the Army's modernization strategy. This section seeks to provide context to this question by detailing the Army's requested funding for programs related to its six modernization priorities for FY2020 and the accompanying FYDP, historical and projected funding for the service's RDT&E and procurement efforts in real terms (i.e., inflation-adjusted dollars), changes in the service's budget allocations over time, and planned funding for the service's major defense acquisition programs. <4.3.1. Selected Army Modernization Funding in the FY2020 Budget Request> According to information provided by the Army, the service requested $8.9 billion in RDT&E and procurement funding for programs related to its six modernization priorities in FY2020. This amount reflects an increase of $3.9 billion (78%) from the FY2019 enacted amount of $5 billion. See Table 1 for a breakdown of projected funding by priority. For FY2020, the Army requested a total of $38.7 billion for its acquisition accounts, including $12.4 billion for RDT&E and $26.3 billion for procurement. Notably, for FY2020, funding requested for programs related to the Army's six modernization priorities, $8.9 billion, accounted for less than a quarter (23%) of its overall acquisition budget request. Potential questions for policymakers include: How has the Army identified funding to pay for programs related to its six modernization priorities? What officials and organizations have been involved? What is the status of these reviews? How can the Army provide more transparency in identifying sources of funding from these reviews? Why does funding for programs related to the Army's six modernization priorities account for a relatively small share of its overall acquisition budget? Should the Army devote a larger share of its overall acquisition budget to its six modernization priorities? What would be some challenges in doing so? When does the Army expect to fully resource programs related to its modernization priorities? How much of the Army's overall acquisition budget should go toward modernization priorities, current acquisition programs, and legacy programs? Some programs related to the Army's six modernization priorities, such as Future Vertical Lift, saw a higher percentage increase in requested funding for FY2020 than others, such as Air and Missile Defense. Do the percentage increases reflect the level of priority the Army is assigning these individual programs or rising costs associated with new stages of development? The Army's FY2020 unfunded priorities list included $242.7 million for "modernization requirements" and $403.9 million for "lethality requirements," among funding for other requirements. Why was the service unable to fund these requirements in its regular budget request? <4.3.2. Selected Army Modernization Funding in the Future Years Defense Program (FYDP)> The service projected $57.3 billion in RDT&E and procurement funding for programs related to its six modernization priorities over the FYDP from FY2020 through FY2024. This amount, if authorized and appropriated by Congress, would reflect an increase of $33.1 billion (137%) from projections for the five-year period in the FY2019 budget request. See Table 2 for a breakdown of the projected cost by program. For the five-year period through FY2024, the Army projected a total of $187.5 billion for its acquisition accounts (in nominal dollars), including $58.7 billion for RDT&E and $128.8 billion for procurement. Notably, for the FY2020 FYDP, funding for programs related to the Army's six modernization priorities accounts for less than a third (31%) of its overall acquisition budget. In addition to the previous list, potential questions for policymakers include: How realistic are the Army's assumptions for funding programs related to its six modernization priorities, given uncertainty about their long-term costs and the projected decrease in real terms (i.e., inflation-adjusted dollars) in Army procurement and RTD&E funding over the Future Years Defense Program? Should the level of planned funding change for certain programs to reflect different priorities? What additional tradeoffs or divestments does the Army plan to make to its current acquisition programs or legacy weapon systems in order to fund programs related to its six modernization priorities? What programs may be cut? <4.3.3. Army RDT&E and Procurement Funding: A Historical Perspective55> Taken together and adjusted for inflation (in constant FY2020 dollars), the Army's acquisition accounts including RDT&E and procurement have experienced several buildup and drawdown cycles in past decades, with some of the biggest increases occurring during periods of conflict. See Figure 1 . For example, the service's acquisition budget spiked in FY1952 during the Korean War, again in FY1968 during the Vietnam War, and again in FY2008 during the wars in Afghanistan and Iraq. The FY2008 peak was driven in part by the service's procurement of Mine Resistant Ambush Protected (MRAP) vehicles and other programs intended to protect troops in combat zones from roadside bombs. In terms of a non-war peak, the Army received a combined total of $48.7 billion (in constant FY2020 dollars) for RDT&E and procurement in FY1985 during the Cold War an era in which the service's "Big Five" acquisition programs entered service, including the UH-60 Black Hawk utility helicopter (1979), M1 Abrams tank (1980), M2 Bradley fighting vehicle (1981), Patriot air defense system (1981), and AH-64 Apache attack helicopter (1986). The Army projects combined RDT&E and procurement funding will continue to decline in real dollars. The combined level of funding for these accounts is projected to decline from $38.7 billion in FY2020 to $34.3 billion in FY2024 (in constant FY2020 dollars), a decrease over the FYDP of $4.4 billion (11%). Even so, the FY2024 level would remain higher than the Army's historical average of $32.2 billion (in constant FY2020 dollars) for RDT&E and procurement. Potential questions for policymakers include: How may the projected decrease in RDT&E and procurement funding in constant FY2020 dollars over the Future Years Defense Program impact the Army's ability to execute its modernization strategy? If the Army's overall acquisition budget is projected to decrease (in real terms), and funding for programs related to its modernization strategy is projected to increase, what kinds of tradeoffs or divestments does the Army plan to make to its current acquisition programs or legacy weapon systems? How much, if any, of the increase in RDT&E and procurement funding in FY2018 went to programs related to the Army's six modernization priorities? To what extent will projected costs for programs related to the Army's six modernization priorities increase as they shift from RDT&E to procurement activities? <4.3.4. Changes in Army Budget Allocations> The share of funding that the Congress has allocated to Army appropriations accounts has changed over time. Because every dollar spent on military personnel, operation and maintenance, and military construction is a dollar that cannot be spent on RDT&E or procurement, Army budget allocation decisions may impact the service's ability to execute its modernization strategy. For example, the Army uses funds from its Operation and Maintenance (O&M) account to pay the salaries and benefits of most of its civilian employees, train soldiers, and purchase goods and services, from fuel and office supplies to health care and family support. (Today, the account also covers most of the service's costs for Overseas Contingency Operations, or OCO. ) In FY1985, during the Reagan-era buildup, O&M accounted for a smaller share of the Army budget (28%) than it does today (41%) and than it has historically (36%). In the same year, procurement accounted for a larger share of the Army budget (26%) than it does today (14%) and than it has historically (16%). See Figure 2 . Potential questions for policymakers include: What changes in spending on military personnel could impact the Army's ability to execute its modernization strategy, particularly if the service increases end-strength? What changes in spending on operations and maintenance could impact the Army's ability to execute its modernization strategy? What changes in spending on Overseas Contingency Operations (OCO) could impact the Army's ability to execute its modernization strategy? How is the Army reviewing potential ways to control military personnel or operations and maintenance costs to be able to spend more on RDT&E and procurement in support of programs related to its modernization strategy? <4.3.5. Planned Funding for Current Army Major Defense Acquisition Programs (MDAPs)> Including funding planned for FY2020 and FY2021 as part of the FY2020 President's budget request, the Army has an outstanding balance of $120.6 billion (in then-year dollars) for current major defense acquisition programs. Programs with balances greater than $10 billion include the following: CH-47F . The CH-47F Chinook Block II modernization program is intended to increase the carrying capacity of the cargo helicopter in part by upgrading its rotor blades and flight control and drive train components (estimated balance: $25.9 billion); Joint Light Tactical Vehicle (JLTV) . 59 This program is intended to replace a portion of the Humvee fleet with a new light-duty vehicle (estimated balance: $20.8 billion, $3 billion of which is projected to come from services other than the Army); and Armored Multi-Purpose Vehicle (AMPV). 60 This program is intended to replace the M113 armored personnel carrier family of vehicles with a new armored vehicle (estimated balance: $11.7 billion). For the cumulative funding status of each of the Army's current major defense acquisition programs as of the FY2020 President's budget re quest, including prior-year amounts and outstanding balances, see Figure 3 . For projected funding for each of the Army's current major defense acquisition programs as of the FY2020 President's budget request, see Figure 4 . As part of the FY2020 President's budget request, the Army proposed reducing funding for some current modernization programs, including the Joint Light Tactical Vehicle (JLTV) and the Armored Multi-Purpose Vehicle (AMPV), in part to pay for modernization priorities. As previously discussed, DOD has not yet designated many of the programs related to the Army's six modernization priorities as major defense acquisition programs (MDAPs). However, DOD appears to have designated as pre-major defense acquisition programs (pre-MDAPs) some programs related to the Army's six modernization priorities, such as Future Vertical Lift. When possible, the Army plans to begin equipping units with technology on a limited basis in coming years in advance of fully equipping units to take advantage of new technologies as soon as practicable. See Table 3 . Potential questions for policymakers include: How do programs included in the Army's six modernization priorities relate to current major defense acquisition programs? Should the Army fund certain current major defense acquisition programs, such as Integrated Air and Missile Defense, at higher levels to better conform to programs related to its six modernization priorities? How may resourcing requirements for programs related to the Army's six modernization priorities impact funding for its current major defense acquisition programs? Given the rapidly changing and unpredictable security challenges facing the United States and the scope of the Army's modernization program, congressional oversight could be challenged in the future as the Army attempts to develop and field an array technologies and systems. A potential oversight framework which constantly evaluates the relevance, the feasibility, and affordability of the Army's modernization efforts could benefit both congressional oversight and related budgetary activities.

In October 2019, the Army published a new modernization strategy aimed at transforming the Army in order to conduct Multi-Domain Operations (MDO) which are intended to address the current and future actions of near-peer competitors Russia and China. The Army's Modernization Strategy is part of a hierarchy of strategies designed, among other things, to inform the Service's respective modernization plans. These strategies include the National Security Strategy (NSS), the National Defense Strategy (NDS), the National Military Strategy (NMS), and the Army Strategy. The Army's Modernization Strategy establishes six material modernization priorities: Long Range Precision Fires. Next Generation of Combat Vehicles. Future Vertical Lift. Army Network. Air and Missile Defense. Soldier Lethality. Because the Army's Modernization Strategy covers the years from 2020 to 2035, the possibility exists for a variety of Army modernization hearings spanning a number of different Congresses. In this regard a common oversight architecture could potentially provide both an element of continuity and a means by which Congress might evaluate the progress of the Army's modernization efforts. Such a potential architecture might examine: Is the Army's Modernization Strategy appropriate given the current and projected national security environment? Is the Army's Modernization Strategy achievable given a number of related concerns? Is the Army's Modernization Strategy affordable given current and predicted future resource considerations? For FY2020, funding requested for programs related to the Army's six modernization priorities, $8.9 billion, accounted for less than a quarter (23%) of its overall acquisition budget. The service projected $57.3 billion in research, development, test, and evaluation (RDT&E) and procurement funding for programs related to its six modernization priorities over the Future Years Defense Program (FYDP) from FY2020 through FY2024. This amount, if authorized and appropriated by Congress, would reflect an increase of $33.1 billion from spending projections for the five-year period in the FY2019 budget request. Meanwhile, the Army projected a total of $187.5 billion for its acquisition accounts (in nominal dollars) over this period, including $128.8 billion for procurement and $58.7 billion for RDT&E. Thus, for the FY2020 FYDP, funding for programs related to the Army's six modernization priorities accounts for less than a third (31%) of its overall acquisition budget. This report provides a number of possible questions and observations related to a potential Army modernization oversight architecture which could serve to provide both an element of continuity for hearings and a standard by which Congress might evaluate the efficacy of Army Modernization.

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<1. Introduction> On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law ( P.L. 116-136 ). The CARES Act includes $3.5 billion in supplemental appropriations for the Child Care and Development Block Grant (CCDBG). This report provides an overview of the CCDBG provisions in the CARES Act. Among other things, these provisions address allowable uses and flexibilities of the supplemental funds. The report also includes allocations for the additional $3.5 billion in CCDBG appropriations. The CCDBG Act (42 U.S.C. 9858 et seq.) is the main federal law supporting child care programs for low-income working families. The CCDBG is administered by the U.S. Department of Health and Human Services (HHS). HHS allocates CCDBG funds to states, territories, and tribes according to a statutory formula. In addition, certain funds may be reserved for other activities, such as technical assistance and research. State, territory, and tribal lead agencies submit CCDBG plans to HHS every three years describing how their child care programs will operate. CCDBG funds are used to subsidize the cost of child care for eligible children of low-income working parents. Funds are also used to support activities to improve the quality of child care and for certain other costs. <2. CCDBG Provisions in the CARES Act> The CARES Act appropriates $3.5 billion in FY2020 emergency supplemental funds to the CCDBG. The funds are to be used to "prevent, prepare for, and respond to coronavirus." The CARES Act funds are provided in addition to FY2020 annual appropriations of $5.8 billion (see P.L. 116-94 ). The additional $3.5 billion represents a 60% increase in total appropriations to the CCDBG in FY2020. The additional funds are to remain available for obligation by HHS through September 30, 2021 (i.e., the end of FY2021). The CARES Act includes a number of provisions that clarify allowable uses and, in some cases, waive certain underlying requirements of the CCDBG Act. Below is a brief discussion of key provisions. <2.1. Continued Assistance to Child Care Providers> Under the CCDBG Act, lead agencies subsidize the cost of child care for eligible children. Lead agencies commonly provide subsidy payments directly to child care providers. In some cases, lead agencies may provide additional CCDBG funds to eligible providers for other purposes, such as supporting professional development or helping build the supply of quality child care. The CARES Act specifies that CCDBG funds appropriated in the act may be used to provide continued payments and assistance to child care providers in cases of decreased enrollment or closures related to coronavirus, and to ensure that providers are able to remain open or reopen as appropriate and applicable. The CCDBG Act generally encourages (but does not require) lead agencies to make payments to child care providers based on enrollment rather than attendance. Specifically, the law states that lead agencies should "to the extent practicable" delink provider reimbursements from an eligible child's occasional absences due to holidays or unforeseen circumstances such as illness. This provision of the law is intended to support the fixed costs incurred by providers. <2.2. Eligible Child Care Providers> The CARES Act specifies that CCDBG funds appropriated in the act shall be available to eligible child care providers under the CCDBG Act for the purposes of cleaning and sanitation, and other activities necessary to maintain or resume the operation of programs. The act clarifies that this provision applies to eligible child care providers even if those providers were not receiving CCDBG assistance prior to the public health emergency resulting from coronavirus. Under the CCDBG Act, eligible child care providers generally must be licensed, regulated, or registered by the state (though states may exempt certain providers from this requirement); and meet certain minimum health and safety standards. An exception to these requirements is made in cases of child care providers caring only for relatives. However, such providers must comply with requirements applicable to relative caregivers. <2.3. Continued Pay for Child Care Staff> The CARES Act encourages states, territories, and tribes to place conditions on payments to child care providers aimed at ensuring providers use a portion of the funds to continue to pay staff salaries and wages. Payment of salaries and wages is not explicitly addressed in the CCDBG Act, though presumably it is typical for some share of CCDBG provider payments to support these expenses. According to national estimates from the Bureau of Labor Statistics (BLS), the mean hourly wage for child care workers was $12.27 in May 2019. BLS estimated the mean annual wage for child care workers at $25,510 nationally. <2.4. Support for Essential Workers> The CARES Act specifies that states, territories, and tribes are authorized to use CCDBG funds appropriated in the act to provide child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to coronavirus by public officials. Further, the act specifies that such workers may receive CCDBG assistance without regard to the typical income eligibility requirements under the CCDBG Act. The CCDBG Act generally stipulates that eligible children must be under age 13 (children may be older in limited circumstances ); reside with a parent who is working or attending job training (unless the child is receiving or needs to receive protective services); have family income no greater than 85% of state median income (SMI), or lower depending on state policy; and have no more than $1 million in family assets. While the CARES Act waives income requirements for essential workers as noted above, it does not waive other eligibility requirements (e.g., those related to the child's age or the parent's work status). <2.5. State Plan Amendments> The CARES Act requires HHS to remind states that CCDBG state plans do not need to be amended prior to using "existing authorities in the CCDBG Act for the purposes provided" in the CARES Act. Typically, if a state intends to make a substantial change to policies laid out in its CCDBG plan (e.g., a change in eligibility rules, provider payment rates, family copayments), the state would submit a state plan amendment to HHS for approval. Under regulations, a plan amendment must be submitted within 60 days of the effective date of the requirement (i.e., the state may execute the policy change before submitting the amendment). HHS has 90 days to approve or deny a plan amendment. In the current circumstances, there are several reasons states might want to amend their plans. For instance, the CARES Act authorizes HHS to provide child care assistance to essential workers regardless of income. This is a substantial change, as federal law and state policies generally condition eligibility on family income. <2.6. Spending Flexibilities and Other Technical Provisions> The CARES Act effectively waives or adjusts certain requirements related to the obligation and expenditure of the CCDBG funds appropriated in the act. <2.6.1. Quality Spending> The CCDBG Act generally requires lead agencies to spend at least 9% of their FY2020 allotments on quality activities, plus an additional 3% on activities to improve the quality of care for infants and toddlers. All told, these quality set-asides are intended to account for at least 12% of spending from FY2020 allotments. The CARES Act effectively waives these quality spending minimums for funds provided in the act, offering lead agencies greater flexibility in how funds may be spent. <2.6.2. Direct Spending> The CCDBG Act includes requirements related to minimum spending on direct services. (The term direct services generally refers to child care assistance provided to families and is often, but not always, provided in the form of a voucher.) For instance, after lead agencies set aside funds to meet minimum quality spending requirements and for spending on administrative costs (capped at 5% for states and territories ), they must use at least 70% of remaining CCDBG funds for direct services. The CARES Act effectively waives direct spending requirements in the CCDBG Act, again offering lead agencies greater flexibility in how funds may be spent. <2.6.3. Supplement, Not Supplant> The CARES Act specifies that funds provided via the CCDBG are to be used to supplement, not supplant , state, territory, and tribal general revenue funding for child care assistance for low-income families (i.e., the funds provided under the act should not be used to replace existing state, territory, or tribal spending on such activities). CCDBG provisions in annual appropriations acts typically include similar provisions. Past guidance from HHS suggests that this requirement would likely be considered satisfied if a state, territory, or tribe does not make any administrative or legislative changes to reduce general revenue spending after the enactment of a new CCDBG appropriation. An action occurring after this date could potentially be considered a violation of the non-supplantation requirement, unless the lead agency demonstrates that the reduction was not due to increased federal CCDBG funds. <2.6.4. Use of Funds for Prior Obligations> The CARES Act specifies that the CCDBG funds it appropriates may be made available to restore amounts, either directly or through reimbursement, for obligations incurred prior to enactment. These amounts may only be restored with CARES Act funds if they were used to prevent, prepare for, and respond to coronavirus. <2.6.5. Obligation Deadline for Lead Agencies (or Other Recipients)> The CARES Act states that payments made by HHS may be obligated by the state, territory, tribe, or other recipient in the current fiscal year or the succeeding two fiscal years. Effectively, this means that lead agencies have through FY2022 to obligate funds they receive under the CARES Act. The CCDBG Act typically gives states or other recipients two fiscal years, rather than three, to obligate funds. <3. Allocation of CCDBG Funds> CCDBG funds are generally allocated according to a formula set in statute. Under the CCDBG Act formula, HHS is to reserve up to 0.5% for territories and not less than 2% for tribes and tribal organizations. The formula also includes set-asides for technical assistance (up to 0.5%); research, demonstrations, and evaluation (0.5%); and a national toll-free hotline and website (up to $1.5 million). After all reservations have been made, the remaining funds go to states. Funds are allocated to states according to a formula based on their share of children under age five, their share of children receiving free- or reduced-price lunches, and state per capita income. Table 1 presents FY2020 CCDBG allocations released by HHS. The table includes allocations from FY2020 annual appropriations ( P.L. 116-94 ), as well as the CARES Act ( P.L. 116-136 ).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law ( P.L. 116-136 ). The CARES Act includes $3.5 billion in supplemental appropriations for the Child Care and Development Block Grant (CCDBG). These funds are to be used to "prevent, prepare for, and respond to coronavirus." The CCDBG Act (42 U.S.C. §§9858 et seq.) is the main federal law supporting child care programs for low-income working families. The CCDBG is administered by the U.S. Department of Health and Human Services (HHS). HHS allocates CCDBG funds to states, territories, and tribes according to a statutory formula. State, territory, and tribal lead agencies submit CCDBG plans to HHS every three years describing how their child care programs will operate. CCDBG funds are used to subsidize the cost of child care for eligible children of low-income working parents. Funds are also used to support activities to improve the quality of child care and for certain other activities. The $3.5 billion in supplemental CCDBG funds are provided in addition to FY2020 annual appropriations of $5.8 billion ( P.L. 116-94 ). The additional $3.5 billion represents a 60% increase in total appropriations to the CCDBG in FY2020. The CARES Act funds may be used under existing CCDBG Act authorities. In addition, the CARES Act includes a number of provisions that clarify allowable uses and, in some cases, waive certain underlying requirements of the CCDBG Act. For instance, the CARES Act specifies that the funds may be used to provide continued payments and assistance to child care providers in cases of decreased enrollment or closures related to coronavirus, and to ensure they are able to remain open or reopen; may be used to continue to pay staff salaries and wages of child care providers (CCDBG lead agencies are encouraged to place conditions on payments to child care providers aimed at ensuring that a portion of the funds they receive go toward costs of salaries and wages); may be used to provide child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to the coronavirus, without regard to typical CCDBG income eligibility requirements (federal law generally limits eligibility to those whose family income does not exceed 85% of state median income, though most states set income limits below this federal threshold); shall be available to eligible child care providers under the CCDBG Act (even if they were not receiving CCDBG funds previously) for the purposes of cleaning and sanitation, and other activities necessary to maintain or resume program operation; are exempt from the minimum spending requirements for quality activities and direct services; may be used for allowable obligations incurred prior to enactment of the CARES Act; may be used for purposes provided in the CARES Act before the lead agency submits any applicable CCDBG plan amendments to HHS (under regulations, lead agencies generally must submit state plan amendments within 60 days of policy change); shall be used to supplement, not supplant, state, territory, and tribal general revenue funds for child care assistance for low-income families; and are to remain available for obligation by HHS through the end of FY2021 and may remain available for obligation by CCDBG le ad a gencies through the end of FY2022.

crs_R45787

crs_R45787_0

<1. Introduction> In January 2019, the House agreed to H.Res. 6 , a resolution adopting the rules of the House of Representatives for the 116 th Congress. This report summarizes amendments to House rules affecting floor proceedings in the 116 th Congress (2019-2020), as provided for in H.Res. 6 . In the 116 th Congress, rules changes affected the consideration of legislation on the floor, voting in the House and the Committee of the Whole, and procedures related to Delegates and the Resident Commissioner of Puerto Rico. H.Res. 6 also clarified that religious headdress may be worn in the House chamber at any time, and it included a separate order specifying that, during the 116 th Congress, the House may not table motions to discharge certain measures related to the War Powers Resolution. <2. Consideration of Legislation> <2.1. "Question of the Privileges of the House" Resolution Causing a Vacancy in the Office of the Speaker> H.Res. 6 amended Rule IX to establish that a resolution declaring a vacancy in the Office of the Speaker will not qualify as a question of the privileges of the House unless it is offered by direction of a party caucus or party conference. Prior to this rules change, such a resolution offered by any Member would have qualified as a question of privilege. Rule IX concerns resolutions "raising a question of the privileges of the House." Resolutions raising a question of the privileges of the House are those that affect the "rights of the House collectively, its safety, dignity, and the integrity of proceedings." If they are offered from the floor by the majority leader or the minority leader, they have precedence over all other questions except the motion to adjourn. When offered by other Members, they have the same precedence but only at a time scheduled by the Speaker within two legislative days after the proponent announces an intention to offer the resolution. <2.2. Consensus Calendar> The Consensus Calendar is an addition to House rules. It is a list of certain measures that have not been reported by their committees of primary jurisdiction yet have at least 290 cosponsors. The new clause 7 of Rule XV states that, except at the start and the end of a Congress, the House must consider a measure on the Consensus Calendar designated by the Speaker each week should one or more be listed and the House is in session. The Consensus Calendar might provide an opportunity to vote on unreported, broadly supported legislation that would not otherwise be chosen by the Speaker for consideration under suspension of the rules or made in order by a resolution from the Rules Committee. In order to be placed on the Consensus Calendar, a non-reported measure must first achieve the 290-cosponsor threshold (two-thirds of the House's full membership). At that time, the measure's sponsor may present a motion to the Clerk to place the measure on the calendar. This motion is submitted in writing directly to the Clerk, as opposed to being offered on the floor. The written motion is then retained in the Clerk's custody and printed in the Congre ssional Record . The rule directs the Clerk to maintain a list of Consensus Calendar motions and make the list publicly available on the Clerk's website. Following the presentation of the motion, a measure will be placed on the Consensus Calendar once it has maintained 290 cosponsors for a "cumulative period of 25 legislative days," a period of time that is usually equal to 25 calendar days in which the House is in session. (If the primary committee reports the measure during this period, the motion to place the measure on the Consensus Calendar will be considered withdrawn. ) The measure will remain listed on the calendar even if it falls below the 290-cosponsor threshold until it is considered by the House or is reported by the primary committee of jurisdiction. Thus, a committee may report a bill to prevent it from being placed on the Consensus Calendar or to remove it from the Consensus Calendar. The new rule did not create any special procedures for the floor consideration of a measure on the Consensus Calendar. According to the Section-by-Section summary of the rules changes prepared by the Rules Committee, Consensus Calendar measures may be considered "in any manner otherwise available under the rules," which would include suspension of the rules or under the terms of a special rule reported by the Committee on Rules. The Section-by-Section summary also explains that the Speaker will meet the requirement of the rule that a measure on the Consensus Calendar be designated for consideration by making an announcement immediately preceding the consideration of a measure on the floor. <2.3. Motions to Discharge> H.Res. 6 amended clause 2 of Rule XV to require the Speaker to schedule consideration of a motion to discharge that has met the signature and layover requirements of Rule XV within two legislative days after a discharge proponent announces his or her intention to offer the motion. In previous Congresses, motions to discharge, which had met the Rule XV requirements, could be offered on the floor on the second and fourth Mondays of the month if the House was in session on those days. The "discharge rule" enables an unreported measure that has not been scheduled by leadership for floor consideration to be raised on the floor, provided that a majority of the House membership has signed a discharge petition. Any Member may submit to the Clerk a motion to discharge a committee from the consideration of a public measure that the committee has had before it for 30 legislative days or more. A Member may also submit a motion to discharge the Committee on Rules from the consideration of a special order of business (special rule) it has had before it for seven legislative days or more if the measure the rule makes in order has been in committee for at least 30 legislative days or has been reported. Once a majority of the House membership (218 Members) signs the associated discharge petition, the motion is placed on the Calendar of Motions to Discharge Committees. After the motion has been on the calendar for at least seven legislative days, a Member who has signed the discharge petition may announce to the House an intention to offer the motion. As amended, clause 2(c)(1) of Rule XVI now requires the Speaker to schedule motions to discharge the day of the announcement or on one of the next two legislative days. Prior to the change, even after meeting all the other requirements, motions to discharge could be made only on the second and fourth Mondays of a month. If the House was not in session on those days, considerable time could pass between when the other requirements of the rule were met and when proponents could force consideration of their motion. <2.4. Private Calendar> The Private Calendar lists private legislation (measures providing benefits to one or more specified individuals or entities) that has been reported out of committee. House Rule XV provides a special procedure for the consideration of private legislation on the calendar, but in recent Congresses, few measures have been called from the Private Calendar. H.Res. 6 . amended clause 5 of Rule XV to allow the Speaker to direct the Clerk to call a private bill on any day the House is in session if the measure has been on the Private Calendar for seven days. Prior to the 116 th Congress, the call of the Private Calendar was limited to the first and third Tuesdays of the month. If measures are listed on the calendar, the Speaker or designee is to direct the Clerk to call them on the first Tuesday of the month in the order they are listed. Under the amended rule, the Speaker may also direct the Clerk to call a specific measure on other days after the requisite seven-day period has passed. In the latter case, the Speaker must announce to the House an intention to call a private measure. The call, if it is to occur, must occur on the second legislative day after the legislative day the Speaker makes the announcement. Official Objectors are appointed by each party to examine measures on the Private Calendar. If, at the time a bill is called, two Objectors or two other Members object to the measure, the measure is recommitted to the committee that reported it. According to the Rules Committee's summary of H.Res. 6 , the specific requirement for two days' notice ensures that the "Official Objectors are able to be on the Floor at the appropriate day and time." <2.5. 72-Hour Availability> House rules generally afford a time period for Members to review legislative text before considering measures in the chamber. H.Res. 6 . amended Rules XXI, XXII, and XXII to establish, for certain legislative text and committee reports, a 72-hour review period, as opposed to the previous review period, which spanned until the "third calendar day" on which the measures' text or committee reports had been available. The rules amendments actually made two changes: they designated the 72-hour period and, for reported measures, enabled the layover period to begin when the "proposed text of each report" is made available, in contrast to when the official committee report is available. Prior to the changes to the rules, legislative text could meet the three-day layover requirement even if it was not always available for a 72-hour period. For instance, if an unreported bill's text was posted at 9:00 p.m. on a Monday, the bill might have been considered on Wednesday morning, less than 40 hours later. The new 72-hour availability requirement, however, provides an exact time period for layover review before measures may be considered in the House. The requirement applies to proposed text of committee reports and the text of unreported bills and joint resolutions, conference reports, and amendments reported in disagreement from conference committees. The review period begins at the time the text is posted electronically or otherwise made available. Thus, for committee reports, the clock can start with the posting of the report's proposed content, not when the committee has filed and delivered the report to the Clerk, which may occur at a later time. As stated in clause 4 of Rule XIII, the availability requirement excludes supplemental, minority, additional, or dissenting views that may be inserted in a committee report at the request of a committee member. Members are guaranteed two calendar days to submit these optional sections if notice of intent to file supplemental views was given at the time the committee approved the measure or matter. <3. Voting> <3.1. Postponability of Certain Votes (House)> H.Res. 6 amended clause 8 of Rule XX to enable the Speaker to postpone a vote on any amendment considered in the House rather than restricting this action to amendments reported from the Committee of the Whole. Votes on the previous question to end debate on any amendment can now be postponed as well. Prior to the rules change, the rule referred only to amendments reported from the Committee of the Whole. Since 1979, House rules have allowed the Speaker to postpone and cluster votes by electronic device. In addition to amendments, several types of measures including bills, resolutions, and conference reports may be subject to a postponed vote. The Speaker's ability to postpone, cluster, and announce upcoming votes provides some degree of certainty to the voting schedule. <3.2. Discretion for Five-Minute Votes (House)> Under clause 2 of Rule XX, the time for electronic voting is no less than 15 minutes in the House. However, clauses 8 and 9 provide the Speaker with the discretion to reduce to five minutes the voting period in the House if the vote occurs following another electronic vote or following a report from the Committee of the Whole. In previous Congresses, clause 9 stated that the reduced-time option could be exercised if "notice" was given of possible five-minute voting. According to the amended clause 9(a), the Speaker may reduce the voting period if "in the discretion of the Speaker Members would be afforded an adequate opportunity to vote," while clause 9(b) states, "To the maximum extent practicable, notice of possible five-minute voting for a given series of votes shall be issued prior to the first electronic vote in the series." <3.3. Discretion for Two-Minute Votes (Committee of the Whole)> The 116 th rules package amended clause 6 of Rule XVIII to provide the chair of the Committee of the Whole with more discretion to reduce the time for electronic voting. Under clause 2 of Rule XX, the time for electronic voting is no less than 15 minutes in the Committee of the Whole. However, clause 6 of Rule XVIII allows the chair to reduce the voting period to not less than two minutes if the vote occurs in a series. In previous Congresses, the two-minute vote on any proposed question was to occur immediately following the initial 15-minute vote or after the Committee of the Whole resumes. There could be no intervening business or debate. H.Res. 6 removed references to intervening business or debate. Instead, clause 6 now authorizes a two-minute voting period "if in the discretion of the chair Members, Delegates, and the Resident Commissioner would be afforded an adequate opportunity to vote." <4. Delegates and the Resident Commissioner> <4.1. Admittance to the Hall of the House> H.Res. 6 expanded the number of position categories allowed entrance to the Chamber when the House is in session. Under the amended clause 2 of Rule IV, the list of individuals eligible for floor privileges now explicitly includes Delegates-elect, the Resident Commissioner-elect, and contestants in elections for Delegate and the Resident Commissioner "during the pendency of their cases on the floor." Clause 2 also states that, in addition to governors of the states, governors of the territories shall "be admitted to the Hall of the House or rooms leading thereto." <4.2. Notice of Convening> During any recess or adjournment of not more than three days, the Speaker, in consultation with the minority leader, may change the time or the location of the next meeting of Congress if circumstances warrant it. The rule granting the Speaker this authority contains notification requirements. H.Res. 6 added, "Delegates and the Resident Commissioner" to the requirements in clause 12 of Rule 1 that "Members" be notified of a change in the time of the next meeting. <4.3. Committee of the Whole> <4.3.1. Voting Powers> H.Res. 6 reinstated from previous Congresses the voting rights of the Delegates and the Resident Commissioner in the Committee of the Whole. It also re-instated the rules provision that prevents these votes from influencing the final outcome of questions initially decided in the committee. In the 116 th Congress, recorded votes in the Committee of the Whole, which are decided within the margin of the votes cast by the Delegates and the Resident Commissioner, are to be re-conducted in the House, a forum in which Delegates and the Resident Commissioner do not have voting rights. As amended, clause 3(a) of Rule III states that in the Committee of the Whole, the Delegates and the Resident Commissioner "shall possess the same powers and privileges as Members of the House." The term powers and privileges includes the ability to vote. In the 103 rd Congress (1993-1994), Delegates and the Resident Commissioner first received the power to vote in the Committee of the Whole. Since then, their voting status has changed with each change in the majority party. Accordingly, they voted during the 103 rd , 110 th (2007-2008), and 111 th (2009-2010) Congresses, when the Democrats held the majority in the House, but not the 104 th -109 th Congresses (1995-2006) and the 112 th -115 th Congresses (2011-2018), when the Republicans held the majority. During the Congresses in which the Delegates and the Resident Commissioner voted in the Committee of the Whole, the House adopted the associated marginal vote provision under what is now clause 6 of Rule XVIII. That is, if a question is decided in the Committee of the Whole within the margin of votes cast by the Delegates and the Resident Committee, the committee shall rise. The Speaker shall then put the question to the House. After the House votes, the Committee of the Whole shall resume its sitting. <4.3.2. Counting for Quorum and Other Procedures> The 116 th Congress rules package enabled Delegates and the Resident Commissioner to be counted when ascertaining the presence of a quorum, as well as toward the requisite number to request a recorded vote, in the Committee of the Whole. In addition, the chair was to consider the Delegates' and Resident Commissioner's opportunity to vote before reducing the minimum time for electronic voting. H.Res. 6 amended clause 6 of Rule XVIII to add the phrase Delegates and the Resident Commissioner after the word Members in three places. Consequently, a quorum in the committee became 100 Members, Delegates, and the Resident Commissioner. A request for a recorded vote needs the support of at least 25 Members, Delegates, and the Resident Commissioner. And the chair may reduce the time to vote on any postponed question "if in the discretion of the Chair Members, Delegates, and the Resident Commissioner would be afforded an adequate opportunity to vote." <5. Religious Headdress> H.Res. 6 amended clause 5 of Rule XVII to clarify that Members may wear religious headdress in the House chamber. The amendment added the phrase non-religious headdress to clause 5 in order to specify that the hat prohibition did not include religious headwear. Clause 5 now states, "During the session of the House, a Member, Delegate, or Resident Commissioner may not wear non-religious headdress or a hat." <6. War Powers Resolution> The 116 th Congress rules package included a section on "separate orders," which are provisions that affect House procedures but are not codified in the standing rules of the House. These separate orders have the same force and effect as House rules. Under one such separate order, H.Res. 6 clarifies that the House may not table a motion to discharge a measure introduced pursuant to Section 6 or Section 7 of the War Powers Resolution ( P.L. 93-148 ). The War Powers Resolution is an act that governs House consideration of joint resolutions, bills, and concurrent resolutions that are introduced after the U.S. Armed Forces engages "in hostilities" without a prior declaration of war. Measures introduced in compliance with the resolution are referred to the House Foreign Affairs Committee. The committee is to report such legislation within a time frame delineated in the resolution. The War Powers Resolution does not provide an automatic discharge process if the committee does not report. Should the measure not be reported, a Member may offer a motion to discharge the committee from further consideration in order to allow it to reach the floor. According to the Rules Committee summary for H.Res. 6 , previous House action on similar procedures "made it unclear" if a Member could then offer a motion to table the motion to discharge. The separate order is intended "to provide certainty for all Members, Delegates, and the Resident Commissioner on this procedure."

As agreed to in the House, H.Res. 6 , a resolution adopting the rules of the House of Representatives, provided amendments to the rules, as well as separate orders, that affect floor procedure in the 116 th Congress (2019-2010). These amendments changed procedures in the full House and in the Committee of the Whole. The rules changes altered when a resolution that would cause a vacancy in the Office of Speaker would qualify as a question of privilege. Under a new provision to clause 2 of Rule IX, resolutions declaring a vacancy of the chair are not privileged unless they are offered by direction of a party caucus or conference. H.Re s. 6 established a Consensus Calendar for the consideration of certain broadly supported measures that have not been reported by their committees of primary jurisdiction. One rules change allows the Speaker to schedule consideration of legislation that has been on the Private Calendar for seven days. Another change requires the Speaker to schedule the consideration of a motion to discharge that has garnered the necessary 218 signatures to be placed on the Discharge Calendar (and has been on that calendar for at least seven legislative days). Prior to the rules change, measures on the Private Calendar and motions on the Discharge Calendar were to be considered on specified days of the month. The 116 th rules package mandates that certain legislative texts must be available to the public for 72 hours before legislation can be raised on the House floor. The earlier rules provided a three-day layover, not including weekends and holidays, which could provide a review period of fewer or more than 72 hours. Rules changes allow the Speaker to postpone votes on amendment votes that occur in the House proper and no longer require a notice that a voting period on the amendment will be reduced to five minutes. In the Committee of the Whole, the chair is afforded greater flexibility to reduce voting periods to two minutes on record votes. Several rules changes concerned the five Delegates and the Resident Commissioner of Puerto Rico. Most significantly, H.Res. 6 enables these individuals to vote in the Committee of the Whole. The 116 th rules reinstated the policy from previous Congresses that allowed for voting in the Committee of the Whole but also mandated a revote in the House proper if the initial vote was decided within the margin of votes cast by the Delegates and the Resident Commissioner. The 116 th rules package clarified that the provision in Rule XVII that bans hats in the House chamber allows Members to wear "religious headdress." In the 116 th Congress, Members can wear religious head coverings in the chamber at any time. Finally, H.Res. 6 included a separate order governing action in the 116 th Congress that clarified procedures concerning measures introduced pursuant to the War Powers Resolution. The separate order stated that motions to discharge such measures from committee would not be subject to a motion to table.

crs_R45975

crs_R45975_0

<1. Introduction> Beginning with the campaign to eradicate smallpox in the 1960s, the United States has been interested in the eradication of vaccine-preventable diseases (VPDs) in children worldwide, as well as vaccine research and development. The success of the smallpox eradication campaign led to the establishment of the World Health Organization's Expanded Programme on Immunization in 1974. Since then, global vaccination campaigns have been broadened and garnered near universal international support. Today, the U.S. government is a leading donor to global vaccination campaigns ( Figure 3 ). In FY2019, Congress appropriated $290 million in foreign aid for the Global Alliance for Vaccines and Immunization (GAVI, now called GAVI, the Vaccine Alliance) and $226 million for Department of Health and Human Services (HHS) to support child vaccine campaigns abroad. The authorization, appropriation, and oversight of U.S. funding for global child vaccination is thus an ongoing area of concern for many in Congress, as is the extent of donor coordination and burden-sharing for such efforts. Additional potential issues include the extent to which global child vaccination promotes U.S. foreign policy, development, and domestic health security (i.e., pandemic preparedness) goals. Donor-backed child vaccination campaigns have reduced mortality in poor countries, though occasionally they have faced setbacks. In the early 1990s, U.S. foreign assistance for large-scale vaccination campaigns led by the World Health Organization (WHO) and the United Nations Children's Fund (UNICEF), and with significant U.S. funding and technical support, contributed to an approximately 80% immunization rate for three doses of the diphtheria, tetanus, and pertussis vaccine (DTP3). Progress, as measured by vaccination rates, stalled on certain vaccines notably the diphtheria, tetanus, pertussis, and measles vaccines in the late-1990s for a variety of reasons, including management of vaccine stocks, effective vaccine delivery, and cost of vaccinations. In 2000, a public-private partnership, the Global Alliance for Vaccines and Immunization (GAVI) was launched to address both declining global momentum for child immunization campaigns and declining funding for these programs. Since its inception, GAVI has supported the immunization of 700 million children. As a founding member of GAVI, the United States holds a rotating seat on GAVI's board and provides it with funding (see " U.S. Role and Funding "). Vaccinations are considered one of the most cost-effective ways to prevent infectious disease and associated morbidity and mortality. WHO recommends that all children receive 10 vaccines ( Table 1 ). Receiving the recommended childhood vaccinations can protect the recipient from illness and death associated with VPDs, and can reduce infectious disease spread. According to UNICEF, these immunizations save around 3 million lives per year. Globally, coverage of recommended childhood vaccines vary, with VPDs causing high levels of morbidity (illness) and mortality (death), primarily in certain low- and middle-income countries that have had limited success in achieving universal coverage. Recently, some high-income countries, for example France and the United States, have seen exponential increases in cases of VPDs, due primarily to vaccine hesitancy. <2. Global Vaccine Coverage> According to GAVI, from 2000 through 2018, more than 760 million children worldwide were immunized against VPDs, including 66 million children in 2018. Approximately 100 million children are immunized each year. At the end of 2018, 20 million infants and children worldwide had not received the full schedule of recommended vaccines. According to GAVI, full vaccination coverage could prevent one in seven deaths in under-5 children. Over 1.5 million children die every year from VPDs. Nearly 60% of these children live in 10 countries: Angola, Brazil, DRC, Ethiopia, India, Indonesia, Nigeria, Pakistan, the Philippines, and Vietnam. From 1990 to 2017, overall child deaths fell from 12.7 million to 5.8 million, largely due to gains made by global immunization campaigns and expanded national immunization programs. For example, from 2000 to 2017, scaled-up measles vaccination coverage averted an estimated 15.6 million deaths from the disease. Global coverage for several recommended vaccines has continued to climb over the past decade (see Figure 1 ); however, progress in expanding the number of children vaccinated with DTP3 (a three-dose diphtheria, tetanus and pertussis vaccine) has stagnated in recent years, though its coverage remains higher than coverage for other required vaccinations (see Figure 2 ). GAVI reports recent stagnation in coverage is due to "acute problems that a small number of previously high performing countries have faced." Diphtheria, tetanus and pertussis are particularly fatal to neonates, new mothers, and pregnant women. Maternal and neonatal tetanus (MNTE) has been almost eliminated globally, and since 2000 there has been an 85% reduction in newborn deaths from tetanus. As of March 2019, MNTE remains present in 14 countries. In 2018, 86% of children under the age of one received all three doses of the DTP3 vaccine. As global uptake of childhood vaccines improves, an increasing proportion of child deaths are concentrated in sub-Saharan Africa and Southern Asia: four out of every five under-5 child deaths occur in these regions. Figure 2 displays geographical immunization coverage for three doses of the DTP3 vaccine. DTP3 immunization coverage is used as a proxy indicator to estimate the proportion of children vaccinated within their first year of life. <2.1. Global Efforts to Decrease VPDs Among Children> In 2015, U.N. member states adopted the Sustainable Development Goals (SDG) as a common agenda to help alleviate global poverty, improve health and education, reduce inequality, and spur economic growth by 2030. SDG Goal 3 is to end preventable deaths of newborns and under-5 children by 2030, with a targeted reduction of under-5 mortality to 25 per 1,000 live births in every country. (According to 2018 figures, 80 countries worldwide have under-5 mortality rates that are higher than 25 per 1,000 live births.) International efforts to decrease vaccine-preventable deaths among children younger than five years are led by international organizations such as WHO, UNICEF, and GAVI, with significant U.S. support (detailed in the section on U.S. role and funding). Several multilateral initiatives and commitments frame these efforts. UNICEF. UNICEF supports immunization programs globally and is the biggest single global purchaser of vaccines. The organization focuses on providing vaccinations, monitoring and improving vaccine supply and quality (e.g., ensuring that vaccines are consistently stored at an appropriate temperature, known as "the cold chain"), vaccine innovation (e.g., research and development), and disease eradication and elimination programs. UNICEF has a permanent seat on GAVI's board and procures all vaccines for GAVI-supported programs to ensure a reliable supply of high-quality and affordable vaccines. UNICEF's immunization goals align with WHO targets outlined in the Global Vaccine Action Plan (GVAP) 2011-2020; to reach 90% of children under the age of one with routine immunization, and achieve 80% immunization coverage for every country district by 2020. WHO . The WHO launched its first 10-year strategic framework on vaccines in 2005. The Global Immunization Vision and Strategy Immunization was intended to extend immunization achievements and to continue encouraging governments to maintain a commitment to protect their populations from VPDs. The GVAP for 2011-2020 was released in 2010 to build on the 2005 strategic framework. The GVAP aligns with the WHO's 2015-2030 strategic goals, which include promoting the development of new vaccines and vaccine delivery technologies to meet public health priorities, establishing norms and standards for vaccines and vaccine delivery technology, and ensuring quality. The WHO also develops evidence-based immunization policy recommendations for member states through an independent advisory group, the Strategic Advisory Group of Experts on Immunization (SAGE). SAGE meets biannually to develop recommendations based on available evidence on immunization and vaccines. It also convenes on an emergency basis to discuss disease outbreaks and vaccine-related concerns (e.g., experimental Ebola vaccines). GAVI , the Vaccine Alliance. GAVI is a multilaterally funded public-private partnership. It was founded in 2000 by the United States, the WHO, the United Nations, the World Bank, and the Bill and Melinda Gates Foundation to expand global access to vaccines and prevent deaths from VPDs. GAVI is guided by five year strategic plans, the Phase IV strategy for 2015-2020 aligns with the goals outlined in the GVAP. In 2019, GAVI set the overall goal to immunize 300 million children by 2025, and save 5-6 million lives in the long term. For more information on GAVI, see the section under U.S. Funding for Multilateral Initiatives. <2.2. Factors Affecting Immunization Coverage> Various factors affect global immunization coverage, including vaccine hesitancy and stigma, geographic location, inadequate country capacity, and poverty and socioeconomic status. Vaccine hesitancy and stigma. Recently, a resurgence of certain VPDs has caused concern among public health officials and drawn attention to the challenges of vaccine hesitancy and stigma. For example, polio continues to elude global eradication, and in 2019 some middle- and high-income countries experienced a resurgence of measles, due to a variety of factors, including reluctance among some individuals and religious communities to vaccinate their children. In April 2019, the WHO reported a 300% increase in global measles cases compared to the same period in 2018, with the greatest surges in cases in the Americas, the Middle East, and Europe. Prompted in part by this resurgence, the WHO listed "vaccine hesitancy" as one of the 10 biggest global public health threats. Corruption, authoritarian governance, and social or political discrimination can fuel vaccine hesitancy by undermining citizens' trust in authority figures (including government officials and health workers involved in vaccine campaigns). For example, Nigeria was close to eliminating polio for many years but did not do so until recently. Vaccination campaign efforts were hampered in part by conspiracy theories, "vaccine stigma," as well as by ethical concerns about government regulations and pharmaceutical industry practices. Vaccine stigma, for its part, arises when a community normalizes vaccine denial. Geographic location . Geographical distance from health centers negatively impacts vaccination coverage. Underserved populations within any given country often shoulder a heavier burden of disease, and they may lack access to basic medical care. Notably, vaccine coverage disparities between children in urban and rural areas persist throughout the world, and commonly exacerbate disease spread within a certain geographical area. For example, according to the WHO, in some countries (e.g., Nigeria and Indonesia), coverage of the measles vaccine in rural areas is 33% lower than in urban areas. Poverty, s ocioeconomic status , and social determinants of health. Vaccination coverage in low-income countries (41%) lags behind coverage in high-income countries (90%). Medical systems in many low-income countries are often underfunded and unable to vaccinate enough children to stop a virus's spread even with donor aid. In addition, researchers have found that inequities in vaccination coverage are associated with individual socioeconomic determinants, such as a family's income level and the educational status of a child's mother. Children born into poverty are almost twice as likely to die before the age of five as those from wealthier families, and researchers suggest that unequal access to vaccines is a key factor. Vaccine coverage for the richest fifth of the population in some countries is up to 58% higher than for the poorest fifth. Fragile and conflict settings . UNICEF reports that 40% of unvaccinated children live in countries affected by armed conflict or other humanitarian challenges. Often, already fragile health care infrastructure is further crippled by armed conflict, which can hinder health workers in carrying out vaccinations and interfere with proper disease treatment and containment. Humanitarian settings such as refugee and internal displacement camps can also foster conditions (e.g., poor nutrition, overcrowding, and unsanitary conditions) conducive to the rapid spread of infectious diseases. According to UNICEF estimates, as of 2015, half of the 10 countries that had under 50% diphtheria, tetanus, and pertussis vaccine coverage the Central African Republic, Somalia, South Sudan, Syria, and Ukraine had experienced conflicts or other humanitarian emergencies. Other conflict-affected countries have seen spikes in VPD cases, such as a 2019 surge in measles cases in the Democratic Republic of Congo (DRC), which has killed more people than the ongoing Ebola outbreak in that country. <3. U.S. Role and Funding> Congress has historically supported global child vaccination programs, both as a component of U.S. foreign assistance and as part of efforts to eradicate infectious diseases that might affect Americans at home or abroad. Through annual appropriations for the Department of Health and Human Services and the Department of State and Foreign Operations (SFOPS), Congress funds global immunization activities through the Centers for Disease Control (CDC), the United States Agency for International Development (USAID), and the Global Alliance for Vaccines and Immunization (GAVI, now called GAVI, the Vaccine Alliance). The U.S. Agency for International Development (USAID) and the Centers for Disease Control and Prevention (CDC) are the primary U.S. federal agencies involved in international vaccination provision and immunization campaigns. These campaigns support the 2016-2020 Strategic Framework for Global Immunization and the WHO's 2011-2020 Global Vaccine Action Plan , the agencies work with country governments to strengthen immunization programs by bolstering infectious disease surveillance, increasing laboratory capacity, and strengthening public health workforce capacity. The efforts of both agencies align with the 2010 HHS National Vaccine Plan, the Global Health Security Agenda, and the U.N.'s 2030 Sustainable Development Goals. CDC and USAID also support routine immunizations worldwide through enhanced supply chain management and product procurement assistance. Related efforts are implemented bilaterally and through international partnerships with the WHO, UNICEF, the World Bank, and others. In addition, CDC, along with the Department of Defense, finances the research and development of new vaccines. <3.1. Centers for Disease Control and Prevention (CDC)> The CDC has played a central role in controlling vaccine-preventable diseases since it established the CDC Smallpox Eradication Program in January 1966. The Global Immunization Division of the CDC's Center for Global Health is responsible for coordinating CDC's global immunization activities. To support these activities, the CDC provides scientific and public health expertise in infectious disease epidemiology and surveillance by building laboratory capacity and helping to implement evidence-based prevention strategies. CDC also carries out clinical trials and epidemiologic studies. Funding for the CDC's Global Immunization Program is detailed in Table 2 . The majority of CDC's efforts are focused on polio, with smaller funding allocations for measles and other VPDs. Global vaccination campaigns against polio have lowered the worldwide incidence of polio by 99% compared with that of 1988, and in 2018 only two countries recorded wild polio cases: Afghanistan and Pakistan. Vaccine-derived poliovirus continues to be detected in Nigeria, but as of August 21, 2019, no cases had been confirmed there in three years. The CDC's programming is based on its 2016-2020 Strategic Framework for Global Immunization , which builds on three previous strategic frameworks and outlines five goals: 1. Control, eliminate, or eradicate vaccine-preventable diseases to reduce death and disability globally. 2. Strengthen country ownership, policy and practices, and partnerships. 3. Ensure quality of vaccination delivery to achieve high and equitable coverage. 4. Strengthen surveillance and immunization information to prevent, detect, and respond to vaccine-preventable diseases. 5. Conduct and promote research, innovation, and evaluation. To implement the strategic framework, the CDC works with USAID, UNICEF, GAVI, and other stakeholders. The strategy is aligned with the HHS National Vaccine Plan 2010, the Global Health Security Agenda, and the WHO Global Vaccine Action Plan 2011-2020. In FY2019, Congress appropriated more funding for CDC global immunization programs than the Trump Administration sought and more than was appropriated in prior years ( Table 2 ). The Administration's FY2019 and FY2020 budget requests would have reduced funding for global immunization activities and proposed that the CDC "focus its global immunization activities to continue progress towards polio eradication, as well as measles and rubella elimination in countries with the highest disease burden." To strengthen routine immunization campaigns and community-based disease surveillance, USAID works with foreign countries' ministries of health and provides funding to GAVI. These actions are part of the agency's strategy to prevent child and maternal deaths, which it also supports through capacity building for foreign health systems. For example, in Ethiopia, the agency works with Ethiopia's Ministry of Health to train community volunteers to identify symptoms of vaccine-preventable diseases (e.g., paralysis due to polio) and track "vaccine defaulters" (individuals who do not receive the full schedule of immunizations) to keep them on schedule. <3.2. U.S. Funding for Multilateral Initiatives> The United States, through contributions to international organizations and GAVI, provides significant support for multilateral immunization and vaccination programs ( Figure 3 ). Such support is intended to complement U.S. bilateral efforts in this arena while enabling the United States to expand its reach and provide opportunities for collaboration and burden sharing. <3.2.1. GAVI, the Vaccine Alliance> GAVI is a multilaterally funded public-private partnership. It was founded in 2000 by the United States, the WHO, the United Nations, the World Bank, and the Bill and Melinda Gates Foundation to expand global access to vaccines and prevent deaths from VPDs. The United States played a central role in the creation of GAVI and continues to be involved in GAVI's governance, strategic planning, and funding. U.S. support of GAVI is intended to accelerate access to vaccines, strengthen vaccine delivery platforms, and work with country governments to sustain immunization programs. <3.2.1.1. U.S. Contributions to GAVI> The United States is GAVI's third largest donor, having provided nearly $2 billion of the $21 billion donated to GAVI since its founding ( Figure 3 ). Congress appropriates U.S. funding for GAVI via USAID's Global Health Programs (GHP) account in annual SFOPS appropriations measures. In turn, the United States holds a seat on GAVI's board, as do the WHO and UNICEF, which also receive U.S. funding ( Figure 4 ). Table 3 details U.S. budget requests and enacted appropriations for GAVI from FY2015 to FY2020. During the Obama Administration, congressional appropriators met the Administration's requests to increase funding for GAVI year on year. In line with the Trump Administration's broad calls for cuts to foreign assistance, the Administration proposed $250 million for GAVI in FY2019 and in FY2020, a $40 million decrease from the FY2018-enacted level. In FY2019, Congress appropriated $290 million for GAVI, the same level as in FY2018. <4. Outlook and Issues for Congress> Congress has continued to demonstrate interest in supporting child vaccinations for VPDs overseas for example, by appropriating increasing levels of funding for related programs. However, numerous global outbreaks of VPDs have raised concerns about whether the progress made in preventing and eradicating communicable diseases can be maintained. In light of recent events, and in the context of the FY2020 appropriations process (and beyond), Congress may examine a few additional issues. One area that could be explored is the effectiveness of global vaccination campaigns as a tool of domestic pandemic preparedness. U.S. government public health officials have argued that the global resurgence of certain vaccine-preventable diseases, particularly measles and mumps, may threaten U.S. public health. Recent outbreaks of vaccine-preventable diseases in the United States have been traced to travelers from Europe and abroad, and the CDC reports that these travelers, coupled with domestic vaccine hesitancy, are the main cause of outbreaks in the United States. In March 2019, the full Senate Committee on Health, Education, Labor and Pensions (HELP) held a hearing to discuss the reasons behind preventable disease outbreaks, including imported cases of vaccine-preventable diseases linked to international travelers. As these outbreaks continue, Congress may continue to consider its oversight of, and federal government involvement in, issues surrounding vaccines, such as misinformation campaigns and their role in vaccine hesitancy. Another core area of interest relates to U.S. funding, foreign policy objectives, and foreign aid programs supporting immunization. The U.S. government has long-included vaccination as a core component of foreign policy, and as a foreign aid priority. Recently, the Trump Administration requested cuts to global health funding, including for U.S. agencies involved in global vaccination campaigns. The Administration contends that the funding requests will not affect programs and that "the reduction reflects the Administration's intent to further focus funds on countries, populations, and programs where resources will have the greatest public health impact ... [and] CDC will focus its global immunization activities to continue progress towards polio eradication, as well as measles and rubella elimination in the countries with the highest disease burden." Some experts argue that stagnation in vaccination coverage and the resurgence of some vaccine-preventable diseases are "alarm bells," and have expressed concern about flat support for global vaccine campaigns leading to a continued resurgence of vaccine-preventable diseases. These issues raise questions about burden sharing and the role of other high-income country donors in global immunization funding, as well as factors affecting the efficacy of global campaigns to increase vaccination rates.

For more than 50 years, the United States has taken an interest in the eradication of vaccine-preventable diseases (VPDs) in children worldwide, as well as vaccine research and development, particularly since playing a vital role in the global campaign to eradicate smallpox in the 1960s. Since then, vaccinating children against VPDs has been a major U.S. foreign policy effort. Vaccinations are one of the most cost-effective ways to prevent infectious disease and associated morbidity and mortality. According to UNICEF, immunizations save around 3 million lives per year. As of 2019, VPDs continue to cause high levels of morbidity (illness) and mortality (death), and the World Health Organization (WHO) notes that the adoption of new vaccines by low- and middle-income countries (which often have the highest disease burdens) has been slower than in high-income countries. Receiving a vaccination during childhood can protect the recipient from VPDs, decrease the spread of related diseases, and improve child survival prospects (as children, particularly those under five years old, are more likely than adults to die from VPDs). Recently, a global resurgence of certain VPDs has caused concern among public health officials and drawn attention to the challenges of vaccine hesitancy and stigma. For example, polio continues to elude global eradication and remains endemic in three countries. In 2019 measles has seen a resurgence in some middle- and high-income countries due to a variety of factors, including reluctance among some individuals and religious communities to vaccinate their children. In April 2019, the WHO reported a n increase in global measles cases compared to the same period in 2018, with the greatest surges in cases in the Americas, the Middle East, and Europe. A number of European countries are at risk of or have lost their measles eradication certificate from the WHO, raising questions about global consensus on the use of vaccines, participation in and support for the Global Alliance for Vaccines and Immunization (GAVI, now called GAVI, the Vaccine Alliance) and other global immunization efforts. Prompted in part by this global resurgence, the WHO has listed "vaccine hesitancy" as one of the 10 biggest global public health threats. The U.S. government is the second-leading government donor to global vaccination campaigns. Through annual appropriations to the Department of Health and Human Services (HHS) and the Department of State, Congress funds global immunization activities through the Centers for Disease Control and Prevention (CDC), the United States Agency for International Development (USAID), and GAVI. In recent years, annual appropriations by Congress for multilateral immunizations campaigns led by GAVI have averaged $290 million and $226 million for bilateral campaigns led by CDC. USAID works to support routine immunization overseas through health systems strengthening, and Global Polio Eradication Initiative Activities. The authorization, appropriation, and oversight of U.S. funding for global child vaccination is thus an ongoing area of concern for many in Congress. Other key issues for Congress include the extent of donor coordination and burden-sharing for such efforts, and the extent to which global child vaccination promotes U.S. foreign policy, development, and domestic health security (i.e., pandemic preparedness) goals.

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<1. Introduction> This report focuses on FY2020 discretionary appropriations for Interior, Environment, and Related Agencies. At issue for Congress are determining the amount of funding for agencies and programs in the bill, and the terms and conditions of such funding. Currently, Interior, Environment, and Related Agencies generally are receiving appropriations at the FY2019 level (in Division E of P.L. 116-6 ). Continuing appropriations are being provided because no regular appropriations were provided before the start of the 2020 fiscal year (on October 1, 2019). Division A of P.L. 116-59 provided continuing appropriations through November 21, 2019. The House and Senate passed a measure ( H.R. 3055 ) extending continuing appropriations through December 20, 2019, unless full-year appropriations are enacted sooner. The President signed that measure on November 21, 2019. For FY2020, President Trump sought $32.47 billion for agencies in the Interior bill, including $2.25 billion for wildfire suppression under a discretionary cap adjustment. The House included FY2020 appropriations for Interior, Environment, and Related Agencies in Division C of H.R. 3055 , as passed on June 25, 2019. The measure contained a total of $39.59 billion, including $2.25 billion for wildfire suppression under the discretionary cap adjustment. In earlier action, on June 3, 2019, the House Appropriations Committee reported H.R. 3052 (accompanied by H.Rept. 116-100 ). Similar to H.R. 3055 as passed by the House, H.R. 3052 also contained a total of $39.59 billion, including $2.25 billion for wildfire suppression under the discretionary cap adjustment. The Senate included FY2020 appropriations for Interior, Environment, and Related Agencies in Division C of H.R. 3055 , as passed on October 31, 2019. The measure contained a total of $38.11 billion, including $2.25 billion for wildfire suppression under the cap adjustment. In earlier action, on September 26, 2019, the Senate Appropriations Committee reported S. 2580 (accompanied by S.Rept. 116-123 ). Similar to H.R. 3055 as passed by the Senate, S. 2580 also contained a total of $38.11 billion, including $2.25 billion for wildfire suppression under the discretionary cap adjustment. This report first presents a short overview of the agencies and other entities funded in the bill. It then describes the appropriations requested by President Trump for FY2020 for Interior, Environment, and Related Agencies. Next, it briefly compares the total appropriations enacted for FY2019, requested by the President for FY2020, passed by the House for FY2020, and passed by the Senate for FY2020. Finally, this report compares funding enacted for FY2019, requested by the Administration for FY2020, passed by the House for FY2020, and passed by the Senate for FY2020 for selected agencies and issues that have been among those of particular interest to Congress. They include the Bureau of Land Management, Environmental Protection Agency (EPA), U.S. Fish and Wildlife Service, Forest Service, Indian Affairs, Indian Health Service, Land and Water Conservation Fund, National Park Service, Payments in Lieu of Taxes Program, Reorganization of the Department of the Interior, Smithsonian Institution, U.S. Geological Survey, and Wildland Fire Management. This report will be revised to reflect further congressional action on FY2020 Interior appropriations. Appropriations are complex. Budget justifications for some agencies are large, often a few hundred pages long, and contain numerous funding, programmatic, and legislative changes for congressional consideration. Further, appropriations laws provide funds for numerous accounts, activities, and subactivities, and the accompanying explanatory statements provide additional directives and other important information. This report does not provide in-depth information at the account and subaccount levels, nor does it generally detail budgetary reorganizations or legislative changes enacted in law or proposed for FY2020. For information on a particular agency or on individual accounts, programs, or activities administered by a particular agency, contact the key policy staff listed at the end of this report. In addition, for selected reports related to appropriations for Interior, Environment, and Related Agencies, such as individual agencies (e.g., National Park Service) or cross-cutting programs (e.g., Wildland Fire Management), see the "Interior & Environment Appropriations" subissue under the "Appropriations" Issue Area page on the Congressional Research Service (CRS) website. <2. Overview of Interior, Environment, and Related Agencies> The annual Interior, Environment, and Related Agencies appropriations bill includes funding and other provisions for agencies and programs in three federal departments and for numerous related agencies. The Interior bill typically contains three primary appropriations titles and a fourth title with general provisions. Title I provides funding for most Department of the Interior (DOI) agencies, many of which manage land and other natural resource or regulatory programs. Title I also typically includes general provisions related to DOI agencies. Title II contains appropriations and administrative provisions for EPA. Title III, Related Agencies, currently funds 23 agencies in other departments, such as the Forest Service in the Department of Agriculture and the Indian Health Service in the Department of Health and Human Services; arts and cultural agencies, including the Smithsonian Institution; and various other organizations and entities. Title III also contains administrative provisions for some agencies funded therein. A fourth title of the bill, General Provisions, typically contains additional guidance and direction for agencies in the bill. In addition, in the FY2019 appropriations law, Title IV also included appropriations for EPA. Selected major agencies in the Interior bill are briefly described below. <2.1. Title I. Department of the Interior7> DOI's mission is to conserve and manage the nation's natural resources and cultural heritage; provide scientific and other information about those resources and natural hazards; and exercise trust responsibilities and other commitments to American Indians, Alaska Natives, and affiliated island communities. There are eight DOI agencies and two other broad accounts funded in the Interior bill that carry out this mission. Hereinafter, these agencies and broad accounts are referred to collectively as the 10 DOI "agencies." Not including the two broad accounts, the DOI agencies funded in the Interior bill include the following: The Bureau of Land Management administers about 246 million acres of public land, mostly in the West, for diverse uses such as energy and mineral development, livestock grazing, recreation, and preservation. The agency also is responsible for more than 700 million acres of federal onshore subsurface mineral estate throughout the nation and supervises the mineral operations on about 60 million acres of Indian trust lands. The U.S. F ish and Wildlife Service administers 89 million acres of federal land within the National Wildlife Refuge System and other areas, including 77 million acres in Alaska. It also manages several large marine refuges and marine national monuments, sometimes jointly with other federal agencies. In addition, the U.S. Fish and Wildlife Service, together with the National Marine Fisheries Service (Department of Commerce), is responsible for implementing the Endangered Species Act (16 U.S.C. 1531 et seq.); promoting wildlife habitat; enforcing federal wildlife laws; supporting wildlife and ecosystem science; conserving migratory birds; administering grants to aid state fish and wildlife programs; and coordinating with state, international, and other federal agencies on fish and wildlife issues. The National Park Service administers 80 million acres of federal land within the National Park System, including 419 separate units in the 50 states, District of Columbia, and U.S. territories. Roughly two-thirds of the system's lands are in Alaska. The National Park Service has a dual mission to preserve unique resources and to provide for their enjoyment by the public. The agency also supports and promotes some resource conservation activities outside the National Park System through grant and technical assistance programs and cooperation with partners. The U.S. Geological Survey is a science agency that provides physical and biological information related to geological resources; natural hazards; climate and land use change; and energy, mineral, water, and biological sciences and resources. In addition, it is the federal government's principal civilian mapping agency (e.g., topographical and geological mapping) and a primary source of data on the quality of the nation's water resources (e.g., streamgaging). The Bureau of Ocean Energy Management manages development of the nation's offshore conventional and renewable energy resources in the Atlantic, the Pacific, the Gulf of Mexico, and the Arctic. These resources are located in areas covering approximately 1.7 billion acres located beyond state waters, mostly in the Alaska region (more than 1 billion acres) but also off all coastal states. The Bureau of Safety and Environmental Enforcement provides regulatory and safety oversight for resource development in the outer continental shelf. Among its responsibilities are oil and gas permitting, facility inspections, environmental compliance, and oil spill response planning. The Office of Surface Mining Reclamation and Enforcement works with states and tribes to reclaim abandoned coal mining sites. The agency also regulates active coal mining sites to minimize environmental impacts during mining and to reclaim affected lands and waters after mining. Indian Affairs agencies provide and fund a variety of services to federally recognized American Indian and Alaska Native tribes and their members. Historically, these agencies have taken the lead in federal dealings with tribes. The Bureau of Indian Education funds an elementary and secondary school system, institutions of higher education, and other educational programs. The Bureau of Indian Affairs is responsible for programs that include government operations, courts, law enforcement, fire protection, social programs, roads, economic development, employment assistance, housing repair, irrigation, dams, Indian rights protection, implementation of land and water settlements, and management of trust assets (real estate and natural resources). <2.2. Title II. Environmental Protection Agency> EPA has no organic statute establishing an overall mission; rather, the agency administers various environmental statutes, which have an express or general objective to protect human health and the environment. Primary responsibilities include the implementation of federal statutes regulating air quality, water quality, drinking water safety, pesticides, toxic substances, management and disposal of solid and hazardous wastes, and cleanup of environmental contamination. EPA also awards grants to assist states and local governments in implementing federal law and complying with federal requirements to control pollution. The agency also administers programs that provide financial assistance for public wastewater and drinking water infrastructure projects. <2.3. Title III. Related Agencies> Title III of the Interior bill currently funds 23 agencies, organizations, and other entities, which are collectively referred to hereinafter as the "Related Agencies." Among the Related Agencies funded in the Interior bill, roughly 95% of the funding is typically provided to the following: The Forest Service in the Department of Agriculture manages 193 million acres of federal land within the National Forest System consisting of national forests, national grasslands, and other areas in 43 states, the Commonwealth of Puerto Rico, and the Virgin Islands. It also provides technical and financial assistance to states, tribes, and private forest landowners and conducts research on sustaining forest resources for future generations. The Indian Health Service in the Department of Health and Human Services provides medical and environmental health services for approximately 2.6 million American Indians and Alaska Natives. Health care is provided through a system of facilities and programs operated by the agency, tribes and tribal organizations, and urban Indian organizations. The agency operates 25 hospitals, 50 health centers, 26 health stations, and 2 school health centers. Tribes and tribal organizations, through Indian Health Service contracts and compacts, operate another 22 hospitals, 280 health centers, 62 health stations, 134 Alaska Native village clinics, and 6 school health centers. The Smithsonian Institution is a museum and research complex consisting of 19 museums and galleries, the National Zoological Park ("National Zoo"), and 9 research facilities throughout the United States and around the world. Established by federal legislation in 1846 with the acceptance of a trust donation by the institution's namesake benefactor, the Smithsonian is funded by both federal appropriations and a private trust. The National Endowment for the Arts and the National Endowment for the Humanities make up the National Foundation on the Arts and the Humanities. The National Endowment for the Arts is a major federal source of support for all arts disciplines. Since 1965, it has awarded more than 145,000 grants, which have been distributed to all states. The National Endowment for the Humanities generally supports grants for humanities education, research, preservation, and public humanities programs; creation of regional humanities centers; and development of humanities programs under the jurisdiction of state humanities councils. Since 1965, it has awarded approximately 63,000 grants. It also supports a Challenge Grant program to stimulate and match private donations in support of humanities institutions. <3. FY2020 Appropriations> <3.1. Components of President Trump's Request> For FY2020, President Trump requested $32.47 billion for the more than 30 agencies and entities in the Interior, Environment, and Related Agencies appropriations bill. This total included $2.25 billion for certain wildfire suppression activities under an adjustment to discretionary spending limits for FY2020. Budget authority designated for those activities would cause the spending limits to be adjusted, making it effectively not subject to the limits. For the 10 major DOI agencies in Title I of the bill, the request was $11.75 billion, or 36.2% of the $32.47 billion total requested. For EPA, funded in Title II of the bill, the request was $6.22 billion, or 19.2% of the total. For the 23 agencies and other entities currently funded in Title III of the bill, the request was $14.50 billion, or 44.7% of the total. Appropriations for agencies vary widely for reasons relating to the number, breadth, and complexity of agency responsibilities; alternative sources of funding (e.g., mandatory appropriations); and Administration and congressional priorities, among other factors. Thus, although the President's FY2020 request covered more than 30 agencies, funding for a small subset of these agencies accounted for most of the total. For example, the requested appropriations for three agencies EPA, Forest Service, and Indian Health Service were more than half (59.2%) of the total request. Further, more than three-quarters (76.2%) of the request was for these three agencies and two others, National Park Service and Indian Affairs. For DOI agencies, the FY2020 requests ranged from $121.7 million for the Office of Surface Mining Reclamation and Enforcement to $2.77 billion for Indian Affairs. The requests for 5 of the 10 agencies exceeded $1 billion. Nearly half (47.0%) of the $11.75 billion requested for DOI agencies was for two agencies Indian Affairs ($2.77 billion) and the National Park Service ($2.74 billion). For Related Agencies in Title III, the requested funding levels exhibited even more variation. The President sought amounts ranging from no funding for two entities grants under National Capital Arts and Cultural Affairs and the Women's Suffrage Centennial Commission to $7.09 billion for the Forest Service. The Indian Health Service, with a request of $5.91 billion, was the only other agency in Title III for which the President requested more than $1 billion. The next-largest request was for the Smithsonian Institution, at $978.3 million. By contrast, the other 20 Title III entities each had requests of $154.1 million or less, including 12 with requests of less than $11 million each. Figure 2 identifies the share of the President's FY2020 request for particular agencies in the Interior bill. <3.2. Overview of FY2020 Requested, House-Passed, and Senate-Passed Appropriations Compared with FY2019 Enacted Appropriations> For FY2019, the total enacted appropriation for Interior, Environment, and Related Agencies was $37.19 billion. This total included $35.61 billion in regular appropriations and $1.58 billion in emergency supplemental appropriations for disaster relief. The disaster relief monies were provided to several agencies for various purposes. The FY2019 appropriation did not include a discretionary cap adjustment for wildfire suppression. As noted, for FY2020, the President sought $32.47 billion for agencies in the Interior bill, including $2.25 billion for wildfire suppression under a discretionary cap adjustment. The President's FY2020 request would be $3.14 billion (8.8%) lower than the FY2019 regular enacted appropriation of $35.61 billion and $4.72 billion (12.7%) lower than the FY2019 total appropriation of $37.19 billion. On June 25, 2019, the House passed H.R. 3055 with $39.59 billion (in Division C) for agencies in the Interior bill. This total included $2.25 billion for wildfire suppression under the cap adjustment. The FY2020 House-passed total is higher than the FY2019 enacted total, the FY2020 requested amount, and the FY2020 Senate-passed level. Specifically, the House-passed amount is $2.40 billion (6.4%) higher than the FY2019 total of $37.19 billion in regular and emergency appropriations, $3.98 billion (11.2%) higher than the FY2019 total of $35.61 billion in regular appropriations, $7.12 billion (21.9%) higher than the FY2020 President's request of $32.47 billion, and $1.48 billion (3.9%) higher than the FY2020 Senate-passed amount of $38.11 billion. On October 31, 2019, the Senate passed H.R. 3055 with $38.11 billion (in Division C) for agencies in the Interior bill. This total included $2.25 billion for wildfire suppression under the cap adjustment. The FY2020 Senate-passed total is higher than the FY2019 enacted total and the FY2020 requested amount but lower than the House-passed level. Specifically, the Senate-passed amount is $918.8 million (2.5%) higher than the FY2019 total of $37.19 billion in regular and emergency appropriations, $2.50 billion (7.0%) higher than the FY2019 total of $35.61 billion in regular appropriations, $5.64 billion (17.4%) higher than the FY2020 President's request of $32.47 billion, and $1.48 billion (3.7%) lower than the FY2020 House-passed amount of $39.59 billion. Figure 3 depicts the FY2019 enacted regular and emergency supplemental appropriations, the FY2020 appropriations requested by the President, the FY2020 appropriations passed by the House in H.R. 3055 , and the FY2020 appropriations passed by the Senate in H.R. 3055 . It shows the appropriations contained in each of the three main appropriations titles of the Interior bill Title I (DOI), Title II (EPA), and Title III (Related Agencies). For FY2019 enacted appropriations, it also depicts the appropriations for EPA in the general provisions in Title IV and the emergency supplemental appropriations for several agencies for disaster relief. Table 1 , at the end of this report, lists the appropriations for each agency that were enacted for FY2019, requested by the President for FY2020, passed by the House for FY2020 in H.R. 3055 , and passed by the Senate for FY2020 in H.R. 3055 . <3.3. Selected Agencies and Programs28> There are many differences among the FY2019 enacted appropriations and the FY2020 funding requested by the President, passed by the House, and passed by the Senate. Selected agencies and programs are highlighted below, among the many of interest to Members of Congress, stakeholders, and the public. For the selected agencies and programs, the discussions below briefly compare FY2019 total funding (regular and supplemental) with FY2020 levels requested by the Administration, approved by the House in H.R. 3055 , and approved by the Senate in H.R. 3055. Excluding FY2019 emergency supplemental appropriations would result in different comparisons for some of the agencies and programs covered below. <3.3.1. Bureau of Land Management> The Administration sought $1.19 billion for the Bureau of Land Management (BLM) for FY2020, a decrease of 11.8% from the FY2019 appropriation ($1.35 billion). The request contained lower funding for the main BLM account, Management of Lands and Resources, and for many programs within the account, including rangeland management, wildlife and aquatic habitat management, resource management planning, and deferred maintenance. However, the Administration requested increases for some programs within the account, including management of coal and renewable energy. The Administration did not seek funding for new land acquisition by BLM (from the Land and Water Conservation Fund [LWCF]), and it proposed an overall rescission to the Land Acquisition account for an account total of -$10.0 million. Other accounts would receive level funding under the Administration's request, including management of Oregon and California Grant Lands. For this account, the President also proposed a budget restructuring. The House-passed bill contained $1.41 billion in BLM appropriations; this would be an increase of 4.9% over FY2019. It would increase funding for the Management of Lands and Resources account and for many programs within the account, such as wild horse and burro management and wildlife and aquatic habitat management. The measure also contained additional appropriations for other accounts relative to FY2019, such as Land Acquisition and Oregon and California Grant Lands. The House did not support the budget restructuring for the latter account as proposed in the President's FY2020 request. With $1.40 billion in FY2020 appropriations, the Senate-passed bill would increase BLM appropriations 4.0% over the FY2019 level. The Senate-passed measure included additional appropriations for the Management of Lands and Resources account and generally would provide level or increased funding for programs within the account. The largest increase within the account ($35.0 million, 43%) would be for wild horse and burro management. For other accounts, the Senate-passed bill generally contained funding level or nearly level to the FY2019 enacted appropriation. The Senate did not support the budget restructuring for the Oregon and California Grant Lands account, as proposed in the President's FY2020 request. <3.3.2. Environmental Protection Agency31> For FY2019, EPA received $8.06 billion in Title II of the regular appropriations law and another $791.0 million in Title IV of that law, for an FY2019 regular appropriation of $8.85 billion. In addition, EPA received $414.0 million in emergency supplemental appropriations for FY2019, resulting in an FY2019 total appropriation of $9.26 billion. Relative to total FY2019 appropriations of $9.26 billion, EPA would receive a decrease (32.8%) for FY2020 under the Administration's request of $6.22 billion. The request contained lower funding for most accounts, among them Science and Technology; Environmental Programs and Management (including geographic programs); and State and Tribal Assistance Grants (STAG), including for categorical grants and capitalization grants to states for wastewater infrastructure projects through the Clean Water State Revolving Fund (SRF) and for drinking water infrastructure grants to states through the Drinking Water SRF. Only the Buildings and Facilities account would receive an increase under the President's request. EPA would receive $9.53 billion for FY2020 under the House-passed bill, an increase (2.9%) relative to total FY2019 appropriations. Most accounts would receive additional funds over FY2019 total appropriations. However, the STAG account and the Water Infrastructure Finance and Innovation Program would receive less funding under the House-passed bill. The Senate-passed bill contained $9.01 billion for EPA for FY2020, a decrease (2.7%) from the FY2019 total appropriation. Relative to FY2019 total appropriations, some accounts would remain level (e.g., Buildings and Facilities), others would increase (e.g., Environmental Programs and Management), and still others would decrease (e.g., State and Tribal Assistance Grants). <3.3.3. U.S. Fish and Wildlife Service> For the U.S. Fish and Wildlife Service (FWS), the Administration proposed $1.33 billion for FY2020, a reduction of 20.0% from the FY2019 level ($1.66 billion). The Administration sought to reduce funding for all FWS accounts, for instance for Construction (by 88.5%) and Land Acquisition (by 93.0%, with no new acquisitions funded from LWCF). The Resource Management account would be reduced overall (by 2.7%), but the President proposed increases for some programs, including the National Wildlife Refuge System. Citing "higher priorities," the Administration proposed eliminating discretionary appropriations for two FWS accounts the Cooperative Endangered Species Conservation Fund and the National Wildlife Refuge Fund. The House-passed bill would reduce FWS funding by 0.5% relative to the FY2019 enacted appropriation, with Construction reduced as under the President's proposal. However, the measure would increase funding for several accounts. They included Resource Management, with additional funds for ecological services and the National Wildlife Refuge System, among other programs; the Cooperative Endangered Species Conservation Fund; and Land Acquisition. The House-passed bill also would retain level funding for the National Wildlife Refuge Fund. The Senate-passed bill would reduce FWS funding by 1.8% from the FY2019 enacted level. Some accounts would decrease, including Construction, Land Acquisition, and the Cooperative Endangered Species Conservation Fund. Other accounts would increase, including Resource Management, with additional funds for fish and aquatic conservation and the National Wildlife Refuge System, among other programs. The bill would provide level funding for one account the National Wildlife Refuge Fund. <3.3.4. Forest Service> For FY2020, the Administration requested $7.09 billion (2.1% more) for the Forest Service (FS) than was enacted for FY2019 ($6.94 billion). Within the overall increase, the President proposed higher funding (15.4%) for Wildland Fire Management, including $1.95 billion under a discretionary cap adjustment for wildfire suppression, as noted. The President sought reduced funding for all other FS accounts, including 47.5% less for State and Private Forestry, 15.4% less for Forest and Rangeland Research, and 5.4% less for the National Forest System. The Administration also sought to eliminate funding for some accounts and programs, including Land Acquisition (from LWCF), the Collaborative Forest Landscape Restoration Fund, and certain cooperative forestry programs such as Forest Legacy. For FY2020, the House-passed bill would provide an increase for FS of 10.1% over FY2019. The measure contained $921.8 million in a new account Forest Service Operations for costs of administrative support functions, including salaries and expenses of employees, leases for buildings and sites where support functions occur, utilities and telecommunications, business services, and information technology. The House Appropriations Committee recommended this new account to eliminate the use of "cost pools" for these support functions. The six major FS accounts would be correspondingly reduced in FY2020 to exclude costs of support functions, as shown in the committee's report. In part because of the proposed new account, the House-passed bill reflects reductions for FY2020 for three of the major FS accounts (Forest and Rangeland Research, National Forest System, and Capital Improvement and Maintenance). However, the appropriation for each of these three accounts, together with funding for related administrative support purposes in the new account, would appear to total more than the FY2019 appropriation for each major account. The Senate-passed bill would provide FS with an increase of 7.6% over FY2019. The measure contained a new Forest Service Operations account, similar to the House-passed bill, but with $953.8 million. The Senate Appropriations Committee supported this new account for certain costs of salaries and expenses, including those funded by "cost pools," to increase transparency and efficiency of agency spending by distinguishing salaries and expenses from other project costs. Other FS accounts would be reduced in FY2020 to exclude costs of support functions captured by the new account, as reflected in the committee's report. In part because of the proposed new account, the Senate-passed bill reflects reductions for several FS accounts from FY2019 levels. <3.3.5. Indian Affairs> For several years, instructions accompanying annual appropriations acts had encouraged the Secretary of the Interior to consolidate Indian education functions within the Bureau of Indian Education (BIE) and present such reorganization in the subsequent fiscal year budget request. For FY2020, the Administration proposed funding the BIE independently from the Bureau of Indian Affairs (BIA), and submitted a separate budget justification for each bureau. In FY2019 (and earlier years), Indian education was funded in an account with other Indian programs. In proposing a separate budget structure for BIE, the Administration sought to "strengthen BIE as an independent bureau with a separate budget structure to advance ongoing BIE reforms to improve learning and student outcomes" and to reduce overlapping functions between BIA and BIE to "better deliver services to schools, maximize efficiency, and build capacity within BIE." The Administration's proposed budget restructuring makes comparisons with FY2019 somewhat challenging. The combined FY2020 request of $2.77 billion for both bureaus was 9.9% less than the FY2019 enacted amount ($3.08 billion). Many Indian programs would be funded at lower levels, including human services and natural resources management, although some would be funded at higher levels, such as self-governance compacts. Construction (including construction of educational facilities) was the largest dollar decrease in the budget request ($231.4 million less); funding for education programs also would decline. The House-passed measure supported the Administration's request to establish and fund the BIE separately from the BIA. The House-passed measure contained an overall increase of 14.0% relative to FY2019 funding for Indian Affairs. Many programs and activities would be funded at higher levels as compared with FY2019 enacted amounts, including tribal government, natural resources management, and public safety and justice. Construction (including construction of educational facilities) was the largest dollar increase in the House-passed measure ($174.5 million more), and funding for education programs also would increase. The Senate-passed measure also supported the Administration's request to establish and fund the BIE separately from the BIA. The Senate Appropriations Committee expressed support for this separation "in order to improve the quality of education offered to address the performance gap of student's education at BIE-funded schools." The bill would provide an overall increase of 1.6% over FY2019 funding for Indian Affairs. Many programs and activities would be funded at levels similar to FY2019 enacted amounts, including Indian education. However, some programs would receive additional funds, such as contract support costs (to pay tribes for services provided) and self-governance compacts. Other activities would receive lower funding, such as Indian land and water claim settlements and services under the Indian child welfare act. <3.3.6. Indian Health Service> Under the Administration's FY2020 request, the Indian Health Service (IHS) would receive $5.91 billion, 1.8% more than the FY2019 appropriation ($5.80 billion). While various programs would receive additional funds, the largest dollar increase would be for hospital and health clinics ($215.9 million). The increase for hospital and health clinics included $25.0 million for an initiative seeking to end the Hepatitis C and HIV/AIDS "epidemic in Indian Country" and $25.0 million for adoption and implementation of a new electronic health record system to improve disease management, patient outcomes, opioid tracking, and other aspects of healthcare. Other programs would be reduced under the Administration's request. For example, the Administration proposed no funding for health education, citing other priorities; cutting funding for the construction of health care facilities (31.9%); and reducing appropriations for community health representatives (61.8%) to begin phasing out the program and replacing it with a National Community Health Aide Program. Funding for contract support costs, which helps tribes pay the costs of administering IHS-funded programs, would be nearly level, reflecting IHS's estimated need at the time of the FY2020 budget submission. The House-passed bill for FY2020 contained an increase of 9.3% over FY2019 appropriations for IHS. The measure included relatively stable or higher funding for most activities. Activities that would receive additional appropriations included clinical services, with the largest dollar increase for hospital and health clinics ($273.2 million, 12.7%), including $25.0 million for the Administration's initiative to end the Hepatitis C and HIV/AIDS epidemic. Other programs that would receive increases included alcohol and substance abuse, urban Indian health services, and Indian health professions. The Indian Health Facilities account would increase by 9.7%, with the largest increase for construction of health care facilities. The House bill retained essentially level funding for health education and community health representatives. As under the President's request, funding for contract support costs would be nearly level, and $25.0 million was included for an electronic health record system. The FY2020 Senate-passed measure contained an increase of 4.1% over FY2019 enacted appropriations. The measure included relatively stable or higher funding for most activities. Clinical services would receive additional funds, with the largest dollar increase for hospital and health clinics ($192.4 million, 9.0%). The Indian Health Facilities account also would be funded over the FY2019 level, with a 2.7% increase. As under the President's request, funding for contract support costs would be nearly level. The Senate bill also retained essentially level funding for health education and community health representatives and would provide $3.0 million for an electronic health record system. <3.3.7. Land and Water Conservation Fund> LWCF has funded land acquisition for the four main federal land management agencies, a matching grant program to states to support outdoor recreation, and other purposes. For FY2019, a total of $435.0 million was appropriated from the LWCF. For FY2020, the Administration did not seek discretionary appropriations for most programs that received appropriations from the LWCF in FY2019. Further, the Administration proposed an overall rescission to LWCF, for a program total of -$23.5 million due to cancelation of prior-year funds for some program components. In support of this reduction, the President cited higher priorities, a need to focus resources on maintaining existing federal lands rather than acquiring additional ones, and a desire to shift funding for the state grant program to mandatory appropriations, among other reasons. The House-passed bill contained a total of $524.0 million in appropriations from the LWCF, a 20.4% increase over FY2019 total LWCF appropriations. The measure included increases for each of the three main activities for which the LWCF has been used land acquisition, the state outdoor recreation grant program, and other purposes. The Senate-passed bill, including $29.0 million in rescissions of prior year funding, would provide total appropriations from the LWCF of about $436 million. The FY2020 Senate level would be roughly level with the FY2019 enacted appropriation. <3.3.8. National Park Service> For FY2020, the Administration requested $2.74 billion, 18.2% less for the National Park Service (NPS) than the total enacted for FY2019 ($3.35 billion). Within the overall reduction, the President proposed cuts for each NPS account, including the Operation of the National Park System, Construction, and the Historic Preservation Fund, as well as many programs. The President proposed the elimination of discretionary funding for some programs, including grants for National Heritage Areas, grants to states for outdoor recreation, line item acquisitions by the NPS (through LWCF), and the Centennial Challenge Program (a matching grant program to encourage donations). The House and Senate approved relatively level funding for FY2020, with a 0.3% increase in the House-passed bill and a 0.1% increase in the Senate-passed bill over the FY2019 enacted appropriation. Both bills included increases for some accounts and programs but decreases for others. As examples, the bills contained increased funds for the Operation of the National Park System, for programs including resource stewardship, park protection, and facility operations and maintenance, though the House-passed measure had higher funding for the account overall and for each of these three programs. Both bills also contained additional funds for Land Acquisition, for activities including grants to states for outdoor recreation and line item acquisitions by the NPS. In contrast, the House- and Senate-passed measures contained lower than the FY2019 total appropriations for Construction and for the Historic Preservation Fund, for instance. Both bills also retained funding for grants for National Heritage Areas and partnerships under the Centennial Challenge Program. <3.3.9. Payments in Lieu of Taxes> The President's FY2020 request of $465.0 million would reduce (9.7%) the Payments in Lieu of Taxes Program (PILT) from the FY2019 level ($515.1 million). In the FY2020 budget justification, the Administration asserted that the requested level supports "this important program while balancing Departmental funding priorities in a constrained budget environment. For FY2020, the House- and Senate-passed bills would provide for the full statutory funding level, estimated to be $500.0 million, according to the House and Senate Appropriations Committees. PILT compensates counties and local governments for nontaxable lands within their jurisdictions. The authorized level for the program is calculated under a formula that considers various factors and varies from year to year. <3.3.10. Reorganization of DOI> For FY2020, the Administration requested a total of $25.3 million for reorganization of four DOI agencies funded in the Interior bill, namely BLM, FWS, NPS, and the U.S. Geological Survey (USGS). The request would be a 79.4% increase over the FY2019 appropriation ($14.1 million) for reorganization of these agencies and Indian Affairs. Under the FY2020 request, the funds would be used for costs to agencies of transitioning to a new unified regional structure, relocating certain staff and functions, and integrating business operations. The House-passed bill did not specify funding for reorganization. In its report on FY2020 legislation, the House Appropriations Committee stated that its recommended funding did not "provide funds requested within the Department's bureaus for the Department Wide Reorganization." The committee expressed an understanding that DOI had not obligated FY2019 funding or provided to the committee information that had been requested related to the reorganization plan and costs. The Senate-passed bill did not make explicit the extent to which funds were included for DOI reorganization. <3.3.11. Smithsonian Institution> For FY2020, the Smithsonian Institution (SI) would receive $978.3 million under the Administration's request, a decrease of 6.2% relative to FY2019 enacted appropriations ($1.04 billion). However, the request contained funding at or near the FY2019 level for most SI museums and research institutes (with a 0.9% increase for these entities). It also included additional funds (3.5%) for facilities services, which encompasses maintenance, operation, security, and support. In contrast, the request would decrease (27.8%) the Facilities Capital account, which includes planning, design, and revitalization of facilities. Revitalization involves "making major repairs or replacing declining or failed infrastructure to address the problems of advanced deterioration," according to the SI. Major revitalization projects that would be funded under the President's request involve the National Air and Space Museum (part of a multiyear, multiphase renovation), the National Zoo, and the Hirshhorn Museum and Sculpture Garden, among others. The House approved an increase (2.7%) for SI, with funding at or higher than the FY2019 level for most SI museums and research institutes (with a 3.4% increase for these entities). The House bill also included an additional 29.4% for facilities services, with most of the additional funding directed towards maintenance. The House approved a decrease of 27.8% for the Facilities Capital account, as requested by the Administration. The Senate-passed bill contained an increase (0.4%) for SI, with funding at or near the FY2019 level for most SI museums and research institutes (with a 0.5% increase for these entities). For facilities services, the measure included an increase of 2.6%. The Senate would decrease the Facilities Capital account (2.3%) from the FY2019 level. However, the Senate included more funding in the account for revitalization of the National Air and Space Museum than had been requested by the President or approved by the House for FY2020. <3.3.12. U.S. Geological Survey> The USGS would receive $983.5 million under the Administration's FY2020 request, a decrease of 21.9% relative to its total FY2019 appropriations of $1.26 billion. It is difficult to compare FY2019 enacted and FY2020 requested funding for the agency's eight major activities. This is in part because the Administration proposed a budget restructuring that would reduce USGS budget activities from eight to seven, by eliminating the land resources mission area. The proposed restructuring also would reorganize some programs under the remaining activities. Goals include consolidating similar programs, improving communication, and enhancing integration of information, among others. The House approved a reduction of 1.8% for USGS for FY2020. Within the overall reduction were decreases from the FY2019 level for four of the major activities, among them natural hazards and facilities. However, the House approved increases for the other four major activities, including land resources and core science systems. The House did not adopt the Administration's proposed budget restructuring. The House Committee on Appropriations contended that it "reduces program and funding transparency." The FY2020 Senate-passed bill contained a 3.9% decrease for USGS relative to FY2019 enacted appropriations. The Senate adopted the Administration's proposed budget restructuring. This makes it difficult to compare the FY2020 Senate-passed appropriations and FY2019 enacted appropriations for major activities. For instance, the Senate's 88.0% increase for core science systems was largely due to the transfer in of funding for national land imaging, which includes the Landsat satellite program. In FY2019, national land imaging was funded under the land resources activity, which would be abolished under the restructuring proposed by the President and supported by the Senate. <3.3.13. Wildland Fire Management76> For FY2020, the Administration proposed $6.05 billion in appropriations for Wildland Fire Management (WFM) of DOI and FS, including $2.25 billion under a discretionary cap adjustment for wildfire suppression. Of the $2.25 billion, the cap adjustment would allow for $300.0 million for DOI and $1.95 billion for FS. No similar cap adjustment was in effect for FY2019. The President's request would be a 15.4% increase over the total FY2019 enacted level for DOI and FS ($5.24 billion). More specifically, the FY2020 request would increase appropriations by 29.6% for DOI and by 12.3% for FS, primarily for wildfire suppression. Both the House- and Senate-passed totals included $2.25 billion under a discretionary cap adjustment, as requested by the President. It is difficult to make comparisons between appropriations for Wildland Fire Management in FY2019 and appropriations for FY2020 in the House- and Senate-passed bills. This is because the FY2020 House- and Senate-passed amounts for Wildland Fire Management do not include FS appropriations for certain administrative support functions that were included in the FY2019 enacted level (and in the FY2020 President's request for Wildland Fire Management.)

The Interior, Environment, and Related Agencies appropriations bill contains funding for more than 30 agencies and entities. They include most of the Department of the Interior (DOI) as well as agencies within other departments, such as the Forest Service within the Department of Agriculture and the Indian Health Service within the Department of Health and Human Services. The bill also provides funding for the Environmental Protection Agency (EPA), arts and cultural agencies, and other organizations and entities. Issues for Congress include determining the amount, terms, and conditions of funding for agencies and programs. Currently, Interior, Environment, and Related Agencies generally are receiving appropriations at the FY2019 level (in Division E of P.L. 116-6 ). Continuing appropriations are being provided because no regular appropriations were provided before the start of the 2020 fiscal year (on October 1, 2019). Division A of P.L. 116-59 provided continuing appropriations through November 21, 2019. The House and Senate passed a measure extending continuing appropriations through December 20, 2019, unless full-year appropriations are enacted sooner. The President signed that measure on November 21, 2019. For FY2020, President Trump requested $32.47 billion for Interior, Environment, and Related Agencies, including $2.25 billion for DOI and Forest Service wildfire suppression under a discretionary cap adjustment. For the 10 major DOI agencies in Title I of the bill, the request was $11.75 billion, or 36.2% of the $32.47 billion total requested. For EPA, funded in Title II of the bill, the request was $6.22 billion, or 19.2% of the total. For the 23 agencies and other entities currently funded in Title III of the bill, the request was $14.50 billion, or 44.7% of the total. The President's FY2020 request would be $3.14 billion (8.8%) lower than the FY2019 regular enacted appropriation of $35.61 billion (in P.L. 116-6 , Division E), and $4.72 billion (12.7%) lower than the FY2019 total appropriation of $37.19 billion, which included $1.58 billion in emergency supplemental appropriations for disaster relief (in P.L. 116-20 , Title VII). (See the figure below.) On June 25, 2019, the House passed H.R. 3055 with $39.59 billion (in Division C) in FY2020 appropriations for agencies in the Interior bill. This total included $2.25 billion for wildfire suppression under the cap adjustment, as requested by the President. The FY2020 House-passed total would be $2.40 billion (6.4%) higher than the FY2019 total of $37.19 billion in regular and emergency appropriations, and $3.98 billion (11.2%) higher than the FY2019 total of $35.61 billion in regular appropriations. It would also be $7.12 billion (21.9%) higher than the President's FY2020 request of $32.47 billion and $1.48 billion (3.9%) higher than the FY2020 Senate-passed amount of $38.11 billion. On October 31, 2019, the Senate passed H.R. 3055 with $38.11 billion (in Division C) for agencies in the Interior bill. This total included $2.25 billion for wildfire suppression under the cap adjustment. The FY2020 Senate-passed total would be $918.8 million (2.5%) higher than the FY2019 total of $37.19 billion in regular and emergency appropriations, $2.50 billion (7.0%) higher than the FY2019 total of $35.61 billion in regular appropriations, and $5.64 billion (17.4%) higher than the FY2020 President's request of $32.47 billion. However, the Senate-passed amount would be $1.48 billion (3.7%) lower than the FY2020 House-passed amount of $39.59 billion. For individual agencies and programs in the bill, there are many differences among the funding levels enacted for FY2019 and those requested by the President for FY2020, approved by the House for FY2020, and approved by the Senate for FY2020. This report highlights funding for selected agencies and programs that have been among the many of interest to Congress, stakeholders, and the public. They include the Bureau of Land Management, EPA, U.S. Fish and Wildlife Service, Forest Service, Indian Affairs, Indian Health Service, Land and Water Conservation Fund, National Park Service, Payments in Lieu of Taxes Program, Reorganization of DOI, Smithsonian Institution, U.S. Geological Survey, and Wildland Fire Management.

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<1. Introduction> Since the 1960s, Congress has passed measures to authorize and fund international family planning related activities that give partici pants access to a broad range of contraceptive methods and services. Such assistance is intended to support broader U.S. international development priorities, as stated in Section 104 of the Foreign Assistance Act of 1961, as amended (P.L. 87-195): The Congress recognizes that poor health conditions and uncontrolled population growth can vitiate otherwise successful development efforts. Large families in developing countries are the result of complex social and economic factors which change relatively slowly among the poor majority least affected by economic progress, as well as the result of a lack of effective birth control. Therefore, effective family planning depends upon economic and social change as well as the delivery of services and is often a matter of political and religious sensitivity. While every country has the right to determine its own policies with respect to population growth, voluntary population planning programs can make a substantial contribution to economic development, higher living standards, and improved health and nutrition. Section 104 goes on to authorize U.S. assistance to address the impact of population growth on development through family planning activities: In order to increase the opportunities and motivation for family planning and to reduce the rate of population growth, the President is authorized to furnish assistance, on such terms and conditions as he may determine, for voluntary population planning. In addition to the provision of family planning information and services, including also information and services which relate to and support natural family planning methods, and the conduct of directly relevant demographic research, population planning programs shall emphasize motivation for small families. According to the U.S. Agency for International Development (USAID), the primary federal agency charged with administering development assistance, family planning refers to "services, policies, information, attitudes, practices, and commodities, including contraceptives, that give women, men, couples, and adolescents the ability to avoid unintended pregnancy and choose whether and/or when to have a child." Over time, family planning programs evolved beyond a strict focus on contraception to provide information and services on a wide range of issues that adversely affect sexual and reproductive health (e.g., female genital mutilation and cutting (FGM/C), obstetric fistula, and gender based violence (GBV)). This broader scope is reflected in the common categorization of these activities as reproductive health/family planning (RH/FP) assistance. Reproductive health refers to "all matters relating to the reproductive processes, functions, and system at all stages of life." The United States is the largest country donor to international FP/RH programs, providing $575 million dollars annually in recent years. Although U.S. funding for FP/RH activities has been consistent for years, the programs remain a subject of intense congressional debate. While the law explicitly prohibits the use of funds to provide abortion or involuntary sterilization, some Members of Congress continue to express concern that FP/RH may indirectly support such activities as a result of funding fungibility. Other concerns relate to the cultural appropriateness of family planning activities and the relationship between FP/RH and broader global health and development assistance. This report focuses on the scope and intended impact of U.S. bilateral international family planning programs administered by USAID. It does not comprehensively address related legislative restrictions (although a table listing such restrictions is provided in the Appendix), or discuss aid channeled through multilateral organizations, such as the U.N. Population Fund (UNFPA). <1.1. Family Planning: Key Issues> International FP/RH programs aim to provide women with the information and services needed to make informed decisions regarding their contraceptive options and to ensure healthy reproductive systems and safe pregnancies. According to USAID, a key aspect of these programs is family planning, as some 885 million women worldwide would like to avoid or delay pregnancy. Of those women, 212.4 million (24%) lack access to FP/RH services. Supporters of FP/RH programs assert that access to such services is necessary for safe motherhood. They cite evidence that bearing children too close together, too early, or too late in life can threaten the health of the mother and her baby. In addition, lack of access to family planning services can have negative social and economic impacts that undermine broader global development goals. For example, some experts note that improving access to family planning services has been shown to have benefits for children's health, women's empowerment, and sustainable growth and development. Critics of international family planning programming have expressed concern that despite existing restrictions, U.S. dollars could be used indirectly to support abortion or involuntary sterilization if implementing partners use U.S. funds for approved services, freeing up funding from other sources to support abortion or involuntary sterilization. Other detractors argue that U.S. foreign assistance for contraceptive provision is an inappropriate imposition on local cultural or religious norms, further asserting that abstinence education is a more effective form of family planning. Critics have also questioned the practice of allocating specific resources for FP/RH programs rather than allocating aid to broader women's health programs or for other development priorities that they argue would be a more effective use of U.S. funds. <1.2. Evolution of U.S. Policy and Programs> Since U.S. bilateral FP/RH programs and policies were launched in 1965, they have evolved to reflect changes in global health priorities and emphasize the link between development and gender. The Foreign Assistance Act of 1961 (P.L. 87-195; as amended) first authorized research on family planning issues, among many other things, and in 1965 Congress authorized USAID to create contraceptive distribution programs through the Office of Population. Initial programs focused on procuring contraceptive supplies for distribution in developing countries. At the time, the rationale for these programs was that high birth rates "significantly increase the cost and difficulty of achieving basic development objectives by imposing burdens on economies presently unable to provide sufficient goods and services for the growing population." From the 1970s through the 1990s, USAID expanded international family planning assistance to include programs on fertility, reproductive and women's health, and maternal and child health, ultimately reorganizing the program into an Office of Population and Reproductive Health (PRH). The expansion of activities reflected changing attitudes and development strategies. Concerns about managing population growth were largely supplanted by a focus on advancing women's status and enhancing their individual health and empowerment. USAID family planning activities continued to utilize a multipronged approach, entailing the provision of contraception while also addressing broader reproductive health concerns. <2. USAID Priorities and Key Programs> USAID's FP/RH programs are administered through the Office of Population and Reproductive Health (PRH) within the agency's Global Health Bureau. PRH is responsible for setting technical and programmatic direction, providing technical leadership, and supporting field programming. USAID distributes FP/RH commodities (such as contraceptives) and related services primarily through contracts and grant agreements with nongovernmental organizations. The agency's technical and administrative staff oversee and monitor the work of implementing partners. USAID FP/RH programming is organized around six priorities: 1. Supporting healthy timing and spacing of pregnancy. 2. Advancing community-based delivery of FP/RH services, such as deploying front-line community health workers to disseminate commodities and information, and to arrange referrals. 3. Ensuring adequate supplies of contraceptives. 4. Providing non-coerced access to surgical sterilization and long-acting reversible contraceptives (LARCS), such as intrauterine devices and contraceptive implants. 5. Integrating FP/RH and HIV/AIDS programs to ensure that HIV-positive men and women have access to family planning information and services, for disease prevention and to prevent mother-to-child transmission of the virus. 6. Integrating FP/RH and maternal and child health (MCH) programs, specifically during the postpartum period, when there is considerable demand from new mothers for contraception to ensure pregnancy spacing. In addition to these priorities, USAID FP/RH programs may also focus on related policy areas, such as efforts to end child marriage, female genital mutilation and cutting, and gender-based violence; and related health goals, including the prevention of fistula. <2.1. Programs and Activities> USAID works with implementing partners to fund programs and provide technical assistance for the following family planning and reproductive health programs and activities: D elivery of FP/RH services . Examples include providing women with counseling to promote awareness of available contraceptives or other methods of birth control, or procedures at health facilities to insert Intrauterine Devices (IUDs) or other forms of Long Acting Reversible Contraceptives (LARCs). Contraceptive supply and logistics implementation and management of supply chains for contraceptives, including condoms. In FY2018, for example, USAID donated 28 million male condoms to developing countries through the agency's implementing partners. Biomedical and social science research the study of biomedical and social science evidence to identify best practices in programming and implementing family planning services. For example, USAID created Demographic and Health Surveys (DHS) and partnered with national governments and implementing partners to use the tool for conducting household- and facility-based surveys on health attitudes and behaviors in Africa, Asia, Latin America, the Caribbean, and Eastern Europe. In addition, USAID provides direct technical assistance to foreign ministries of health and other partners, focusing on the following areas: Performance and quality improvement the use of data to improve both access to FP/RH services and their quality. For example, data from USAID-supported surveys are used to analyze women's use of family planning methods (e.g., effectiveness of contraceptive method, provider attitudes towards patients, or provider-patient interactions). Health communication the use of mass media, community-level, and interpersonal communication strategies to expand knowledge of contraception, healthy approaches to birth spacing, and sex education, as well as awareness and prevention of GBV, forced early and child marriage (FECM), and FGM/C. For example, USAID supports community health promoters and behavior change campaigns, to educate women and their families on a variety of issues such as access to reproductive health services, the importance of maternal and neonatal health provider check-ups, and the health and psychosocial risks of FGM/C to women and girls. Policy analysis and planning support for the development, implementation, and monitoring of policies and laws that affect FP/RH policies and programs, and women's health outcomes. For example, USAID supported a research project in Kenya which analyzed the country's evolving health policies (e.g., the National Population Policy for National Development and the Adolescent Reproductive Health and Development Policy) and contraceptive distribution programs, to evaluate impact on Kenya's total fertility rate and contraceptive prevalence rate. Monitoring and evaluation (M&E) the evaluation of programs to understand the content, quantity, and potential effects of services being provided with U.S. government assistance. Integration of FP/RH and MCH activities According to USAID, access to family planning services can prevent 30% of maternal deaths (or approximately 90,000 deaths annually). USAID implementing partners often provide integrated FP/RH and MCH services, where appropriate. Many experts recognize MCH programs as a natural entry point for promoting awareness of and access to family planning services, as in the post-natal period evidence suggests that women have an increased desire to plan or prevent future pregnancies. For example, a mother bringing her child to a routine vaccination appointment might also be able to receive maternal health services and counseling on contraceptive options. Fourteen USAID-supported countries highlight integration of FP/RH and MCH as an approach to community health service delivery in their national government policies. However, USAID MCH programs are funded separately from FP/RH programs, as there are also FP/RH programs that focus on issues outside the realm of MCH (e.g., programs addressing adolescent sexual and reproductive health, prevention of FECM, GBV, FGM/C and obstetric fistula). In India, for example, USAID FP/RH funds supported programs to provide counseling and referral of GBV survivors to service providers, such as psychosocial counselors. <2.2. Countries Receiving USAID FP/RH Assistance> In 2018, USAID supported bilateral family planning and reproductive health aid programs in more than 40 countries, including 24 "priority" countries, which are the focus of FP/RH programs and technical assistance and receive the majority of FP/RH funding. Most of these priority countries (23 of 24) are also categorized as MCH priority countries by USAID. To determine priority status, USAID evaluates which countries have the highest need, based on the magnitude and severity of their neonatal and maternal death rates; demonstrated national commitment to achieving sustainable and efficient program outcomes; and the greatest potential to leverage U.S. government support. USAID FP/RH priority countries are largely in Africa ( Figure 1 ). Compared with other developing nations and regions, Africa has the highest concentration of countries with low rates of modern contraceptive use and highest maternal mortality rates ( Table B-1 ). In 2018, the top three recipients of U.S. FP/RH assistance were Nigeria ($37 million), Uganda ($29 million), and Tanzania ($28 million). In 2018, USAID provided $2 million or less (per country) annually to support FP/RH programs in an additional 18 countries that were assessed to have a need for family planning services (e.g., Benin), and/or a strategic foreign policy interest to the United States (see Table B-2 ). For example, despite relatively low fertility and maternal death rates, Ukraine receives USAID FP/RH funds as part of a multifaceted approach to supporting Ukraine as a free and democratic state "in the face of continued Russian aggression." <2.3. Criteria for Country "Graduation"> USAID formalized a country graduation process for FP/RH assistance in 2006, to transition countries off of U.S. foreign assistance for FP/RH programs and prioritize countries when allocating funding. The graduation strategy also aligns with the agency's "Journey to Self-Reliance," a policy framework established in 2018 to strengthen the ability of partner countries to support their own development agendas. Countries receiving family planning assistance may "graduate" once they have met certain criteria and a country program has achieved its stated goals. According to USAID, a country is eligible for graduation once it reaches a modern contraceptive prevalence rate of at least 51%; and reaches a level of fertility at or below 3.1 children per woman. USAID also considers additional issues when evaluating a country's readiness for graduation. Countries who reach both criteria but lack the capacity to implement family planning programs or face other constraints may continue to receive assistance (e.g., India). USAID may also evaluate whether governments are allocating sufficient public funds for contraception procurement and whether their Ministries of Health demonstrate adequate capacity to manage the associated logistics and supply chain processes. Additional indicators considered for graduation include at least 80% of the population can access at least three methods of FP; no more than 20% of FP products, services and programs offered in the public and private sectors are subsidized by USAID; and major service providers in all sectors (public, non-governmental, commercial) can meet and maintain standards of informed choice and quality of care. To date, USAID 25 countries have graduated, half of which are in Latin America and the Caribbean ( Table B-4 ). For example, Brazil graduated in 2000, after the government, non-governmental organizations, and the private sector invested substantially in family planning assistance, and as the country's Gross Domestic Product (GDP) increased. USAID partners worked to build capacity in Brazil's civil sector and Ministry of Health programs, by focusing on outreach, education, and improved access to care. According to USAID, "the program worked with the government to reduce Brazil's legal obstacles and tariff barriers to the importation of medical equipment, foam, jellies, and oral contraceptives, as well as quality intrauterine devices and condoms not manufactured in Brazil." Perhaps reflecting these efforts, Brazil's contraceptive prevalence rate increased from 34% in 1970, to 72% in 2000. Other countries who were graduated (e.g., Mexico), demonstrated similar characteristics. Once a country graduates, PRH evaluates where U.S. resources can best be reallocated based on need. In 2011, for example, USAID formed the Ouagadougou Partnership (named for the capital of Burkina Faso) with funding reallocated from graduated Latin American countries. This partnership which also involves the government of France, the Bill and Melinda Gates Foundation, and the Hewlett Foundation seeks to improve access to family planning services in francophone West Africa. ( Table B-3 ). <3. U.S. Funding> Bilateral FP/RH assistance is funded through a variety of accounts in annual Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations measures. The Global Health Programs (GHP) account is the funding channel for more than 90% of bilateral FP/RH aid while smaller amounts of bilateral FP/RH assistance are generally made available through other accounts. Department of State Economic Support Fund (ESF) monies are provided to select countries considered by the State Department to be politically and strategically important. In recent years, Pakistan, Afghanistan, and Jordan have received ESF funds for FP/RH activities. In FY2017, for example, Afghanistan, which is a USAID FP/RH priority country, received $20 million in bilateral family planning assistance, all of which was provided through the ESF. Over the past decade, enacted funding levels for bilateral international FP/RH aid have remained fairly consistent ( Figure 2 ). Although congressionally enacted funding has been constant since 2011, the absence of foreign assistance authorization legislation in recent decades has made annual consideration of foreign aid appropriations the primary venue for debating international family planning and reproductive health policy. Controversies that are frequently debated as part of the appropriations process include codification of the Mexico City Policy/Protecting Life in Global Health Assistance (MCP/PLGLHA), which is currently imposed through Executive Order (see "Selected Issues for Congress"); the effect that withholding U.S. dollars as a result of such restrictions could have on access to voluntary family planning and other health services in developing countries; and whether or not designating funding for contraceptive provision and family planning is the best approach to allocating global health funds. Members of Congress hold varied perspectives on these issues. Some Members have supported expanding access to FP/RH services, while others aim to increase restrictions on such services or reduce funding levels. in addition to these perennial concerns, debate in the 116 th Congress regarding FP/RH programs has addressed issues such as the role of faith-based contractors in USAID FP/RH programs, bias and discrimination against potential aid recipients, and language around sexual and reproductive health. In recent years, controversy has also arisen over how FP/RH services are described in government documents, though it remains unclear whether language changes have had any impact on actual service provision. <4. Selected Issues for Congress> When considering U.S. support for international family planning and reproductive health efforts, the 116 th Congress may focus on three key areas: restrictions under the MCP/PLGHA, funding levels in appropriations bills, and program reforms proposed in pending legislation. <4.1. Mexico City Policy/PLGHA> The Mexico City Policy requires foreign nongovernmental organizations receiving USAID family planning assistance to certify that they will not perform or actively promote abortion as a method of family planning, even if such activities are conducted with non-U.S. funds. Since first applied in the Reagan Administration in 1984, the policy has been repeatedly lifted and reinstated through Executive Order. The policy was maintained by President George H.W. Bush and rescinded by President Clinton in 1993. It was then reinstated by President George W. Bush in 2001, who expanded the policy in 2003. President Obama rescinded the policy upon taking office in January 2009. The Trump Administration reinstated the policy, expanded it to include all U.S. global health assistance, and renamed it Protecting Life in Global Health Assistance (PLGHA). The Trump Administration uses the two policy names interchangeably, though the Mexico City Policy until now only applied to international family planning and reproductive health programs. When discussing the policy under the Trump Administration, this report uses MCP/PLGHA. MCP/PLGHA has never been enacted through legislation, and advocates have long encouraged Congress to codify the policy, making it harder for future Administrations to revoke. Simultaneously, detractors of the policy have called for enactment of legislation that would prevent the current practice of Administrations imposing the policy through Executive Order. Some international FP/RH program advocates suggest there are issues and confusion regarding compliance with the expansion of MCP to include all global health assistance. They assert that the policy has rendered programs cumbersome and ineffective due to administrative and operational burdens associated with ensuring compliance, which divert resources from the health workforce, health information systems, and service delivery. Some field reports indicate that individual providers may not be aware of the restrictions because MCP/PLGHA is "embedded" in funding agreements, similar to "fine print," which can create barriers to care during a provider-patient interaction. Advocates of the expanded policy argue that it closes loopholes in the prior policy and does not cause an undue burden, asserting that the government must focus on compliance. In February 2018, the State Department released the findings of a six-month review of MCP/PLGHA. The State Department acknowledged the confusion the policy created, stated that the policy's impact on program effectiveness was minimal, and committed to conduct another review at the end of 2018. As of February 2020, the State Department had not announced plans for a second review. Congress could choose to mandate completion of the second review through legislation or examine the situation through oversight activities. <4.2. Setting Funding Levels for International FP/RH Programs> In recent years, congressional debates regarding international FP/RH assistance have centered on where and how such funding should be spent. For FY2020, Congress appropriated $575 million to international family planning programs. Some advocates have argued that global FP/RH funding levels would need to be doubled in order to make family planning and reproductive services accessible to all women who currently want and lack access to them. Proponents say that consistently flat funding is equivalent to FP/RH spending cuts, and this undermines U.S. global development goals on maternal and child health. Advocates note that the U.S. government would need to invest $1.5 billion to meet its appropriate share of the burden for foreign assistance for FP/RH funding, and other donor countries cannot fill the gap. Opponents of the aid have questioned the extent of international demand for family planning services and have suggested that international family planning resources could be better used on other development activities. Further, opponents argue that international family planning services are controversial in some countries due to religious and moral beliefs, which, in their views, raises questions about whether increased donor funding would lead to increased use of contraceptives and reproductive health care services or to better maternal health outcomes. Some observers also question whether the programs have been efficient and cost-effective, given the scale of U.S. spending on bilateral family planning programs, compared to other types of U.S. assistance. While data appears to show positive program impact in some countries, the attribution of results specifically to U.S. programming can be debated given the many factors that influence contraceptive use, including social and economic change and the activities of other international donors. In this context, Congress may consider whether funding levels for bilateral international family planning assistance align with need and potential impact, as well as with U.S. strategic goals and foreign policy objectives. <4.3. Formal Integration of FP/RH and MCH Programs and Funding Streams> Currently, though some U.S. international FP/RH and MCH programs may be integrated (e.g., both types of health services are provided together), most are not, due in part to separate line item funding in the annual Department of State, Foreign Operations, and Related Programs appropriations measures, separate funding entails separate program administration. Proponents of further program integration want to combine FP/RH and MCH services; they note that integration of these services has been shown to increase women's use of contraception, improve maternal health outcomes, and build health systems capacity. Integration of these funding streams may also provide more flexibility to implementing agencies to prioritize funding across a broader range of programs. On the other hand, eliminating funding directives specific to FP/RH and MCH may also reduce congressional control over how funds are used. Furthermore, opponents note that respect for local cultural norms must be considered; in some contexts, service integration could be detrimental to MCH activities if they are associated with less socially acceptable family planning programs. Aid-recipient countries may also resist integration of these programs when separate government health units administer international FP/RH and MCH services and may fear losing prioritization and resources. Others have also raised concerns that embedding FP/RH programs in MCH services would limit USAID programs to address adolescent sexual and reproductive health, and prevent CEFM, GBV, and obstetric fistula - that are distinct from family planning. Congress may consider whether formally integrating FP/RH and MCH funding streams would be beneficial to program efficacy, or if existing appropriations and implementation mechanisms best further the stated objectives of U.S. international FP/RH and MCH programs. <4.4. Pending Legislation> In addition to appropriations legislation, a few proposals specific to international FP/RH are pending in the 116 th Congress: H.R. 661 , the Protecting Life in Global Health Assistance Act of 2019, which would amend the Foreign Assistance Act of 1961 (22 U.S.C. 2351). This legislation was introduced to codify the Trump Administration's expansion of the Mexico City Policy to include all global health assistance. It would "prohibit U.S. assistance to foreign nonprofits, nongovernmental organizations, or quasi-autonomous organizations that promote or perform abortions, except in cases of rape or incest or where the mother's life is endangered." H.R. 1581 , the Reproductive Rights are Human Rights Act of 2019, and S. 707 , the corresponding Senate bill, would amend the Foreign Assistance Act of 1961 (22 U.S.C. 2351) to "include in its annual reports on human rights in countries receiving U.S. development and security assistance a discussion of the status of reproductive rights in each country, including whether a country has adopted and enforced policies to: (1) promote access to contraception and accurate family planning information, (2) provide services to ensure safe and healthy pregnancy and childbirth, (3) expand or restrict access to safe abortion services, (4) prevent maternal deaths, and (5) prevent and treat sexually transmitted diseases." The bills would also require the reports to include data on maternal deaths and discrimination and violence against women and girls in health care settings, including the government's response to these actions. Appendix A. Restrictions on U.S. Funding for Voluntary FP/RH Programs Appendix B. USAID FP/RH Priority Countries: Key Statistics, 2017

U.S. international family planning activities stem from a provision of the Foreign Assistance Act of 1961 (Section 104, P.L. 87-195; as amended), which authorized research on family planning issues, among many other things. In 1965, Congress authorized the U.S. Agency for International Development (USAID) to create contraceptive distribution programs. Originally, international family planning programs focused on distributing contraceptives and related commodities. Over time, such programs evolved to also address reproductive health issues, such as female genital mutilation (FGM) and obstetric fistula prevention and care. The United States is the largest donor of international family planning and reproductive health (FP/RH) assistance, supporting programs in 40 countries and providing, in recent years, $575 million annually in bilateral aid for this purpose. USAID administers the majority of this funding, which Congress appropriates primarily through the Global Health Programs account in the annual State, Foreign Operations and Related Programs appropriation. Policy debates about U.S. bilateral foreign assistance for FP/RH activities have focused primarily on whether recipient organizations could repurpose those funds to indirectly support abortion, despite legislation barring the use of U.S. funds for such purposes. Other aspects of FP/RH programs, particularly those related to curbing child marriage and gender-based violence, have generally received broad based support. This report describes the background and history of U.S. bilateral international family planning and reproductive health programs, funding trends, and related policy debates, including the effects of the Mexico City Policy/Protecting Life in Global Health Assistance restrictions and other abortion, and involuntary sterilization related restrictions on voluntary family planning and reproductive health services supported by U.S. bilateral foreign assistance; appropriate funding levels for international family planning and reproductive health programs; the utility of more or less integration of family planning/reproductive health programs and maternal and child health funding and programs; and pending legislation focused on international family planning assistance. This report does not cover family planning assistance channeled through multilateral organizations, such as the U.N. Population Fund (UNFPA). It provides only limited discussion of legislative restrictions and executive branch policies related to international abortion, which are detailed in other CRS products. For information on legislative restrictions, U.S. domestic abortion laws, and U.S. global health assistance, including international family planning, see the following CRS products: CRS In Focus IF11013, Protecting Life in Global Health Assistance Policy , by Tiaji Salaam-Blyther and Sara M. Tharakan. CRS Report R41360, Abortion and Family Planning-Related Provisions in U.S. Foreign Assistance Law and Policy , by Luisa Blanchfield. CRS Report RL33467, Abortion: Judicial History and Legislative Response , by Jon O. Shimabukuro. CRS In Focus IF10131, U.S. Global Health Assistance: FY2017-FY2020 Request , by Tiaji Salaam-Blyther.

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<1. Introduction> Congress has shown an interest in the Department of Defense's (DOD's) electronic warfare (EW) portfolio, requiring an independent assessment of EW plans and programs in the FY2019 National Defense Authorization Act (NDAA). This report addresses U.S. military EW funding across research, development, test, and evaluation (RDT&E) and procurement appropriations. Using the FY2019 through FY2021 budget request documents, this analysis compares funding profiles between fiscal years, as well as projected funding across the future years defense program (FYDP). Using unclassified sources, CRS estimates that DOD seeks to invest approximately $9.7 billion in FY2021 funding for EW programs. Discussion of specific EW-related programs, as well as an overview of electronic warfare, are outside the scope of this report. The following analysis looks at EW funding identified by the DOD's EW Executive Commission (EW EXCOM). The EW EXCOM identified a series of RDT&E program elements from three of the military services (Air Force, Army and Navy), as well as several defense agencies (Defense Advanced Research Projects Agency, Defense Information Systems Agency, the Joint Staff, Office of the Secretary of Defense Operational Test and Evaluation, and U.S. Special Operations Command). Using the program elements identified, this analysis extrapolates procurement funding to provide an overview of DOD investments in electronic warfare in FY2019 and FY2020 and requested investments in FY2021. <2. EW in Support of the National Defense Strategy> Over the past two decades, China and Russia have seen U.S. military command and control, intelligence surveillance, and reconnaissance (C2ISR) networks as a critical capability that they must develop capabilities against which to effectively compete. Both countries, as a result, have invested heavily in EW-related systems. According to one analyst, the Russian military views electronic warfare as a "type of armed struggle using electronic means against enemy C4ISR [command, control, communications, computers] to 'change the quality of information,' or using electronic means against various assets to change the condition of the operational environment." Similarly, China has developed sophisticated EW capabilities to disrupt and deny adversary access to command and control systems particularly space-based systems. Not only has the Chinese military been developing new systems, but it routinely exercises with them. In its most recent annual report to Congress, DOD documented at least four major exercises the People's Liberation Army used to test and demonstrate their capabilities. The National Defense Strategy Commission , an independent Congressional commission charged with evaluating the DOD's National Defense Strategy, identified EW as a critical capability to achieve the goals of the National Defense Strategy. Similarly, in its FY2019 through FY202 1 Defense Budget Overview request documents, DOD identified EW as a priority to improve platform and network survivability; provide advanced jamming techniques to disrupt radars, communications, and command and control systems; and provide measures to defend the space domain and maintain power projection forces. <3. Methodology> The Executive Branch and the Congress have placed a higher priority on EW programs in recent years. In 2015, the Deputy Secretary of Defense established the EW EXCOM co-chaired by the Under Secretary of Defense for Acquisition and Sustainment (USD A&S) and Vice Chairman of the Joint Chiefs of Staff to identify emerging EW technologies. The FY2017 NDAA required the EW EXCOM to develop an EW Strategy. In its strategy, the EW EXCOM identified program elements and projects with EW facets in each of the services' and Defense-wide Research, Development, Test and Evaluation (RDT&E) appropriations. It did not, however, identify procurement lines due to complexity and classification issues . Furthermore, some program elements the EXCOM identified might not clearly refer to EW capabilities, like DARPA's Electronics Technology. Other program elements that support EW operations, however, such as the Navy's E-2D Hawkeye, are not included in the EXCOM's program list. With these methodological limitations, this report treats the EW EXCOM's list of 65 program elements and projects as encompassing DOD EW programs. The following analysis compares the FY2019 budget request for these programs with the FY2020 and FY2021 requests. The analysis includes funding for the Army, Navy, Air Force, DARPA, Defense Information Systems Agency (DISA), the Joint Staff, Office of the Secretary of Defense (OSD), Operational Test and Evaluation (OT&E), and Special Operations Command (SOCOM), using program elements identified by EXCOM in its strategy document, which are aggregated at the department or agency level. The FY2021 request includes Space Force programs, which had been part of the Air Force request in prior years. Though the EW EXCOM did not identify EW procurement programs, DOD procurement justification documents (P-40s) identify related research and development program elements. Using the Defense Technical Information Center investment budget search tool, this analysis identified the associated EW procurement programs 28 in FY2019, 36 in FY2020, and 33 in FY2021. Some research and development efforts such as the F/A-18 Hornet fighter jet and MQ-9 Reaper drone did not differentiate funding for EW-specific procurement and therefore included procurement for aircraft. These procurements were excluded so as not to artificially inflate the funding profile. Based on the RDT&E profiles and program element searches, CRS did not identify DISA, Joint Staff, OSD, and DARPA programs with procurement appropriations. DOD has stated that it has prioritized EW funding above other programs. This report compares funding requests between the three fiscal years to assess if DOD seeks to increase funding of the EW portfolio (by increasing funding), decrease funding, or keep the portfolio relatively unchanged. To assess these changes, the percentage change from FY2019 to FY2020 is calculated for each appropriations category, and then compared to an overall DOD percentage change. <4. EW Research and Development Funding> <4.1. FY2019 RDT&E Funding> Table 1 , above, provides an overview of the FY2019 EW RDT&E funding request, FY2019-enacted funding, and projected funding for EW program elements in each of the departments and agencies. The FY2019 request serves as a baseline to compare how DOD changed its funding priorities for FY2020. Of note, DOD requested $5.53 billion in EW RDT&E for FY2019 and planned on spending approximately $24.5 billion across the FYDP. The Navy requested the most funding in FY2019 ($2.44 billion), followed by the Air Force ($1.14 billion), the Army ($859.7 million), DARPA ($740 million), and other organizations ($341 million). EW funding was anticipated to peak in FY2019 then curtail through FY2022, followed by a slight increase in FY2023. Figure 1 , above, shows the difference between the Administration's FY2019 DOD request and the enacted amount of EW RDT&E. DOD requested a total of approximately $5.5 billion in FY2019; Congress enacted approximately $5.8 billion, $263 million above the requested amount. Of particular note, OSD OT&E received additional funding for subsequent testing. The largest increases between the FY2019 request and enacted levels were for "Other" agencies primarily Operational Test and Evaluation and the Army. The Navy and DARPA saw slight decreases from their requested levels. <4.2. FY2020 RDT&E Funding> Table 2 provides the FY2020 request and projected future year funding levels for EW RDT&E appropriations in DOD's FY2020 budget request. Of particular note, the Administration's DOD budget requested $504 million in additional RDT&E funding for FY2020 compared with the FY2019 request. While it would follow a trend line similar to FY2019's projection, DOD's plan adds additional money to EW capabilities in each of the out-years of the FYDP. This increase can primarily be attributed to the Navy's start of the Next Generation Jammer-Low Band program, as well as the Army's renewed focus on EW capabilities. Figure 2 provides a comparison between requested and appropriated amounts by military department for FY2020. There was an overall increase in $140 million in EW research and development efforts. The Air Force received approximately $139 million in additional funding compared to the requested amount, with the largest increases for Advanced Aerospace Sensor Technologies and EW Quick Reaction Capabilities. The Navy received an additional $58 million for EW research and development efforts, including more funding for the F/A-18 Infrared Search and Track development and Shipboard Information Warfare Exploitation programs. These increases were partially offset by a $31 million reduction in DARPA funding for EW research and development and a $26 million reduction in Army funding for such efforts. DARPA programs all saw relatively small decreases in funding. Army funding decreases included reductions to assured Precision, Navigation and Timing equipment development. <4.3. FY2021 Request> The FY2021 RDT&E request includes approximately $5.7 billion across all military departments and agencies. The Navy requested the most, following a similar trend in FY2019 and FY2020. The Army requested the second most, replacing the Air Force in prior years. Table 3 provides an overview of the FY2021 request. The Army increased EW RDT&E funding by $305 million when comparing what was projected from the FY2020 request and what was requested in FY2021. The Air Force experienced the most changes, restructuring several program elements and transferring others to the Space Force. The top three programs that received increased funding include (1) the Army's Rapid Capability Development and Maturation program (increased by $247 million compared to the FY2020 projection for FY2021), (2) the F/A-18 Infrared Search and Track (IRST) development (increased $168 million), and (3) the Eagle Passive Active Warning System (increased by $146 million). Programs that saw the largest reductions include the B-2 Defensive Management System (reduced by $164 million), DARPA's Sensors and Processing Systems program (reduced by $142 million), and the Space Force's Protected Tactical Satellite Communications (reduced $48 million). <4.4. FY2019 Request Through FY2021 Request RDT&E Funding Comparison> CRS assesses that the FY2021 request includes 93 program elements associated with electronic warfare and 157 related projects. This represents a slight increase from previous years, partly as a result of the newly established Space Force, the Air Force restructuring research projects, and the Army's restructuring of programs. Figure 3 depicts funding projections from the FY2019, FY2020, and FY2021 requests. The FY2021 request aligns closely with the FY2020 request, reducing funding by $104 million from projections in FY2020. The FY2021 request projects $25.6 billion over five years; FY2019 projected $24.6 billion over the FYDP, FY2020 similarly projected $25.6 billion. DOD has increased planned EW RDT&E funding from $4.9 billion in its FY2019 request to $5.6 billion in its FY2020 request, then down to $5.5 billion in the FY2021 request. The FY2021 request represents an 11.7% increase in funding when compared to FY2019 projections, but a 1.7% decrease from the projected funding from FY2020 request. The overall change from FY2019 to FY2021 (11.7%) is double the requested 4.9% increase in overall DOD funding from FY2019 to FY2020. <5. EW Procurement Funding> <5.1. FY2019 Procurement Funding> Table 4 , above, provides an overview of the FY2019 EW procurement request along with enacted procurement appropriations. Overall, the Administration requested $4.55 billion for EW-related procurement activities. The Navy requested the most ($2.43 billion), followed by the Air Force ($919 million) and the Army ($743 million). Funding was projected to decline through FY2021 before increasing in FY2022 and FY2023, as a result of the first increment of the Next Generation Jammer (NGJ) entering production. The NGJ is a series of jamming pods designed to disrupt air defense radars and comminutions, replacing the Vietnam-era ALQ-99 jammers. Congress added $431 million in appropriations, representing a 9.5% increase over what the Administration requested. Figure 4 provides the differences between what was requested versus enacted. Of note, the Air Force received an additional $444 million over the requested amount due to Congress funding an additional EC-37B aircraft which is designed to jam air defense radars and command and control systems as well as increases to combat training ranges and simulations and adjustments to the F-15 defensive systems. The Navy and SOCOM saw minor decreases in appropriations. <5.2. FY2020 Funding> The Administration requested $4.56 billion in EW procurement for FY2020, adding an additional $303 million compared to what was planned in FY2019. Table 5 provides an overview of the overall FY2020 request. The Navy again requested the largest amount ($2.44 billion), followed by the Air Force ($1.21 billion) and the Army ($574 million). The Air Force's request increased the most (by $306 million) compared with what had been planned for FY2020 in the previous FY2019 request, followed by the Army (by $224 million). This requested increase can be partially attributed to the Army starting a new program for Assured Positioning, Navigation and Timing and the Air Force's transition of the E-11 Battlefield Airborne Communications Node (BACN) to a program of record and increases to E-3 Airborne Warning and Control System (AWACS) modifications. <5.3. FY2021 Request> Procurement for EW equipment was $4.2 billion. The Navy and the Air Force requested the largest proportions of the request, following similar trends identified in FY2019 and FY2020. New to the FY2021 request was funding for the Space Force the newest military service and authorized in the FY2020 National Defense Authorization Act ( P.L. 116-92 ). Table 6 provides an overview of the FY2021 procurement request. Procurement in FY2021 is the lowest of the three fiscal years tracked in this report, only slightly higher than funding levels projected from the FY2019 request. There are a few trends to highlight from the FY2021 request. First, Navy procurement saw the largest decreases. The primary programs with significant reductions include MQ-4 Triton procurement (reduced $543 million compared to projections for FY2021 from the FY2020 request), MQ-4 Triton procurement (reduced $373 million), and AN/ALQ-32s (reduced $159 million). Procurement for Assured Precision Navigation, and Timing (PNT) equipment (increased $93 million), Patriot Modifications (increased $85 million), and the Integrated Fire Protection (IFPC) Family of Systems (increased $46 million) received the largest increases compared to the FY2020 request. The funding data suggest the Navy is reevaluating its EW programs, particularly for the surface fleet. <5.4. FY2019 Request through FY2021 Request Procurement Funding Comparison> The FY2021 request included approximately $3.7 billion to procure electronic warfare capabilities. This represents a 22.5% reduction in procurement funding compared to what was projected for FY2021 in the FY2020 request ($4.8 billion). The FY2021 FYDP projects $22.8 billion in funding over the next five years; this is compared to the FY2019 FYDP, which projected $22.5 billion, and the FY2020 FYDP, which projected $26.3 billion. Figure 5 depicts each of the FYDPs as a comparison. Figure 5 illustrates the differences between the Administration's plans for EW procurement from FY2019 to FY2021. The FY2020 request added an additional $5.23 billion across the FYDP compared with the FY2019 FYDP. FY2021 added $94 million compared to the FY2019 request, but reduced procurement by $491 million compared to projections from the FY2020 request. The Navy observed the largest decrease in procurement funding, resulting in a reduction of $489 million. The Air Force saw a reduction of $81 million as well, primarily due to the introduction of the Space Force. The Army saw the largest increase, approximately $53 million. It might be argued that DOD is making EW procurement a priority, which is aligned with the strategic direction in the National Defense Strategy and recommendations by the National Defense Strategy Commission. DOD requested an additional 4.9% increase in funding compared to what it projected in FY2019. EW procurement, however, increased by 7.1% from the FY2019 request compared to what was requested in FY2020 a 2.2% increase over the DOD request. <6. Comparison of RDT&E and Procurement Funding> Figure 6 , above, shows the relationship between RDT&E and procurement. Some might be concerned looking exclusively at the planned funding levels for RDT&E since this appropriation declines over the FYDP. However, several programs currently receiving RDT&E funding such as the NGJ and the E-11 BACN transition from being developmental programs to fielded systems. Also of note, it appears that the Administration may have changed its plans on fielding new programs. Based on funding projections the Administration plans on accelerating the Next Generation Jammer quicker than previously anticipated. In addition, it appears the Administration decided to accelerate the F-15 electronic warfare systems (F-15 EPAWS). The increase in planned procurement funding in FY2020 is particularly significant compared to the planned funding profile in FY2019. Combining both appropriations, DOD requested an additional $662.5 million for EW in FY2021 compared to what it had initially projected in the FY2019 request; however, the FY2021 request is $591.3 million lower than had been projected from the FY2020 request. This represents a 7.3% increase in the portfolio from FY2019 projections but a 5.7% decrease compared to projections from the FY2020 projections. <7. Potential Issues for Congress> <7.1. EW Funding Levels> One potential issue for Congress is the overall funding level for EW programs. DOD requested approximately $9.7 billion dollars in FY2021 for the EW portfolio, based on unclassified budget request documents. Historically, individual EW programs have not been generally seen as large enough for in-depth congressional scrutiny; however, combined, these programs represent funding levels nearly as much as an aircraft carrier ($12.5 billion in total procurement for CVN-80) or the F-35 Joint Strike Fighter procurement ($10.7 billion in FY2019). Congress may ask whether $10.2 billion is sufficient for DOD to execute its missions, or, conversely, whether this funding level is too much. Second, Congress may ask whether each of the military services is funding unique programs, or whether there are overlapping programs that provide similar capabilities. To understand these questions, Congress may consider a historical perspective on how much the DOD allocated for EW to compare if current funding exceeds or under resources the portfolio. A second metric Congress may potentially consider using is the ratio of spending for procurement and RDT&E appropriations to understand where in the lifecycle EW programs currently are, and if the current portfolio is an anomaly. Many EW programs are highly classified due to their close relationship with intelligence and command and control programs. As a result, there is potentially insufficient unclassified information to assess how much DOD is currently spending on EW. This limitation of data presents a potential oversight issue for Congress. <7.2. Challenges with Appropriations Usage> Some have argued that DOD has not adequately prioritized EW over the past several years. The budget projections described above may support the argument that DOD is now prioritizing investment in EW funding. Congress may consider whether DOD uses research and development funding to procure new electronic components. Congress might consider requiring DOD to report all EW-related funding for procurements, as well as ensuring that DOD is not procuring new or advanced electronics through other appropriations. The EW EXCOM has stated that many procurement programs have EW-related spending, and it is difficult and complex to differentiate among them . As a result, this report does not include all EW-related procurement programs, and therefore does not account for all EW funding. If Congress maintains interest in EW procurement, it may consider requiring DOD to report all EW-related procurement programs, as well as to break out specific EW-related initiatives within a larger procurement program. <7.3. Assessing EW Plans and Programs> Congress has shown an interest in developing a comprehensive assessment of EW plans and programs across each of the DOD services and agencies. The FY2019 NDAA ( P.L. 115-232 ) required DOD to contract with a scientific organization to perform an independent assessment of DOD-related EW plans and programs. According to the legislation, this assessment identified U.S. programs, orders of battle and doctrine; analyze adversary programs, orders of battle and doctrine; and make recommendations for how the U.S. military might counteract adversary plans and programs. The Center for Strategic and Budgetary Assessments delivered the NDAA mandated study in December 2019; however, the FY2020 NDAA required a similar study to be performed. In addition to requesting an independent assessment of EW programs and plans, the FY2019 NDAA required DOD to update its Electronic Warfare Strategy from 2017 and submit it to Congress. Congress has expressed concern that DOD has not synchronized its efforts to ensure its dominance in the electromagnetic spectrum. For DOD to remain competitive, Congress directed the Secretary of Defense and a senior designated official to develop a process and procedure to integrate and enhance EW mission areas across DOD (i.e., to ensure each of the services cooperates and is integrated in the Joint force, as opposed to having service-specific solutions). This section of the NDAA requires DOD to develop a "defense-wide strategy, planning, and budgeting [process and procedures] with respect to conduct of such operations [electronic attack] by the Department, including activities conducted to counter and deter such operations by malign actors." The strategy was delivered in 2019; however, much of the detail of this particular strategy is classified.

Congress, in the FY2019 National Defense Authorization Act, and the Department of Defense (DOD) has identified electronic warfare (EW) as a critical capability supporting military operations to fulfil the current National Defense Strategy. Collectively, DOD considers procurement appropriations and research, development, test and evaluation (RDT&E) appropriations as part of its investment accounts. Using programs identified by the EW Executive Commission (EW EXCOM), this report traces funding for three of the military services (Air Force, Army, and Navy) along with several defense agencies (Defense Advanced Research Projects Agency, Defense Information Systems Agency, the Joint Staff, Office of the Secretary of Defense Operational Test and Evaluation, and U.S. Special Operations Command). This report compares DOD's funding requests for FY2019, FY2020, and FY2021 to assess if DOD seeks to increase the funding of the EW portfolio (by increasing funding), decrease its funding, or keep the portfolio relatively unchanged. Insights into EW Program Funding This report tracks DOD funding requests for approximately 65 research and develop program elements and 30 procurement line items across FY2019 and FY2021. Reviewing these three fiscal years request allows for comparisons across the EW portfolio and provides insights into how EW was prioritized relative to the overall DOD budget. In addition to tracking funding requests in each of the respective fiscal years and identifying what Congress appropriated in FY2019 and FY2020, this report looks at the future years defense program (FYDP) to identify potential trends in the EW portfolio. This report looks at the combination of the procurement and RDT&E budget requests to provide a comprehensive, unclassified overview of the total EW program requests within DOD. DOD requested at least $10.1 billion in FY2019, $10.2 billion in FY2020, and $9.7 billion in FY2021 for EW, an amount analogous to the F-35 Joint Strike Fighter program ($10.7 billion in FY2019) or a Ford-class aircraft carrier ($12.5 billion in total ship-building procurement). Based on statements by several senior defense officials and the conclusions of the National Defense Strategy Commission, it could be expected that DOD is likely to substantially increase funding for EW programs. CRS assesses that DOD requested 11.5% more funding for EW RDT&E in FY2021 than what was projected in the FY2019 budget, but 1.7% less than what was projected in the FY2020 budget. Comparing the procurement budget, the FY2021 request seeks to increase funding by 2.2% compared to FY2019 projections, but decrease funding by 10.3% compared to what was projected in the FY2020 request. From a portfolio perspective, CRS assesses that the Administration projects $51.7 billion over the FY2021 Future Years Defense Program (FYDP), $259 million less than the FY2020 FYDP, but $4.5 billion more than the FY2019 FYDP. Overall, it appears the Administration is prioritizing research and development for EW programs, while decreasing procurement, which aligns with the overall FY2021 DOD budget request. Potential Issues for Congress Based on this analysis, this report identifies three potential issues for Congress Is DOD appropriately funding the EW portfolio? How does DOD use appropriated funds for EW programs? Is DOD potentially buying new capabilities with research and development funds, when it should use procurement funding? Does DOD understand what it is developing and procuring within the EW portfolio?

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<1. Introduction> Senate Rule XXIII lists, by position category, individuals who, other than Senators, shall be permitted floor privileges in the Senate chamber when the Senate is in session. As President of the Senate, the Vice President is afforded floor privileges, even when not expected to perform formal or ceremonial duties. Additional categories include former Senators and other high-level officials and certain staff members conducting Senate business in the chamber. However, as amended in 2007, the rule excludes individuals who would otherwise be allowed if they are registered lobbyists or acting as an agent of a foreign principal. Over its history, the Senate has amended its floor privileges rule to add or modify the list of those granted access. The Senate has also agreed to resolutions and unanimous consent (UC) agreements that have further clarified the rule, established procedures regarding staff access, or allowed individuals not designated in the rule onto the floor. This report discusses the current positional categories listed in Rule XXIII, as well as the history of Senate floor privileges, beginning with the first identified Senate resolution regulating non-Senator access to the chamber in 1798. Additionally, relevant standing orders and biennial UC agreements are discussed in the report's "evolution of the rule" section. The final section of the report offers guidance in obtaining temporary staff access under the Sergeant at Arms's floor pass system or by unanimous consent. This report will be updated as necessary. <2. Current Senate Rule XXIII> <2.1. Positions Granted Floor Privileges> Rule XXIII designates the individuals who are granted floor privileges in the Senate chamber. This list contains many of the same categories that were in place during the late 19 th century, as well as official positions that were established at a later time: the mayor of Washington, DC; the Joint Chiefs of Staff, and members of the European Parliament. Rule XXIII, Privilege of the Floor, clauses 1 and 2, states: 1. Other than the Vice President and Senators, no person shall be admitted to the floor of the Senate while in session, except as follows: The President of the United States and his private secretary. The President elect and Vice President elect of the United States. Ex-Presidents and ex-Vice Presidents of the United States. Judges of the Supreme Court. Ex-Senators and Senators elect, except as provided in paragraph 2. The officers and employees of the Senate in the discharge of their official duties. Ex-Secretaries and ex-Sergeants at Arms of the Senate, except as provided in paragraph 2. Members of the House of Representatives and Members elect. Ex-Speakers of the House of Representatives, except as provided in paragraph 2. The Sergeant at Arms of the House and his chief deputy and the Clerk of the House and his deputy. Heads of the Executive Departments. Ambassadors and Ministers of the United States. Governors of States and Territories. Members of the Joint Chiefs of Staff. The General Commanding the Army. The Senior Admiral of the Navy on the active list. Members of National Legislatures of foreign countries and Members of the European Parliament. Judges of the Court of Claims. The Mayor of the District of Columbia. The Librarian of Congress and the Assistant Librarian in charge of the Law Library. The Architect of the Capitol. The Chaplain of the House of Representatives. The Secretary of the Smithsonian Institution. The Parliamentarian Emeritus of the Senate. Members of the staffs of committees of the Senate and joint committees of the Congress when in the discharge of their official duties and employees in the office of a Senator when in the discharge of their official duties (but in each case subject to such rules or regulations as may be prescribed by the Committee on Rules and Administration). Senate committee staff members and employees in the office of a Senator must be on the payroll of the Senate and members of joint committee staffs must be on the payroll of the Senate or the House of Representatives. 2. (a) The floor privilege provided in paragraph 1 shall not apply, when the Senate is in session, to an individual covered by this paragraph who is (1) a registered lobbyist or agent of a foreign principal; or (2) in the employ of or represents any party or organization for the purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal. (b) The Committee on Rules and Administration may promulgate regulations to allow individuals covered by this paragraph floor privileges for ceremonial functions and events designated by the Majority Leader and the Minority Leader. <2.2. Provision Excluding Lobbyists> In 2007, the Senate amended Rule XXIII to exclude from the chamber persons who are otherwise allowed entrance if they are registered as lobbyists, acting as foreign agents, or representing an entity for the "purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal." This exclusion, adding a new subparagraph 2(a), applies when the Senate is in session. More information on the lobbyist exclusion is presented in the evolution of the rule section of this report. <2.3. Regulation and Enforcement of the Rule> Senate Rule XXIII, clause 2(b), states that "it shall be the duty of the Committee on Rules and Administration to make all rules and regulations respecting such parts of the Capitol as are or may be set apart for the use of the Senate and its officers." Accordingly, the committee issues a "Rules for Regulation of the Senate Wing," which is printed in the Senate Manual . Rule I of the document specifies that the Senate Sergeant at Arms, under the direction of the presiding officer, enforces the rules associated with the Senate chamber. This officer supervises the Senate floor at all times and ensures that designated subordinates are in performance of their chamber-related duties. In addition, the Sergeant at Arms "shall see that the messengers assigned to the doors upon the Senate floor are at their posts and that the floor, cloakrooms, and lobby are cleared at least five minutes before the opening of daily sessions of all persons not entitled to remain there." <2.4. Exceptions to the Rule> Pursuant to clause 2(b) of Rule XXIII, the Committee on Rules and Administration may promulgate regulations to allow individuals covered under clause 2(a) floor access "for ceremonial functions and events designated by the Majority Leader and the Minority Leader." Thus, on certain occasions, such as opening day of a Congress, former Senators and other individuals may be invited into the chamber, even if they would otherwise be prevented by the ban on registered lobbyists. Temporary floor access may also be granted by unanimous consent. For instance, in 1929, unanimous consent enabled a Senator-elect to have his physician accompany him into the Senate chamber. Unanimous consent is often used to grant temporary access to House officials, such as the House Parliamentarian, or Senate interns or fellows who are not on the Senate payroll. <3. Evolution of Rule> <3.1. 1789-1977> In the earliest years of Congress, 1789-1795, the Senate closed its chamber to the public and the press. In 1795, the Senate, then meeting in the temporary capitol in Philadelphia, installed a public gallery but apparently had no official rules regarding floor access for non-Senators. <3.1.1. First Identified Senate Policy Regulating Floor Privileges (1798)> The first identified policy concerning floor access was established in 1798. The Senate resolved, "That no motion shall be deemed in order to admit any person, or persons, whatever, within the doors of the Senate chamber, to present any petition, memorial, or address, or to hear any such read." The Senate continued to follow this policy after it moved to the north wing of the Capitol Building in 1800. In 1806, the policy was codified in the first major revision of the standing rules, and it remained in the rules until the general revision of 1877. In the 1820 revision of the rules, the Senate established an additional rule regarding floor access. Standing Rule 38 then stated, "When acting on confidential or executive business, the Senate shall be cleared of all persons, except the Secretary, the Sergeant-at-Arms, and Door-Keeper, or, in his absence, the assistant door-keeper." On the opening day of the 24 th Congress (1835-1837), the Senate agreed to a resolution, dated December 7, 1835, that set aside the circular gallery for the "accommodation of ladies and the gentlemen accompanying them" and provided, "The reporters shall be removed from the east gallery, and placed on the floor of the Senate, under the direction of the Secretary." Furthermore, the resolution listed positional categories, in addition to reporters, that were allowed access to the floor. It stated, "No person, except members of the House of Representatives, their Clerk, Heads of Departments, Treasurer, Comptrollers, Register, Auditors, Postmaster General, President's Secretary, Chaplains to Congress, Judges of the United States, foreign Ministers and their Secretaries, officers who by name have received or shall hereafter receive the thanks of Congress for their gallantry and good conduct displayed in the service of their country, the Commissioners of the Navy Board, Governor for the time being of any State or Territory of the Union, such gentlemen as have been heads of Departments, or members of either branch of the Legislature, and, at the discretion of the President of the Senate, persons who belong to such Legislatures of foreign Governments as are in amity with the United States, shall be admitted on the floor of the Senate." By resolution, in 1854, the Senate amended its floor privilege rule (then Senate Rule 48). While the updated rule did not grant floor access to reporters, who at the time observed the chamber's proceedings from a reporters' gallery, it did expand the list of other categories admitted. The new list formed the basis for the current Rule XXIII. It included government officials serving in the District of Columbia, state judges and legislators, and individuals who had previously served in positions with floor privileges. The resolution also provided regulations relating to chamber access. No person excepting Senators, Senate officers, and House Members would be allowed entrance to the chamber via its side doors, and "no person except members of the Senate" would be "allowed within the bar of the Senate, or to occupy the seat of any senator." Prior to entry, all persons "claiming admission on the floor of the Senate" were to "enter their names, together with the official position in right of which they claim admission, in a book to be provided and kept at the main entrance to the Senate chamber." This policy, requiring a record of individuals accessing the floor while the Senate is in session, remains in effect today. Notwithstanding the policy established in 1854, Senators could, by resolution, obtain temporary floor access for individuals not otherwise permitted. For instance, in 1855, the Senate considered by unanimous consent and agreed to the following resolution: " Resolved , That the officers and soldiers of the war of eighteen hundred and twelve, now holding a convention in this city, be invited to occupy seats upon the floor of the Senate, without the bar, during the sitting of such convention." As the Senate prepared to move into its new (and current) chamber in the Capitol's north extension, it agreed to a resolution that temporarily restricted access to the Senate floor. The resolution of December 23, 1858, stated that "until the Senate otherwise order [ sic ], no person except senators, the officers of the Senate, and members of the House of Representatives, be admitted to the floor of the Senate while in session." Following the Senate's transition to the new chamber in January 1859, the Senate amended Rule 48 to state, "No person shall be admitted to the floor of the Senate, while in session, except as follows, viz: The officers of the Senate, members of the House of Representatives and their Clerk, the President of the United States and his private secretary, the heads of departments, foreign ministers, ex-Presidents and ex-Vice-Presidents of the United States, ex-senators, senators elect, and judges of the Supreme Court." However, the Senate could, by motions and resolutions, grant temporary access to individuals for particular reasons. For instance, to address structural problems associated with the new chamber, the Senate agreed to a motion submitted on December 14, 1859: " Ordered , That the assistant engineer in charge of heating and ventilating have the privilege of the floor of the Senate, so far as in the opinion of the presiding officer his duties make it necessary." In 1862, the Senate amended Rule 48 to add "governors of States and Territories." In the next general revision of the Senate rules, agreed to on March 25, 1868, the Senate re-numbered the floor privilege rule as Rule 47 and approved a minor amendment: The phrase foreign ministers became "ministers of the United States and foreign ministers." <3.1.2. President Johnson Impeachment Trial (1868)> The Senate adopted its 1868 rules shortly after the House approved articles of impeachment against President Andrew Johnson on March 2 and 3. Following the commencement of the Senate trial on March 5, the Senate voted to restrict, during the impeachment proceedings, "that portion of the Capitol set apart for the use of the Senate and its officers" to those "who now have the privilege of the floor, and clerks of the standing committees of the Senate" and gallery spectators in possession of tickets issued by the Sergeant at Arms. Three weeks into the impeachment trial, the Senate rejected a resolution providing an exception to the floor privilege rule. By a vote of 19 yeas to 20 nays, the Senate refused "to admit the agent of the Associated Press on the floor of the Senate during the trial of the impeachment." <3.1.3. First Regular Senate Staff Members Given Floor Privileges Under Standing Rules (1872)> In 1872, the Senate included regular Senate employees, in addition to Senate officers, to the list of positional categories afforded floor privileges under a standing rule. On motion, the Senate amended Rule 47 to add the following: "General of the Army, Admiral of the Navy, members of the national legislatures of foreign countries, private secretaries of Senators duly appointed in writing, and the Librarian of Congress." By including the phrase duly appointed in writing , the Senate ensured that employee admission would be limited to officially recognized staff members. The Senate codified the "private secretaries" position in the next general revision of Senate rules in 1877. Re-numbered Rule 60, the floor privileges rule stated : No person shall be admitted to the floor of the Senate while in session, except as follows: The officers of the Senate. Members of the House of Representatives and their Clerk. The President of the United States and his Private Secretary. The heads of Departments. Ministers of the United States. Foreign ministers. Ex-Presidents and Ex-Vice Presidents of the United States. Ex-Senators and Senators-elect. Judges of the Supreme Court. Governors of States and Territories. General of the Army. Admiral of the Navy. Members of national legislatures of foreign countries. Private secretaries of Senators, duly appointed in writing, and the Librarian of Congress. <3.1.4. George Bancroft: Only Individual Identified by Name Afforded Floor Privileges Under the Standing Rules (1879-1891)> In 1879, for the first (and only) identified time, the Senate amended its standing rules to grant permanent floor privileges to a named individual: George Bancroft, the former Secretary of the Navy, renowned historian, and author of the acclaimed multi-volume History of the United States . The Senate resolved "that the Hon. George Bancroft be admitted to the privileges of the floor of the Senate." (Following Bancroft's death in 1891, newspapers reported that this privilege had been extended as a means to honor this "most illustrious man of letters." ) In 1884, the next general revision of Senate rules re-codified the rules using Roman numerals and titles to distinguish each rule. The re-numbered Rule XXXIII, Privilege of the Floor, specified the Honorable George Bancroft as an individual allowed admittance; retained the positional categories listed in the 1877 rule; and added the House Sergeant at Arms, the Assistant Librarian in charge of the Law Library, judges of the Court of Claims, and the Architect of the Capitol extension. It also contained a second clause that further regulated the admittance of non-officer Senate employees: No person shall be admitted to the floor as private secretary of a Senator until the Senator appointing him shall certify in writing to the Sergeant-at-Arms that he is actually employed for the performance of the duties of such secretary and is engaged in the performance of the same. Shortly after the 1884 revision, the Senate agreed to resolutions adding the Secretary of the Smithsonian, the commissioner of Agriculture, and the commissioners of the District of Columbia and changing the Architect of the Capitol extensions to the Architect of the Capitol. In 1888, the Senate added ex-Speakers of the House, and in 1889, it added the President-elect and Vice President-elect. The floor privilege rule was further amended in 1891 following the death of Bancroft, as well as the deaths of the general of the Army and the admiral of the Navy. The amendment struck the Bancroft reference and broadened the Army and Navy categories to the "General Commanding the Army" and the "senior admiral of the Navy on the active list." It also incorporated the former clause 2, regulating the admission of Senate employees, into clause 1. The revised Senate-employee provision stated, "Clerks to Senate committees and clerks to Senators when in the actual discharge of their official duties. Clerks to Senators to be admitted to the floor must be regularly appointed and borne upon the rolls of the Secretary of the Senate as such." According to the Senator offering the amendment, the change regarding Senate clerks defined "a little more clearly who shall be entitled to admission as such." After 1891, there were a few additions to the positions given floor privileges: ex-Secretaries of the Senate (1895), House Members-elect (1895), ex-Sergeants at Arms of the Senate (1896), Chaplain of the House (1971), and Parliamentarian Emeritus of the Senate (1975). The rules recodification of 1979 provided floor privileges to offices created in 1947 (the Joint Chiefs of Staff), 1975 (mayor of the District of Columbia), and 1979 (members of the European Parliament). <3.1.5. First Female Staff Member Granted Floor Privileges (1946)> The 1891 amendment to Senate rules replaced the term secretary with clerk in reference to Senate staff working for individual Senators or Senate committees. It also removed the gendered pronoun him from the provision regulating who may obtain floor access. Thus, there were no restrictions under Senate rules that prevented female staff members from entering the Senate chamber while the Senate was in session. However, as noted by the author Lewis Gould, until 1946, "informal tradition dictated that only male secretaries could come to the Senate floor to consult with their bosses," even though the Senate employed about two dozen women clerks at the end of World War II, and five women had previously served as Senators. The first female staff member reportedly granted floor privileges, Frances Dustin, had served as a secretary to Senator Ralph Owen Brewster for 20 years prior to her admission to the floor, which, not coincidently, occurred three days after the Senate failed to achieve the two-thirds vote necessary to approve an Equal Rights Amendment (S.J.Res. 61, 79 th Congress). Initially, Senator Brewster considered submitting a resolution providing women staffers with floor access. Once he learned that the rules did not prevent female clerks on the Senate floor, however, he instead sought a clarification from the presiding officer. Addressing the chair, he said, "Apropos of our extended discussion last week regarding equal rights I should like to have a ruling as to whether, under the rules, female clerks may be allowed the privileges of the floor." The Senator serving as President pro tempore read the floor privilege rule out loud, then stated, "The Chair believes, and the Parliamentarian concurs in the opinion, that a woman clerk to any Senator or to any committee has the same rights as a man clerk, as if she were a man clerk. Therefore, under that ruling, the Chair holds that they are entitled to the floor." According to Newsweek , the ruling provided the "cue" for Dustin's "historic entrance" into the chamber. Dustin, "very gratified," conferred with Senator Brewster for about 10 minutes, then exited the floor, vowing that women would not "abuse the privilege." The President pro tempore later confirmed that this was "the first time in 160 years that a woman has had the privilege of the floor of the Senate as clerk to a Senator." <3.2. 1978-Present> <3.2.1. Recurring Unanimous Consent Agreement: Two Staff Members per Senator on Floor at One Time with Pre-Notification of Journal Clerk (1978)> Until 1978, Senators generally enabled eligible staff members to access the floor via unanimous consent (UC) requests. According to then Majority Leader Robert C. Byrd, under this practice, Senators would "have to stand up on the floor, get the attention of the Chair, and obtain unanimous consent all the time." In order to "do away with all the jumping up and down" of Senators seeking recognition, the majority leader supported a procedure, proposed by Senator Warren Magnuson, that would allow Senators to pre-notify the Journal clerk regarding staff admissions. On September 30, Majority Leader Byrd requested "unanimous consent that for the remainder of this session, Senators may enter at the desk with the Journal clerk, the names of whatever people they wish to have on the floor, indicating the legislative subject matter which they want to have attended on the floor by their people, and the date and time; and that, subject to conditions in the rear of the chamber, those staff members be allowed on the floor for the specified dates and times and purposes, with the understanding that the Sergeant at Arms be required to implement this order in a reasonable way that will not allow overcrowding in the rear of the chamber. This would mean that the Sergeant at Arms might have to ask some of the staff people to rotate, so that we would not have too many in here." Senator Ted Stevens indicated his support for the UC agreement provided that Senators "must specify the bill and the date on which the staff member would be admitted in this fashion" and that no Senator "would be permitted to have more than two staff members on the floor at any one time." Majority Leader Byrd accepted the modification and received unanimous consent to put the procedure into practice. The following January, the majority leader established, by unanimous consent, a Senate policy providing "for the duration of the 96 th Congress, Senators be allowed to leave at the desk with the Journal clerk a list of no more than two staff members who will be granted the privilege of the floor during the consideration of specific matter noted on the list, and that the Sergeant at Arms be instructed to rotate such staff members as space allows." At the start of subsequent Congresses, the majority leader has made nearly identical UC requests, re-establishing the pre-notification procedure while not codifying it in the Senate's standing rules. The former Senate Parliamentarian, Floyd Riddick, however, noted in Riddick's Senate Procedure: Precedents and Practices that Senators continue to use UC requests to obtain floor privileges for individuals otherwise not eligible or to enable more than two staff members to access the floor at one time. <3.2.2. Rules Revisions of 1979 and 1980> In 1979, the Senate agreed to S.Res. 274 (96 th Congress) "to revise and modernize the Standing Rules of the Senate." The Privilege of the Floor rule, then still Rule XXXIII, remained the same with the exception of two additional position categories: the Joint Chiefs of Staff and the mayor of the District of Columbia (replacing the D.C. commissioner category, established in 1884). The following year, S.Res. 389 recodified and consolidated Senate rules, leading to a general renumbering, as well as minor revisions. The Privilege of the Floor rule became Rule XXIII and now included the position members of the European Parliament in the "Members of National Legislatures of foreign countries" provision. Thus, 1980 marked the last year a new position category was added to the Privilege of the Floor rule. <3.2.3. Standing Order: Disability Accommodations for Staff (1997)> In 1997, the Senate agreed to a standing order that allows individuals with disabilities using guide dogs, wheelchairs, or other accommodations to access the Senate floor. Earlier that year, Senator Ron Wyden had requested unanimous consent to enable a legislative fellow, accompanied by a service dog, onto the floor. The UC request was objected to on the Senate floor. The following day, Majority Leader Trent Lott proposed a policy, by UC, that did receive Senate approval: " Ordered , That an individual with a disability who has, or is granted, the privilege of the Senate floor may bring those supporting services (including service dogs, wheelchairs, and interpreters) on the Senate floor which the Sergeant at Arms determines are necessary and appropriate to assist the disabled individual in discharging the official duties of his or her position until the Rules and Administration Committee has the opportunity to consider properly the matter." The Senate then agreed to Senator Wyden's second UC request to allow his energy-policy fellow and her guide dog into the chamber. Senator Wyden subsequently sponsored S.Res. 110 (105 th Congress) "to permit an individual with a disability with access to the Senate floor to bring necessary supporting aids and services." The resolution, based on the majority leader's UC agreement, resolved: That an individual with a disability who has or is granted the privilege of the Senate floor under rule XXIII of the Standing Rules of the Senate may bring necessary supporting aids and services (including service dogs, wheelchairs, and interpreters) on the Senate floor, unless the Senate Sergeant at Arms determines that the use of such supporting aids and services would place a significant difficulty or expense on the operations of the Senate in accordance with paragraph 2 of rule 4 of the Rules for Regulation of the Senate Wing of the United States Capitol. In debate, Senator Wyden clarified that the resolution's "undue burden language is intended to apply only in very unusual circumstances, such as where significant architectural modifications might be necessary." The resolution had several additional proponents, including the chair of the Senate Committee on Rules and Administration, John Warner, who stated, "By adopting this resolution, the Senate hopes to be a model for the country in its treatment of individuals with disabilities." The staff disability accommodation policy continues to apply as one of the Senate's non-statutory standing orders, which operate as standing rules of the Senate. Also in 1997, the Senate agreed to another resolution relating to disability that applied only in that Congress. This resolution concerned a Senator, a wounded veteran, who needed assistance traveling to and from his seat in the Senate chamber. S.Res. 8 resolved: That an employee in the office of Senator Max Cleland, to be designated from time to time by Senator Cleland, shall have the privilege of the Senate floor during any period when Senator Cleland is in the Senate chamber during the 105 th Congress. <3.2.4. President Clinton Impeachment Trial (1999)> On January 6, 1999, the day before the Senate commenced the impeachment trial of President Clinton, Majority Leader Lott requested unanimous consent to implement policies regarding "Senate access during impeachment proceedings." The UC agreement required that individuals eligible for floor access under Rule XXIII enter the chamber through the Republican and Democratic cloakrooms only and that "such access will be limited to the number of vacant seats available on the Senate floor based on protocol considerations enforced by the Secretaries for the Majority and Minority and the Sergeant at Arms." Access to the floor would be limited "to those having official impeachment proceedings duties" using the following "guidelines": (not more than) three assistants to the majority leader; (not more than) three assistants to the minority leader; (not more than) two assistants to the majority whip; (not more than) two assistants to the minority whip; Secretary of the Senate (or designee); Sergeant at Arms (or designee); Secretary for the Majority (or designee); Secretary for the Minority (or designee); the Senate Legal Counsel, Deputy Legal Counsel, and Counsel for the Secretary and Sergeant at Arms (as needed); Cloakroom staff (as needed), "under supervision of secretaries for the majority or minority, as appropriate"; the Secretary of the Senate's legislative staff (as needed), "under supervision of the Secretary"; and Doorkeepers (as needed), "under the supervision of the Sergeant at Arms." The UC agreement stipulated that "committee and Member staff will not be permitted on the Senate floor other than as noted above; and that, accordingly, all messages to Members will be processed in the regular manner through the party cloakrooms or the reception room message desk." Further, "the Sergeant at Arms shall enforce the above provisions and take such other actions as necessary to fulfill his responsibilities." In addition to the Rule XXIII position categories, the UC agreement also ordered that "the following shall be admitted to the floor of the Senate while the Senate is sitting for impeachment proceedings": (not more than) two assistants to the Chief Justice; assistants to the House managers; and, counsel and assistants to counsel for the President of the United States. <3.2.5. Exclusion of Lobbyists (2007)> In 2007, Congress enacted the Honest Leadership and Open Government Act ( P.L. 110-81 ). Among its provisions, the act eliminated Senate "floor privileges for former Members, Senate officers, and Speakers of the House who are registered lobbyists or seek financial gain." As amended by P.L. 110-81 , Rule XXIII now contains two clauses following the list of positional categories. Clause 2(a) excludes lobbyists from the chamber with exceptions allowed, during certain events, as outlined by clause 2(b). (Clause 3 concerns access to other Senate privileges, including athletic and parking facilities.) Clause 2 states: (a) The floor privilege provided in paragraph 1 shall not apply, when the Senate is in session, to an individual covered by this paragraph who is (1) a registered lobbyist or agent of a foreign principal; or (2) in the employ of or represents any party or organization for the purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal. (b) The Committee on Rules and Administration may promulgate regulations to allow individuals covered by this paragraph floor privileges for ceremonial functions and events designated by the Majority Leader and the Minority Leader. <3.2.6. Infants on Floor During Votes (2018)> In 2018, the Senate agreed to S.Res. 463 (115 th Congress), "authorizing a Senator to bring a young son or daughter of the Senator onto the floor of the Senate during votes." The resolution created a new Senate standing order: Notwithstanding rule XXIII of the Standing Rules of the Senate, a Senator who has a son or daughter (as defined in section 101 of the Family and Medical Leave Act of 1993 ( 29 U.S.C. 2611 )) under 1 year of age may bring the son or daughter onto the floor of the Senate during votes. The resolution addressed a concern conveyed by a Senator anticipating the birth of her baby daughter. Senate Rule XXIII does not grant children access to the floor while the Senate is in session, and it is not in order, as noted in Senate precedents, for the Senate to record the votes of Members who are not present. Thus, Senators might be prevented from voting if they also need to care for their infant children. Under the new policy, on April 19, 2018, the day after the Senate agreed to S.Res. 463 , Senator Tammy Duckworth voted in the chamber while accompanied by her newborn daughter. <3.2.7. President Trump Impeachment Trial (2020)> On January 15, 2020, one day prior to the commencement of the President Trump impeachment trial, the Senate agreed to a unanimous consent request by Majority Leader Mitch McConnell that included "allocations and provisions" regarding "access to the Senate wing, the Senate floor, and the Senate Chamber Galleries during all of the proceedings involving the exhibition of consideration of the Articles of Impeachment" against the President. The UC agreement's section on Senate floor access contained three paragraphs. Paragraph (1) provided general policies related to entrance to the chamber and floor seating, and paragraphs (2) and (3) regulated floor access for specified trial assistants. Paragraph (2) stated: Limited staff access. Officers and employees of the Senate, including members of the staffs of committees of the Senate or joint committees of the Congress and employees in the office of a Senator, shall not have privileges under rule XXIII of the Standing Rules of the Senate to access the floor of the Senate, except as needed for official impeachment proceeding duties in accordance with the following: (A) The Majority Leader and the Minority Leader shall each be limited to not more than 4 assistants. (B) The Secretary of the Senate and the Assistant Secretary of the Senate shall each have access, and the legislative staff of the Secretary of the Senate shall be permitted as needed under the supervision of the Secretary of the Senate. (C) The Sergeant at Arms and Doorkeeper of the Senate and the Deputy Sergeant at Arms and Doorkeeper shall each have access, and doorkeepers shall be permitted as needed under the supervision of the Sergeant at Arms and Doorkeeper of the Senate. (D) The Secretary for the Majority, the Secretary for the Minority, the Assistant Secretary for the Majority, and the Assistant Secretary for the Minority shall each have access, and cloakroom employees shall be permitted as needed under the supervision of the Secretary for the Majority or the Secretary for the Minority, as appropriate. (E) The Senate Legal Counsel and the Deputy Senate Legal Counsel shall have access on an as-needed basis. (F) The Parliamentarian of the Senate and assistants to the Parliamentarian of the Senate shall have access on an as-needed basis. (G) Counsel for the Secretary of the Senate and the Sergeant at Arms and Doorkeeper of the Senate shall have access on an as-needed basis. (H) The minimum number of Senate pages necessary to carry out their duties, as determined by the Secretary for the Majority and the Secretary for the Minority, shall have access. Paragraph (3) stated: Other individuals with Senate floor access. The following individuals shall have privileges of access to the floor of the Senate: (A) Not more than 3 assistants to the Chief Justice of the United States. (B) Assistants to the managers of the impeachment of the House of Representatives. (C) Counsel and assistants to counsel for the President of the United States. <4. Obtaining Staff Floor Privileges> The Sergeant at Arms enforces the rules and regulations governing the Senate chamber. Accordingly, the Office of the Sergeant at Arms (SAA), including its Doorkeepers, supervises and restricts staff access to the floor. The SAA ensures that non-chamber staff members will not access the floor during a Senate session unless they are on the Journal clerk's pre-notification list or are allowed under the terms of a unanimous consent request. The SAA also ensures that, barring a UC request, no more than two staff members from the same Senator's office will be on the floor at the same time, as mandated in the recurring UC agreements agreed to at the start of each Congress. <4.1. Access Under the Pre-Notification Floor Pass Procedure> As approved by the Committee on Rules and Administration, the "Regulations Controlling the Admission of Employees and Senate Committees to the Senate Floor" are meant to "permit closer supervision over employees admitted to the Senate Floor" without depriving any employees the privilege of the floor if they are "entitled thereto under Rule XXIII." In view of these regulations, the Senate Doorkeepers provide Senate staff members with the following instructions regarding floor access. <4.1.1. Pre-Notification via the Senate Sergeant at Arms's TranSAAct System> Senate office managers and other staff are issued credentials that allow them to submit, using the SAA TranSAAct web portal, a list of staff members to be granted Senate floor privileges. The submitted staff members should be eligible for floor access pursuant to clause 1 of Rule XXIII. That is, they must be Senate committee staff members or working in the office of a Senator and on the payroll of the Senate or joint committee staff members and on the payroll of the Senate or the House of Representatives. Should the Senate or joint committee office experience any personnel changes affecting its list of eligible individuals, the credentialed staff member should submit those changes to the SAA via TranSAAct. While Senate offices may pre-submit the names of multiple staff members, the number of staff members from the same office allowed on the floor at one time is limited. The SAA restricts access to those individuals who are in temporary possession of floor passes provided by the Credentials Desk. <4.1.2. Floor Pass Allotment> Every committee of the Senate, as well as joint committees, are allotted six cards (floor passes) to be used when the committee has jurisdiction over pending legislation. Four cards may be used as needed without a time limit. Two cards are given with a 15-minute time limit, allowing staff members to perform brief official duties, such as assisting with poster boards and other visual displays. Each Senator and the Vice President is allotted two cards. The Senate cards are issued to regular full-time Senate staff members working in a Senator's office. They are to be used while the staff member is performing official duties relating to a particular bill or matter under consideration. One card is not time limited, while the other card has a 15-minute limit. The time-limited cards allow staff members to speak briefly to a Senator or transport materials to the floor. <4.1.3. Obtaining Floor Passes> During a Senate session and 30 minutes prior, an eligible staff member may sign in and obtain a pass at the Credentials Desk, located between the Senate Reception Room and the Senate chamber. The desk attendant checks the staff member's official Senate ID badge and verifies that the staff member's name has been pre-submitted via the TranSAAct system. (Unlisted staff members are advised to contact their offices and request to be added to the database.) The desk attendant also notes in the daily roster now an electronic database the staff member's name, office, and official business to be performed and the card number issued to the employee. Following the sign-in procedures, staff members granted floor access are to display both their Senate ID badges and the floor passes to the Doorkeeper at the entrance of the chamber. When their duties are completed, they are to exit the chamber and return the floor passes to the attendant at the Credentials Desk. <4.1.4. Limitations on Use of Floor Passes> If a Senator's office allotment has been met, any additional employees seeking floor access are to wait in the Senate lobby until one of the office employees returns from the floor. According to the Senate Doorkeepers' "Guidelines Regarding Floor Privileges," the Sergeant at Arms may also "rotate staff on and off the floor to eliminate congestion." Additionally, the SAA may restrict access due to restrictions imposed under the terms of a UC agreement or a Senate resolution. (See, for example, the Clinton impeachment UC agreement.) Staff members who wish to observe, but not assist in, Senate proceedings are advised to do so from the Senate galleries. Staff members are to remain on the floor "only as long as necessary for the transaction" of the staff members' official business. During the time spent on the floor, they "shall in no way encroach upon the areas and privileges reserved for Senators only." Most floor passes permit staff members to use one designated door to access the chamber. However, each committee is given two full-floor passes, one for a majority staff member and one for a minority staff member, allowing those in possession to enter and exit the chamber throughout the day and through any door. At the start of roll-call votes, the Sergeant at Arms closes the floor for entry, except for those staff members granted access via unanimous consent or committee staff members "associated with the issue involved." <4.2. Access by Unanimous Consent> <4.2.1. Reasons for UC Requests> In addition to the pre-notification procedures outlined above, Senators may use UC requests to provide access to staff members. UC requests may be used when an eligible staff member is needed on the floor but is not currently in the TranSAAct database. Additionally, Senators may seek UC approval to enable floor access for more than two staff members at one time or to provide access to an assistant who is not on the Senate payroll, such as a legislative fellow or intern. Senators may also obtain UC agreements to provide temporary floor privileges to other individuals. <4.2.2. Language Used in UC Requests> Floor-privilege UC agreements usually include a time limitation, such as for the duration of the day, session, or Congress. If the Senator is requesting the assistance of more than two staff members, the UC request will likely include the reason why the maximum number should be temporarily increased. The following are examples of UC request language that might be used to enable individuals to access the floor aside from the pre-notification floor pass procedure. <4.2.2.1. Allowing Assistants Not on the Senate Payroll> Senator: Mr. [or Madam] President, I ask unanimous consent that my defense fellow, [named individual], be given floor privileges for the remainder of the first session of the 116 th Congress. <4.2.2.2. Allowing More Than Two Staff Members on the Floor at One Time> Senator: Mr. [or Madam] President, as manager of the pending bill, I require the assistance of more than two staff members on the floor today. I ask unanimous consent that the following staff members, [named individuals], be afforded the privilege of the floor during debate and all votes on the [named bill].

Senate Standing Rule XXIII, Privilege of the Floor, designates those afforded access to the Senate floor while the Senate is in session. In addition to sitting Senators, the rule lists several eligible positions, including certain current and former congressional, executive, and judicial officials; state and territorial governors; the mayor of the District of Columbia; members of foreign national legislatures; the nation's highest ranking military leaders; and, under specified circumstances, congressional staff members assisting Senators on the floor. Over its history, the Senate has amended the floor privilege rule to add or clarify positional categories. The Senate has also agreed to a number of resolutions and unanimous consent (UC) agreements that affect the interpretation of the rule. The Senate, by resolution or UC, frequently provides temporary floor access to non-designated individuals. Less commonly, it has agreed to temporarily restrict access to the Senate floor. Such restrictions have occurred in advance of the Senate's move to its current chamber in 1859 and during the impeachment trials of Presidents Andrew Johnson (1868), Bill Clinton (1999), and Donald Trump (2020). In 2007, the Senate amended Rule XXIII to exclude lobbyists from the floor, even if these individuals would otherwise be granted floor privileges under the rule. Rule XXIII permits certain staff members of individual Senators and Senate committees and joint committees to have access to the floor "when in the discharge of their official duties." Staff access is further regulated by policies outlined in a recurring UC agreement approved at the start of each Congress, as well as those policies established by the Senate Rules and Administration Committee. For instance, each Senator is limited to two staff members on the floor at the same time. The Office of the Sergeant at Arms (SAA) enforces Senate Rule XXIII, as well as any associated resolutions or UC agreements, regarding floor access. This report analyzes the evolution of the floor privileges rule over time. Notable changes to the rule or its interpretation are provided, such as the first time a female staff member accessed the Senate floor (1946); when the Senate agreed to resolutions to accommodate staff with disabilities (e.g., allow the use of a service dog in the chamber, 1997); and when it permitted Senators, accompanied by their infant children, to vote on the Senate floor (2018). The report also addresses how staff members are granted floor privileges and how that access is limited by Rule XXIII and its associated regulations. Access via the SAA's web portal, TranSAAct, is discussed, as well as the use of unanimous consent requests to afford access to individuals not listed in TranSAAct or to enable more than two staff members from the same Senate office on the floor at one time.

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<1. Congress and Free Trade Agreements> This report compiles the final congressional votes on free trade agreements (FTAs), trade promotion authority (TPA), and U.S membership to the World Trade Organization (WTO). In the past 30 years, the United States has pursued bilateral, regional, and multilateral trade agreements in an attempt to liberalize markets and reduce trade and investment barriers. Congress has played a central role in shaping this trade policy. Congress through debate and legislation defines trade negotiation priorities, approves FTAs, and helps oversee agreements' implementation and enforcement. While the President has the authority to negotiate treaties with foreign countries, Congress has sole constitutional authority to regulate international trade. Since 1934, Congress has periodically delegated some authority to negotiate trade agreements to the President. In the Trade Act of 1974, Congress outlined many of the congressional and executive roles regarding trade agreements; Congress delegated negotiation authority to the President, but required congressional approval (through implementation legislation) of free trade agreements. Congress also created a process to allow for expedient consideration in Congress of FTAs, provided that the President observe certain statutory requirements. This expedient consideration is known as TPA or, formerly, "fast-track" consideration. <1.1. Free Trade Agreements: Bilateral, Regional, and Multilateral> The United States is currently party to 12 bilateral FTAs (with Australia, Bahrain, Chile, Colombia, Israel, Jordan, South Korea, Morocco, Oman, Panama, Peru, and Singapore) and to 2 regional free trade agreements (the North American Free Trade Agreement (NAFTA) and the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR)). The United States has also signed an agreement with Canada and Mexico to replace NAFTA. The United States-Mexico-Canada Agreement (USMCA) has been ratified by all three parties, and the agreement will enter into force, after the necessary legal and regulatory measures are in place for each party to meet its commitments. For a list and timeline of trade agreements where negotiations were concluded, see Table 1 . For a compilation of final congressional votes on FTAs considered in Congress, see Table 2 . In addition to bilateral and regional FTAs, the United States is also party to multilateral agreements that outline membership in the WTO, a 164-member international organization. The WTO was created in 1995 to oversee and administer multilateral trade rules, serve as a forum for trade liberalization negotiations, and resolve trade disputes. When Congress approved the WTO Uruguay Round Agreement, it included a set of procedures to allow Congress to reconsider U.S. membership in the WTO by passing a joint resolution calling for withdrawal from the organization. Congress may vote every five years on withdrawal from the WTO. Resolutions were introduced in the 106 th and 109 th Congress; neither passed. See Table 3 for a compilation of major legislation and votes concerning U.S. membership to the WTO. <1.2. Trade Promotion Authority> All U.S. FTAs, except the agreement with Jordan, were considered in Congress under Trade Promotion Authority (TPA). TPA is the process by which Congress enables FTA legislation to be considered under expedited legislative procedures, provided the President observes certain statutory obligations. Because TPA is extended only for limited periods, Congress periodically reconsiders legislation to extend it and to outline future negotiation objectives. Since 1974, Congress has passed seven measures extending TPA. TPA, like many issues related to international trade, has been politically contentious in Congress over time, resulting in vigorous debate and two multi-year lapses in authority. For a list of major votes on TPA, see Table 4 . <1.3. Congressional Votes on Select Trade Legislation> Congressional consideration of bills can be a complex process, sometimes requiring multiple votes. For clarity's sake, this report only provides the final vote for each measure. More complete bill information can be found on Congress.gov including roll call votes for all legislation back to 1993. The bill numbers listed in the following tables link to Congress.gov, and the vote tallies link to the House and Senate roll call votes, for all votes back to 1993. Table 1 provides a timeline of trade agreements including the date the agreement was signed, the date implementing legislation was enacted, and the date the agreement went into force. The table also notes the TPA legislation under which the trade agreement was considered in Congress. The table includes fully implemented trade agreements, as well as two recent agreements: the USMCA, which has not yet entered into force, and the Trans-Pacific Partnership, a trade agreement that the United States signed, but later announced that it would not ratify. Table 2 provides major votes on FTAs, including the final House and Senate votes on FTA implementing legislation. Table 3 provides major votes on U.S. membership to the WTO, including implementing legislation for multilateral agreements and resolutions calling for the United States to withdraw from the WTO. Table 4 provides major votes on TPA legislation. It includes the final House and Senate votes on TPA-related provisions. Votes are grouped by the trade agreement authority granted to the President. For a selected list of CRS products on FTAs and TPA, see the Appendix . <1.3.1. Appendix. Selected CRS Reports and Resources> <1.4. On Trade Promotion Authority> CRS In Focus IF10297, TPP-Trade Promotion Authority (TPA) Timeline , by Ian F. Fergusson CRS Report R43491, Trade Promotion Authority (TPA): Frequently Asked Questions , by Ian F. Fergusson and Christopher M. Davis CRS Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy , by Ian F. Fergusson CRS Infographic IG10001, Trade Promotion Authority (TPA) and U.S. Trade Agreements , by Brock R. Williams <1.5. On Select Free Trade Agreements> CRS Report R45198, U.S. and Global Trade Agreements: Issues for Congress , by Brock R. Williams CRS Report R44981, NAFTA and the United States-Mexico-Canada Agreement (USMCA) , by M. Angeles Villarreal and Ian F. Fergusson. CRS In Focus IF10997, U.S.-Mexico-Canada (USMCA) Trade Agreement , by M. Angeles Villarreal and Ian F. Fergusson CRS Legal Sidebar LSB10399, USMCA: Implementation and Considerations for Congress , by Nina M. Hart CRS In Focus IF10733, U.S.-South Korea (KORUS) FTA , coordinated by Brock R. Williams CRS Report RL34470, The U.S.-Colombia Free Trade Agreement: Background and Issues , by M. Angeles Villarreal and Edward Y. Gracia CRS Report RS22164, DR-CAFTA: Regional Issues , by Clare Ribando Seelke CRS In Focus IF10394, Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) , by M. Angeles Villarreal CRS Insight IN10903, CRS Products on the North American Free Trade Agreement (NAFTA) , by M. Angeles Villarreal CRS In Focus IF10000, TPP: Overview and Current Status , by Brock R. Williams and Ian F. Fergusson <1.6. On Multilateral Trade Agreements> CRS Report R45417, World Trade Organization: Overview and Future Direction , coordinated by Cathleen D. Cimino-Isaacs

Through Trade Promotion Authority (TPA), Congress has delegated authority to the President to negotiate free trade agreements (FTAs). This authority requires congressional approval (through implementation legislation) of comprehensive FTAs. Since 1979, Congress has passed 17 implementation measures for FTAs and multilateral trade agreements. The majority of these trade agreements—including the recent United States-Mexico-Canada Agreement (USMCA) — were considered in Congress under TPA, which provides for expedited consideration of FTAs in Congress. Since 1979, Congress has passed six measures extending TPA for limited time periods. As with many international trade issues, TPA has been politically contentious over time, resulting in vigorous debate and two multi-year lapses in authority. USMCA is the most recent free trade agreement (FTA) to be approved by Congress under TPA.

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<1. Introduction> On April 23, 2020, Congress passed its fourth measure including supplemental appropriations to respond to the Coronavirus Disease 2019 (COVID-19) pandemic. The Paycheck Protection Program and Health Care Enhancement Act (the act; P.L. 116-139 ) includes enhancements for the Small Business Administration's Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), and Emergency EIDL grants, and emergency supplemental appropriations for the Department of Health and Human Services (HHS) and Small Business Administration (SBA). The Congressional Budget Office estimates that the act will result in $321.3 billion in additional direct spending for the PPP, and $162.1 billion in additional discretionary spending, including $50 billion for EIDL and $10 billion for Emergency EIDL grants. <1.1. Legislative History> H.R. 266 was first passed by the House on January 11, 2019, as an FY2020 annual appropriations measure unrelated to COVID-19. The bill was read twice and placed on the Senate Legislative Calendar on January 15, 2019, but the Senate did not act on the original legislation. The Senate agreed to take up the measure on April 21, 2020. The bill was laid before the Senate by unanimous consent and an amendment in the nature of a substitute replaced the original text with that of the "Paycheck Protection Program and Health Care Enhancement Act." The Senate passed the bill the same day by voice vote. The House of Representatives took up the amended bill on April 23, 2020, suspending the rules and passing it by a vote of 388-5, with one Member voting present. The President signed the bill into law on April 24, 2020, as P.L. 116-139 . <2. Provisions of the Paycheck Protection Program and Health Care Enhancement Act> <2.1. Division A Small Business Programs> The Coronavirus Aid, Relief, and Economic Security Act ( P.L. 116-136 ; the CARES Act) established the Paycheck Protection Program (PPP), and provided it $349 billion. The PPP authorized loans with a two-year term at a 1% interest rate to small businesses and other organizations adversely affected by COVID-19. Loan payments are deferred for six months and feature loan forgiveness up to the amount borrowed under specified conditions related to the borrower's retention of employees and employee wages. The SBA started accepting PPP loan applications on April 3, 2020. Because the program neared its $349 billion authorization limit, the SBA stopped accepting new PPP loan applications on April 15, 2020. Over 1.66 million loans were approved by nearly 5,000 lenders. Most of the loans (74%) were for under $150,000. The CARES Act also enhanced SBA Economic Injury Disaster Loans (EIDL) from January 31, 2020, through December 31, 2020, expanding eligibility and taking other steps, such as establishing Emergency EIDL grants of up to $10,000, to make resources more broadly and quickly available to small businesses. The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 ( P.L. 116-123 ) had provided the SBA an additional $20 million to support EIDL. The CARES Act appropriated $10 billion for Emergency EIDL grants. The SBA also stopped accepting new COVID-19-related EIDL loan applications on April 15, 2020, because that program neared its appropriations limit for credit subsidies. COVID-19-related EIDL applications which had already been received continue to be processed on a first-come first-served basis. The SBA approved nearly 30,000 COVID-19-related EIDLs totaling nearly $5.7 billion, and 755,476 Emergency EIDL grants totaling nearly $3.3 billion. Division A of P.L. 116-139 increases the PPP authorization limit from $349 billion to $659 billion, and increases the direct appropriation in the CARES Act for the program from $349 billion to more than $670 billion to support that authorization amount. Division A of the act also: requires that no less than $30 billion of the additional PPP authorization amount be set aside for loans issued by insured depository institutions and credit unions with consolidated assets of $10 billion to $50 billion; requires that no less than $30 billion of the additional PPP authorization amount be set aside for loans issued by community financial institutions (including community development financial institutions (CDFIs), minority depository institutions, community development corporations, and SBA microloan intermediaries), and insured depository institutions and credit unions with consolidated assets less than $10 billion; and makes agricultural enterprises with not more than 500 employees eligible for EIDL and Emergency EIDL grants during the covered period (January 31, 2020, through December 31, 2020). <2.2. Division B Additional Emergency Appropriations for Coronavirus Response> Division B of P.L. 116-139 is a supplemental appropriations measure providing $100 billion for the Department of Health and Human Services (HHS) through the Public Health and Social Services Emergency Fund (PHSSEF) and $62 billion for the Small Business Administration ($50 billion for EIDL, $10 billion for Emergency EIDL grants, and $2.1 billion for SBA salaries and expenses). All of the supplemental appropriations are designated as being emergency requirements under the Balanced Budget and Emergency Deficit Control Act of 1985 ( P.L. 99-177 , as amended), and thus do not count against the statutory limits on discretionary spending for FY2020. Each appropriation in P.L. 116-139 , Division B, explicitly provides its resources "to prevent, prepare for, and respond to coronavirus, domestically or internationally." Table 1 details the supplemental appropriations included in Division B, as well as subdivision and transfers of those appropriations outlined in P.L. 116-139 . <2.2.1. Title I Department of Health and Human Services> Title I provides $100 billion in emergency supplemental appropriations to the HHS Public Health and Social Services Emergency Fund (PHSSEF), an account used in appropriations acts to provide the HHS Secretary with one-time or emergency funding, as well as annual funding for the office of the HHS Assistance Secretary for Preparedness and Response (ASPR). Of the $100 billion, $75 billion is additional funding for the HHS "Provider Relief Fund," established with an initial appropriation of $100 billion in the CARES Act. These funds remain available until expended, and are to be used "to prevent, prepare for, and respond to coronavirus, domestically or internationally, for necessary expenses to reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus ." Both P.L. 116-139 and the CARES Act define eligible providers broadly as any that provide "diagnoses, testing, or care for individuals with possible or actual cases of COVID-19 ." HHS has made initial distributions from the Provider Relief Fund. The remaining $25 billion, also available until expended, is provided to augment national capacity for COVID-19 containment, such as expanded testing capacity including supplies such as personal protective equipment (PPE) and workforce and technical capacity for disease surveillance and contact tracing. Among other allowable uses, these funds may be used to build, purchase, renovate, or rent non-federally owned facilities. Of the $25 billion, the act requires the HHS Secretary to transfer specified amounts to HHS agencies as follows: Not less than $11 billion for states, localities, territories, tribes, tribal organizations, urban Indian health organizations, or health service providers to tribes. Of this amount, not less than $2 billion is for states, localities, and territories according to the formula for the CDC Public Health Emergency Preparedness cooperative agreement in FY2019; and not less than $4.25 billion is for the same awardees according to a formula based on relative number of cases of COVID-19. Of that $4.25 billion, not less than $750 million is for tribes, tribal organizations, urban Indian health organizations, or health service providers to tribes. Not less than $1 billion for CDC for surveillance, epidemiology, and laboratory capacity expansion; contact tracing; data systems modernization; outreach; and workforce support to expand and improve COVID-19 testing. Not less than $1.806 billion for the National Institutes of Health (NIH) as follows: not less than $306 million for the National Cancer Institute to develop, validate, improve, and implement serological testing and associated technologies for COVID-19; not less than $500 million for the National Institute of Biomedical Imaging and Bioengineering for research, development, and implementation of point-of-care and other rapid testing for COVID-19; and not less than $1 billion for the NIH Office of the Director, broadly to support the agency's research and development efforts regarding COVID-19 testing. Not less than $1 billion for the Biomedical Advanced Research and Development Authority (BARDA) for advanced research, development, manufacturing, production, and purchase of diagnostic, serologic, or other COVID-19 tests or related supplies, and other activities related to COVID-19 testing. $22 million for the Food and Drug Administration (FDA), Salaries and Expenses, for activities associated with diagnostic, serological, antigen, and other COVID-19 tests, and related administrative activities. $600 million for the Health Resources and Services Administration (HRSA) for grants under the Health Centers program, covering a broader range of facilities than was previously eligible. $225 million for HRSA for rural health clinics, using the distribution procedures developed for the Provider Relief Fund established under the CARES Act. Not more than $1 billion to cover the cost of testing for the uninsured, using the National Disaster Medical System (NDMS) Definitive Care Reimbursement Program according to the Families First Coronavirus Response Act, P.L. 116-127 . Numerous reporting requirements apply to this $25 billion appropriation. General provisions in Title I allow the HHS Secretary to transfer PHSSEF funds to HHS agencies, as specified, with attendant reporting to the appropriations committees; and require the Secretary to transfer up to $6 million to the HHS Office of Inspector General for oversight of activities funded by this act through the PHSSEF. <2.2.2. Title II Independent Agencies> Because Division A provides significant additional authorization, resources, and direction for SBA's PPP and EIDL programs, the Title II provisions are for the most part straightforward. $50 billion is provided for the cost of EIDL, and $10 billion for Emergency EIDL grants, to fulfil the authorization in Division A. The $2.1 billion included for SBA's Salaries and Expenses appropriation remains available until the end of FY2021, to support the agency's increased rate of operations in providing COVID-19 pandemic relief.

On April 23, 2020, Congress passed its fourth measure including supplemental appropriations to respond to the COVID-19 pandemic. The Paycheck Protection Program and Health Care Enhancement Act (the act; P.L. 116-139 ) includes enhancements for the Small Business Administration's Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), and Emergency EIDL grants, and emergency supplemental appropriations for the Department of Health and Human Services (HHS) and Small Business Administration (SBA). The President signed the bill into law on April 24, 2020. The Congressional Budget Office estimates that the act will result in $321.3 billion in additional direct spending for the PPP, and $162.1 billion in additional discretionary spending, including $50 billion for EIDL and $10 billion for Emergency EIDL grants. This report provides a brief overview of that measure.

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Prescription drugs play a vital role in American public health. The Centers for Disease Control and Prevention (CDC) estimates that between 2011 and 2014 just under half of all Americans had used one or more prescription drugs in the last 30 days. On the other hand, unfettered access to drugs may pose serious public health risks. The CDC reports that in 2017 over 70,000 Americans died of overdoses on prescription and nonprescription drugs. The Controlled Su bstances Act (CSA or the Act) seeks to balance those competing interests. The CSA regulates controlled substances prescription and nonprescription drugs and other substances that are deemed to pose a risk of abuse and dependence. By establishing rules for the proper handling of controlled substances and imposing penalties for any illicit production, distribution, and possession of such substances, the Act seeks to protect the public health from the dangers of controlled substances while also ensuring that patients have access to pharmaceutical controlled substances for legitimate medical purposes. This report provides an overview of the CSA and select legal issues that have arisen under the Act, with a focus on legal issues of concern for the 116th Congress. The report first summarizes the history of the CSA and explains how the regulation of drugs under the CSA overlaps with other federal and state regulatory regimes. It then outlines the categories known as sch edules into which controlled substances subject to the Act are divided and discusses how substances are added to the schedules. The report next summarizes the CSA's registration requirements, which apply to entities that register with the government to legally handle pharmaceutical controlled substances, before summarizing the CSA's criminal trafficking provisions, which apply to activities involving controlled substances that are not sanctioned under the Act. Finally, the report outlines select legal issues for Congress related to the CSA, including issues related to the response to the opioid crisis, the control of analogues to the potent opioid fentanyl, the growing divergence between the treatment of marijuana under federal and state law, and the legal limits on clinical research involving certain controlled substances. <1. Background and Scope of the CSA> Congress has regulated drugs in some capacity since the 19th century. Federal drug regulation began with tariffs, import and export controls, and purity and labeling requirements applicable to narcotic drugs including opium and coca leaves and their derivatives. With the passage of the Harrison Narcotics Tax Act of 1914, Congress began in earnest to regulate the domestic trade in narcotic drugs. The Harrison Act provided for federal oversight of the legal trade in narcotic drugs and imposed criminal penalties for illicit trafficking in narcotics. Over the course of the 20th century, the list of drugs subject to federal control expanded beyond narcotic drugs to include marijuana, depressants, stimulants, and hallucinogens. Congress revamped federal drug regulation by enacting the Comprehensive Drug Abuse Prevention and Control Act of 1970. The Comprehensive Drug Abuse Prevention and Control Act repealed nearly all existing federal substance control laws and, for the first time, imposed a unified framework of federal controlled substance regulation. Title II of the Comprehensive Drug Abuse Prevention and Control Act is known as the Controlled Substances Act. The CSA regulates certain drugs whether medical or recreational, legally or illicitly distributed that are considered to pose a risk of abuse and dependence. In enacting the CSA, Congress recognized two competing interests related to drug regulation: on the one hand, many drugs "have a useful and legitimate medical purpose and are necessary to maintain the health and general welfare of the American people." On the other hand, "illegal importation, manufacture, distribution, and possession and improper use of controlled substances have a substantial and detrimental effect on the health and general welfare of the American people." Accordingly, the Act simultaneously aims to protect public health from the dangers of controlled substances while also ensuring that patients have access to pharmaceutical controlled substances for legitimate medical purposes. To accomplish those two goals, the statute creates two overlapping legal schemes. Registration provisions require entities working with controlled substances to register with the government, take steps to prevent diversion and misuse of controlled substances, and report certain information to regulators. Trafficking provisions establish penalties for the production, distribution, and possession of controlled substances outside the legitimate scope of the registration system. The CSA does not apply to all drugs. As discussed below, substances must be specifically identified for control (either individually or as a class) to fall within the scope of the Act. For medical drugs, the CSA primarily applies to prescription drugs, not drugs available over the counter. Moreover, the statute does not apply to all prescription drugs, but rather to a subset of those drugs deemed to warrant additional controls. As for nonpharmaceutical drugs, well-known recreational drugs such as marijuana, cocaine, heroin, and lysergic acid diethylamide (LSD) are all controlled substances, as are numerous lesser-known substances, some of which are identified only by their chemical formulas. Some recreational drugs are not classified as federally controlled substances. Alcohol and tobacco, which might otherwise qualify as drugs potentially warranting control under the CSA, are explicitly excluded from the scope of the Act, as is hemp that meets certain statutory requirements. Finally, it is possible for legitimate researchers and illicit drug manufacturers to formulate new drugs not contemplated by the Act. Those drugs may fall outside the scope of the CSA unless they are classified as controlled substances. <2. Other Regulatory Schemes> Many drugs classified as controlled substances subject to the CSA are also subject to other legal regimes. For example, all prescription drugs, including those subject to the Act, are subject to the Federal Food, Drug, and Cosmetic Act (FD&C Act). The U.S. Food and Drug Administration (FDA) is the agency primarily responsible for enforcing the FD&C Act, which prohibits the "introduction or delivery for introduction into interstate commerce of any . . . drug . . . that is adulterated or misbranded." The FD&C Act defines misbranding broadly: a drug is considered misbranded if, among other things, its labeling, advertising, or promotion "is false or misleading in any particular." Unlabeled drugs are considered misbranded, as are prescription drugs that FDA has not approved, including imported drugs. In addition, misbranding may include misrepresenting that a substance offered for sale is a brand-name drug (even if the seller believes the substance for sale is chemically identical to the brand-name drug). The FD&C Act provides that a drug is deemed to be adulterated if, among other things, it "consists in whole or in part of any filthy, putrid, or decomposed substance," "it has been prepared, packed, or held under insanitary conditions," its container is made of "any poisonous or deleterious substance," or its strength, quality, or purity is not as represented. The key aims of the FD&C Act are related to but distinct from those of the CSA. The CSA establishes distribution controls to prevent the misuse of substances deemed to pose a potential danger to the public welfare. The FD&C Act, by contrast, is a consumer protection statute that seeks to prevent harm to consumers who obtain drugs (and other public health products) through commercial channels. Any person or organization that produces, distributes, or otherwise works with prescription drugs that are also controlled substances must comply with the requirements of both the CSA and the FD&C Act. With respect to both pharmaceutical and nonpharmaceutical drugs, many drugs subject to the Act are also subject to state drug laws. State substance control laws often mirror federal law and are relatively uniform across jurisdictions because almost all states have adopted a version of the Uniform Controlled Substances Act (UCSA). However, states are free to modify the UCSA, and have done so to varying extents. Moreover, the model statute does not specify sentences for violations, so penalties for state controlled substance offenses vary widely. There is not a complete overlap between drugs subject to federal and state control for several reasons. First, states may elect to impose controls on substances that are not subject to the CSA. For example, some states have controlled the fentanyl analogues benzylfentayl and thenylfentanyl, but those substances are not currently subject to federal control. Second, states may wish to adopt federal scheduling decisions at the state level but lag behind federal regulators due to the need for a separate state scheduling process. Third, states may decide not to impose state controls on substances subject to the CSA, or they may choose to impose modified versions of federal controls at the state level. Crucially, however, the states cannot alter federal law, and when state and federal law conflict, the federal law controls. Thus, when states "legalize" or "decriminalize" a federally controlled substance (as many have done recently with respect to marijuana), the sole result is that the substance is no longer controlled under state law. Any federal controls remain in effect and potentially enforceable in those states. <3. Classification of Controlled Substances> The heart of the CSA is its system for classifying controlled substances, as nearly all the obligations and penalties that the Act establishes flow from the classification system. Drugs become subject to the CSA by being placed in one of five lists, referred to as "schedules." Both the Administrator of the Drug Enforcement Administration (DEA) an arm of the Department of Justice (DOJ) and Congress can place a substance in a schedule, move a controlled substance to a different schedule, or remove a controlled substance from a schedule. As discussed below, scheduling decisions by Congress and DEA follow different procedures. <3.1. Overview of Schedules> The CSA establishes five categories of controlled substances, referred to as Schedules I through V. The schedule on which a controlled substance is placed determines the level of restriction on its production, distribution, and possession, as well as the penalties applicable to any improper handling of the substance. As Figure 1 describes, each controlled substance is assigned to a schedule based on its medical utility and its potential for abuse and dependence. A lower schedule number corresponds to greater restrictions, so controlled substances in Schedule I are subject to the most stringent controls, while substances in Schedule V are subject to the least stringent. Notably, because substances in Schedule I have no accepted medical use, it is only legal to produce, dispense, and possess those substances in the context of federally approved scientific studies. <3.2. Analogues and Listed Chemicals> In addition to the controlled substances listed in Schedules I through V, the CSA also regulates (1) controlled substance analogues and (2) listed chemicals . Under the CSA, a controlled substance analogue is a substance that FDA has not approved and that is not specifically scheduled under the Act, but that has (1) a chemical structure substantially similar to that of a controlled substance in Schedule I or II, or (2) an actual or intended effect that is "substantially similar to or greater than the stimulant, depressant, or hallucinogenic effect on the central nervous system of a controlled substance in schedule I or II." A substance that meets those criteria and is intended for human consumption is treated as a controlled substance in Schedule I. Listed chemicals subject to the CSA are precursor chemicals for controlled substances. They may be placed on one of two lists: List I Chemicals designated chemicals that, in addition to legitimate uses, are used in manufacturing a controlled substance in violation of the CSA and are important to the manufacture of a controlled substance. List II Chemicals designated chemicals that, in addition to legitimate uses, are used in manufacturing a controlled substance in violation of the CSA. List I chemicals include substances such as ephedrine, white phosphorous, and iodine, which are used to produce methamphetamine, as well as chemicals used to manufacture LSD, MDMA, and other drugs. List II chemicals include, among others, solvents such as acetone, hydrochloric acid, and sulfuric acid. Listed chemicals are subject to some of the same controls as controlled substances. In addition, entities that sell listed chemicals must record the transactions, report them to regulators, and comply with statutory limits on sales to a single purchaser. There are a number of differences between how controlled substance analogues and listed chemicals are regulated. A key difference between controlled substance analogues and listed chemicals is that a substance does not qualify for control as an analogue unless it is intended for human consumption as a substitute for a controlled substance, while listed chemicals generally are not intended for human consumption standing alone but are used as ingredients in the manufacture of controlled substances. In addition, listed chemicals include only specific substances identified for control under the CSA by statute or rulemaking. By contrast, controlled substance analogues need not be individually scheduled; they need only satisfy the statutory criteria. <3.3. Scheduling Procedures> Substances may be added to or removed from a schedule or moved to a different schedule through agency action or by legislation. <3.3.1. Legislative Scheduling> Perhaps the most straightforward way to change a substance's legal status under the CSA is for Congress to pass legislation to place a substance under control, alter its classification, or remove it from control. The procedural requirements for administrative scheduling discussed in the following section do not apply to legislative scheduling. Thus, Congress may use its legislative scheduling power to respond quickly to a drug it views as posing an urgent concern. For example, the Synthetic Drug Abuse Prevention Act of 2012 permanently added two synthetic cathinones (central nervous system stimulants) and certain cannabimimetic substances (commonly referred to as synthetic marijuana) to Schedule I. <3.3.2. Administrative Scheduling> DEA makes scheduling decisions through a complex process requiring participation by other agencies and the public. DEA may undertake administrative scheduling on its own initiative, at the request of the U.S. Department of Health and Human Services (HHS), or "on the petition of any interested party." With regard to the last route for initiating administrative scheduling, the DEA Administrator may deny a petition to begin scheduling proceedings based on a finding that "the grounds upon which the petitioner relies are not sufficient to justify the initiation of proceedings." Denial of a petition to initiate scheduling proceedings is subject to judicial review, but courts will overturn a denial only if it is arbitrary and capricious. Before initiating rulemaking proceedings, DEA must request a scientific and medical evaluation of the substance at issue from the Secretary of HHS. The Secretary has delegated the authority to prepare the scientific and medical evaluation to FDA. In preparing the evaluation, FDA considers factors including the substance's potential for abuse and dependence, scientific evidence of its pharmacological effect, the state of current scientific knowledge regarding the substance, any risk the substance poses to the public health, and whether the substance is an immediate precursor of an existing controlled substance. Based on those factors, FDA makes a recommendation on whether the substance should be controlled and, if so, in which schedule it should be placed. FDA's scientific and medical findings are binding on DEA. And if FDA recommends against controlling the substance, DEA may not schedule it. Upon receipt of FDA's report, the DEA Administrator evaluates all of the relevant data and determines whether the substance should be scheduled, rescheduled, or removed from control. Before placing a substance on a schedule, the DEA Administrator must make specific findings that the substance meets the applicable criteria related to accepted medical use and potential for abuse and dependence. DEA scheduling decisions are subject to notice-and-comment rulemaking, meaning that interested parties must have the opportunity to submit comments on the DEA Administrator's decision before it becomes final. The DEA Administrator's decision whether to schedule, reschedule, or deschedule a substance through the ordinary administrative process is subject to judicial review. Such review is generally deferential: courts accept DEA's interpretation of the CSA as long as the interpretation of ambiguous statutory text is reasonable, and the CSA provides that the DEA Administrator's findings of fact are "conclusive" on judicial review if the findings are supported by substantial evidence. <3.3.3. Emergency Scheduling> Ordinary DEA scheduling decisions are made through notice-and-comment rulemaking and can take years to consider and finalize. Recognizing that in some cases faster scheduling may be appropriate, Congress amended the CSA through the Comprehensive Crime Control Act of 1984 to allow the DEA Administrator to place a substance in Schedule I temporarily when "necessary to avoid an imminent hazard to the public safety." Further amendments enacted in the Synthetic Drug Abuse Prevention Act of 2012 extended the maximum length of the temporary scheduling period. Before issuing a temporary scheduling order, the DEA Administrator must provide 30 days' notice to the public and the Secretary of HHS stating the basis for temporary scheduling. In issuing a temporary scheduling order, the DEA Administrator must consider only a subset of the factors relevant to permanent scheduling: the history and current pattern of abuse of the substance at issue; the scope, duration, and significance of abuse; and the risk to the public health. The DEA Administrator must also consider any comments from the Secretary of HHS. A substance may be temporarily scheduled for up to two years; if permanent scheduling proceedings are pending, the DEA Administrator may extend the temporary scheduling period for up to one additional year. A temporary scheduling order is vacated once permanent scheduling proceedings are completed with respect to the substance at issue. The CSA provides that emergency scheduling orders are not subject to judicial review. DEA has recently used its emergency scheduling power to temporarily control certain analogues to the opioid fentanyl and several synthetic cannabinoids. <3.3.4. International Treaty Obligations> The United States is a party to the Single Convention on Narcotic Drugs of 1961, which was designed to establish effective control over international and domestic traffic in narcotics, coca leaf, cocaine, and marijuana. That treaty requires signatories, among other things, to criminalize "cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, . . . importation and exportation of drugs" contrary to the Convention. The United States is also party to the Convention on Psychotropic Substances of 1971, which was designed to establish similar control over stimulants, depressants, and hallucinogens. The Convention on Psychotropic Substances requires parties to adopt various controls applicable to controlled substances, including mandating licenses for manufacture and distribution, requiring prescriptions for dispensing such substances, and adopting measures "for the repression of acts contrary to laws or regulations" adopted pursuant to treaty obligations. If existing controls of a drug are less stringent than those required by the United States' treaty obligations, the CSA directs the DEA Administrator to "issue an order controlling such drug under the schedule he deems most appropriate to carry out such obligations." Scheduling pursuant to international treaty obligations does not require the factual findings that are necessary for other administrative scheduling actions, and may be implemented without regard to the procedures outlined for regular administrative scheduling. <4. Registration Requirements> Once a substance is brought within the scope of the CSA, almost any person or organization that handles that substance, except for the end user, becomes subject to a comprehensive system of regulatory requirements. The goal of the regulatory scheme is to create a "closed system" of distribution in which only authorized handlers may distribute controlled substances. Central to the closed system of distribution is the requirement that individuals or entities that work with controlled substances register with DEA. Those covered entities, which include manufacturers, distributors, practitioners, and pharmacists, are referred to as registrants . As DEA has described the movement of a pharmaceutical controlled substance from the manufacturer to the patient, [A] controlled substance, after being manufactured by a DEA-registered manufacturer, may be transferred to a DEA-registered distributor for subsequent distribution to a DEA-registered retail pharmacy. After a DEA-registered practitioner, such as a physician or a dentist, issues a prescription for a controlled substance to a patient . . . , that patient can fill that prescription at a retail pharmacy to obtain that controlled substance. In this system, the manufacturer, the distributor, the practitioner, and the retail pharmacy are all required to be DEA registrants, or to be exempted from the requirement of registration, to participate in the process. As discussed further below, registrants must maintain records of transactions involving controlled substances, establish security measures to prevent theft of such substances, and monitor for suspicious orders to prevent misuse and diversion. Thus, the registration system aims to ensure that any controlled substance is always accounted for and under the control of a DEA-registered person until it reaches a patient or is destroyed. <4.1. Entities Required to Register> Under the CSA, every person who produces, distributes, or dispenses any controlled substance, or who proposes to engage in any of those activities, must register with DEA, unless an exemption applies. Significantly, the CSA exempts from registration individual consumers of controlled substances, such as patients and their family members, whom the act refers to as "ultimate users." DEA has explained that ultimate users need not register because the controlled substances in their possession "are no longer part of the closed system of distribution and are no longer subject to DEA's system of corresponding accountability." Manufacturers and distributors of controlled substances, such as pharmaceutical companies, must register with DEA annually. By contrast, entities that dispense controlled substances, such as hospitals, pharmacies, and individual medical practitioners and pharmacists, may obtain registrations lasting between one and three years. Registrations specify the extent to which registrants may manufacture, possess, distribute, or dispense controlled substances, and each registrant may engage only in the specific activities covered by its registration. In some instances, applicants must obtain more than one registration to comply with the CSA. For example, separate registrations are required for each principal place of business where controlled substances are manufactured, distributed, imported, exported, or dispensed. And certain activities can give rise to additional registration requirements. For instance, a special registration is required to operate an opioid treatment program such as a methadone clinic. The CSA directs the DEA Administrator to grant registration if it would be consistent with the public interest, outlining the criteria the DEA Administrator must consider when evaluating the public interest. The criteria vary depending on (1) whether the applicant is a manufacturer, distributor, researcher, or practitioner, and (2) the classification of the controlled substances that are the focus of the application. However, the requirements generally serve to help DEA determine whether the applicant has demonstrated the capacity to maintain effective controls against diversion and comply with applicable laws. The registration of an individual or organization expires at the end of the registration period unless it is renewed. Registration also ends when the registrant dies, ceases legal existence, or discontinues business or professional practice. A registration cannot be transferred to someone else without the express, written consent of the DEA Administrator. <4.2. Obligations of Registrants> <4.2.1. Recordkeeping and Reporting> The CSA and its implementing regulations impose multiple recordkeeping and reporting requirements on registrants. Registrants must undertake a biennial inventory of all stocks of controlled substances they have on hand, and maintain records of each controlled substance they manufacture, receive, sell, deliver, or otherwise dispose of. In addition, controlled substances in Schedules I and II may only be distributed pursuant to a written order. Copies of each order form must be transmitted to DEA. Records of orders must be preserved for two years and made available for government review upon request. Registrants are also required to "design and operate a system to identify suspicious orders" and to notify DEA of any suspicious orders they detect. DEA regulations provide that "[s]uspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency." That list is not exhaustive, however orders may also be deemed suspicious if, for example, a pharmacy mostly sells controlled substances rather than a more typical mix of controlled and noncontrolled medications, if many customers pay for controlled substances with cash, or if pharmacies purchase drugs at a price higher than insurance would reimburse. <4.2.2. Inspections> The CSA permits the DEA Administrator to inspect the establishment of any registrant or applicant for registration. DEA regulations express the intent of the agency "to inspect all manufacturers of controlled substances listed in Schedules I and II and distributors of controlled substances listed in Schedule I once each year," and other manufacturers and distributors of controlled substances "as circumstances may require." Absent the consent of the registrant or special circumstances such as an imminent danger to health or safety, a warrant is required for inspection. "Any judge of the United States or of a State court of record, or any United States magistrate judge" may issue such a warrant "within his territorial jurisdiction." Issuance of a warrant requires probable cause. The CSA defines probable cause as "a valid public interest in the effective enforcement of this subchapter or regulations thereunder sufficient to justify" the inspection at issue. <4.2.3. Security> The CSA's implementing regulations require all registrants to "provide effective controls and procedures to guard against theft and diversion of controlled substances." The regulations establish specific physical security requirements, which vary depending on the type of registrant and the classification of the controlled substance at issue. For example, nonpractitioners must store controlled substances in Schedules I and II in a safe, steel cabinet, or vault that meets certain specifications. Nonpractitioners must further ensure that controlled substance storage areas are "accessible only to an absolute minimum number of specifically authorized employees." Practitioners must store controlled substances "in a securely locked, substantially constructed cabinet." In addition to those physical security requirements, practitioners subject to CSA registration may not "employ, as an agent or employee who has access to controlled substances" any person who has been convicted of a felony related to controlled substances, had an application for CSA registration denied, had a CSA registration revoked, or surrendered a CSA registration for cause. <4.2.4. Quotas> To prevent the production of excess amounts of controlled substances, which may be prone to diversion, the CSA directs DEA to set production quotas for controlled substances in Schedules I and II and for ephedrine, pseudoephedrine, and phenylpropanolamine. The DEA Administrator is also required to set individual quotas for each registered manufacturer seeking to produce such substances and to limit or reduce individual quotas as necessary to prevent oversupply. With respect to certain opioid medications, the Act further directs the DEA Administrator to estimate the amount of diversion of each opioid and reduce quotas to account for such diversion. Relatedly, the Controlled Substances Import and Export Act allows the importation of certain controlled substances and listed chemicals only in amounts the DEA Administrator determines to be "necessary to provide for the medical, scientific, or other legitimate needs of the United States." <4.2.5. Prescriptions> Under the CSA, controlled substances in Schedules II through IV must be provided directly to an ultimate user by a medical practitioner or dispensed pursuant to a prescription. The Act does not mandate that Schedule V substances be distributed by prescription, but such substances may be dispensed only "for a medical purpose." As a practical matter, Schedule V substances are almost always dispensed pursuant to a prescription due to separate requirements under the FD&C Act or state law. <4.3. Enforcement and Penalties> DEA is the federal agency primarily responsible for enforcing the CSA's registration requirements. If a registrant contravenes the Act's registration requirements, DEA may take formal or informal administrative action including issuing warning letters, suspending or revoking an entity's registration, and imposing fines. The DEA Administrator may suspend or revoke a registration (or deny an application for registration) on several bases, including findings that a registrant or applicant has falsified application materials, been convicted of certain felonies, or "committed such acts as would render his registration . . . inconsistent with the public interest." Unless the DEA Administrator finds that there is an imminent danger to the public health or safety, the DEA Administrator must provide the applicant or registrant with notice, the opportunity for a hearing, and the opportunity to submit a corrective plan before denying, suspending, or revoking a registration. Imminent danger exists when, due to the failure of the registrant to comply with the registration requirements, "there is a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration" Those conditions are satisfied, for example, when a practitioner prescribes controlled substances outside the usual course of professional practice without a legitimate medical purpose in violation of state and federal controlled substances laws. A violation of the CSA's registration requirements including failure to maintain records or detect and report suspicious orders, noncompliance with security requirements, or dispensing controlled substances without the necessary prescriptions generally does not constitute a criminal offense unless the violation is committed knowingly. However, in the event of a knowing violation DEA, through DOJ, may bring criminal charges against both individual and corporate registrants. Potential penalties vary depending on the offense. For example, a first criminal violation of the registration requirements by an individual is punishable by a fine or up to a year in prison. If "a registered manufacturer or distributor of opioids" commits knowing violations such as failing to report suspicious orders for opioids or maintain effective controls against diversion of opioids, it may be punished by a fine of up to $500,000. <5. Trafficking Provisions> In addition to the registration requirements outlined above, the CSA also contains provisions that define multiple offenses involving the production, distribution, and possession of controlled substances outside the legitimate confines of the registration system, that is, the Act's trafficking provisions . Although the word "trafficking" may primarily call to mind the illegal distribution of recreational drugs, the CSA's trafficking provisions in fact apply to a wide range of illicit activities involving either pharmaceutical or nonpharmaceutical controlled substances. <5.1. Prohibitions> The CSA's trafficking provisions make it illegal to "manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance," except as authorized under the Act. They also make it unlawful "knowingly or intentionally to possess a controlled substance," unless the substance was obtained in a manner authorized by the CSA. Penalties vary based on the type and amount of the controlled substance in question. Other sections of the CSA define more specific offenses, such as distributing controlled substances at truck stops or rest areas, at schools, or to people under age 21; endangering human life while manufacturing a controlled substance; selling drug paraphernalia; and engaging in a "continuing criminal enterprise" that is, an ongoing, large-scale drug dealing operation. An attempt or conspiracy to commit any offense defined under the Act also constitutes a crime. <5.2. Enforcement and Penalties> DOJ enforces the CSA's trafficking provisions by bringing criminal charges against alleged violators. Notably, the CSA's registration system and its trafficking regime are not mutually exclusive, and participation in the registration system does not insulate registrants from the statute's trafficking penalties. In United States v. Moore , the Supreme Court rejected a claim that the CSA "must be interpreted in light of a congressional intent to set up two separate and distinct penalty systems," one for registrants and one for persons not registered under the Act. The Court in Moore held that physicians registered under the CSA can be prosecuted under the Act's general drug trafficking provisions "when their activities fall outside the usual course of professional practice." Numerous judicial opinions provide guidance on what sorts of conduct fall outside the usual course of professional practice. The defendant in Moore was a registered doctor who distributed large amounts of methadone with inadequate patient exams and no precautions against misuse or diversion. The Court held that "[t]he evidence presented at trial was sufficient for the jury to find that respondent's conduct exceeded the bounds of 'professional practice'" because, "[i]n practical effect, he acted as a large-scale 'pusher' not as a physician." Appellate courts have relied on Moore to uphold convictions of a pharmacist who signed thousands of prescriptions for sale through an online pharmacy, and a practitioner who "freely distributed prescriptions for large amounts of controlled substances that are highly addictive, difficult to obtain, and sought after for nonmedical purposes," including prescribing one patient more than 20,000 pills in a single year. But several courts have cautioned that a conviction under Moore requires more than a showing of mere professional malpractice. For instance, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) has held that the prosecution must prove that the defendant "acted with intent to distribute the drugs and with intent to distribute them outside the course of professional practic e ," suggesting that intent must be established with respect to the nature of the defendant's failure to abide by professional norms. For decades, DOJ has brought criminal trafficking charges against doctors and pharmacists who dispensed pharmaceutical controlled substances outside the usual course of professional practice. In April 2019, DOJ for the first time brought criminal trafficking charges against a pharmaceutical company Rochester Drug Cooperative and two of its executives based on the company's sale of the opioids oxycodone and fentanyl to pharmacies that illegally distributed the drugs. Similarly, in July 2019, a federal grand jury indicted defendants including two former executives at the pharmaceutical distributor Miami-Luken, Inc. for conspiracy to violate the CSA's trafficking provisions. Violations of the CSA's trafficking provisions are criminal offenses that may give rise to large fines and significant jail time. Penalties vary according to the offense and may further vary based on the type and amount of the controlled substance at issue. Unauthorized simple possession of a controlled substance may prompt a minimum fine of $1,000 and a term of up to a year in prison. Distribution of large quantities of certain drugs including Schedule I controlled substances such as heroin and LSD and Schedule II controlled substances such as cocaine and methamphetamine carries a prison sentence of 10 years to life and a fine of up to $10 million for an individual or a fine of up to $50 million for an organization. Penalties increase for second or subsequent offenses, or if death or serious bodily injury results from the use of the controlled substance. Compared with the CSA's registration provisions, prosecution under the Act's trafficking provisions generally entails greater potential liability particularly for individual defendants but also entails a more exacting burden of proof. The CSA is not the only means to target misconduct related to the distribution of pharmaceutical and nonpharmaceutical controlled substances. Rather, such conduct can give rise to liability under numerous other provisions of federal and state law. For example, drug companies may face administrative sanctions or criminal charges under the FD&C Act. Companies and criminal organizations may be subject to federal charges under the Racketeer Influenced and Corrupt Organizations Act. And manufacturers and distributors of opioids currently face numerous civil suits under federal and state law based on the companies' marketing and distribution of prescription opioids. <6. Legal Considerations for the 116th Congress> Drug regulation has received significant attention from Congress in recent years, prompting a range of proposals concerning the opioid epidemic; the proliferation of synthetic drugs, in particular analogues to the opioid fentanyl; the divergence between the status of marijuana under state and federal law; and the ability of researchers to conduct clinical research involving Schedule I controlled substances. <6.1. Opioid Crisis> One of the most salient current issues in the realm of controlled substance regulation is the opioid epidemic. Opioids are drugs derived from the opium poppy or emulating the effects of opium-derived drugs. Some opioids have legitimate medical purposes, primarily related to pain management, while others have no recognized medical use. Both pharmaceutical opioids such as oxycodone, codeine, and morphine and nonpharmaceutical opioids such as heroin may pose a risk of abuse and dependence and may be dangerous or even deadly in excessive doses. The CDC reports that overdoses on prescription and nonprescription opioids claimed a record 47,600 lives in 2017. The CDC further estimates that the misuse of prescription opioids alone costs the United States $78.5 billion per year. In recent years, the opioid crisis has prompted various legislative proposals aiming to prevent the illicit distribution of opioids; curb the effects of the crisis on individuals, families, and communities; and cover the costs of law enforcement efforts and treatment programs. In 2016, Congress enacted the Comprehensive Addiction and Recovery Act of 2016 (CARA) and the 21st Century Cures Act (Cures Act). CARA authorized grants to address the opioid crisis in areas including abuse prevention and education, law enforcement, and treatment, while the Cures Act, among other things, provided additional funding to states combating opioid addiction. In 2018, Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act), which sought to address the opioid crisis through far-ranging amendments to the CSA, the FD&C Act, and other statutes. Key amendments to the CSA under the SUPPORT Act included provisions expanding access to medication-assisted treatment for opioid addiction, specifying the factors for determining whether a controlled substance analogue is intended for human consumption, revising the factors DEA considers when establishing opioid production quotas, and codifying the definition of "suspicious order" and outlining the CSA's suspicious order reporting requirements. Notwithstanding the flurry of recent legal changes, many recent legislative proposals seek to further address the opioid crisis by amending the CSA. For example, the DEA Enforcement Authority Act of 2019 would revise the standard for "imminent danger" required to support an immediate suspension of DEA registration. Specifically, the bill would lower the threshold for what constitutes imminent danger, requiring " probable cause that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration," rather than the current statutory requirement that " a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration." In addition, the John S. McCain Opioid Addiction Prevention Act would, as part of the CSA's registration regime, require medical practitioners applying for new or renewed CSA registration to certify that they will not prescribe more than a seven-day supply of opioids for the treatment of acute pain. The LABEL Opioids Act would amend the CSA to require that opioids in Schedules I through V bear labels warning that they can cause dependence, addiction, and overdose. Failure to comply with the labeling requirements would violate the CSA's registration requirements. Some proposals target specific opioids, especially fentanyl. For instance, the Ending the Fentanyl Crisis Act of 2019 would amend the CSA to reduce the amounts of fentanyl required to constitute a trafficking offense. The Comprehensive Fentanyl Control Act, introduced in the 115th Congress, would likewise have reduced the amount of fentanyl triggering criminal liability. That bill would have also increased penalties applicable to offenses involving fentanyl and provided separate procedures for emergency scheduling of synthetic opioids. The Screening All Fentanyl-Enhanced Mail Act of 2019 seeks to require screening of all inbound international mail and express cargo from high-risk countries to detect and prevent the importation of illicit fentanyl and other synthetic opioids. Finally, the Blocking Deadly Fentanyl Imports Act would aim to gather information about the illicit production of illicit fentanyl in foreign countries and to withhold bilateral assistance from countries that fail to enforce certain controlled substance regulations. <6.2. Analogue Fentanyl> A related issue currently before Congress is the proliferation of synthetic drugs, especially synthetic opioids. Synthetic drugs are drugs that are chemically produced in a laboratory; they may have a chemical structure identical to or different from that of a natural drug. Synthetic drugs are often intended to mimic or enhance the effects of natural drugs, but have chemical structures that have been slightly modified to circumvent existing drug laws. One particular concern in this area relates to synthetic opioids, including fentanyl analogues and other fentanyl-like substances. Fentanyl is a powerful opioid that has legitimate medical uses including pain management for cancer patients. But, due to its potency, it also poses a particularly high risk of abuse, dependency, and overdose. Prescription fentanyl is a Schedule II controlled substance; multiple nonpharmaceutical substances related to fentanyl are controlled in Schedule I. However, experts have noted that it is relatively easy to manipulate the chemical structure of fentanyl in order to produce new substances that may have similar effects to fentanyl or pose other dangers if consumed but that are not included in the CSA's schedules. Since March 2011, DEA has used its emergency scheduling authority 23 times to impose temporary controls on 68 synthetic drugs, including 17 fentanyl-like substances. Most recently, in February 2018, DEA issued an emergency scheduling order that applies broadly to all "fentanyl-related substances" that meet certain criteria related to their chemical structure. Absent further action by DEA or Congress, the temporary scheduling order will expire in February 2020. Even if not individually scheduled on a temporary or permanent basis, fentanyl-related substances may still be subject to DEA control as controlled substance analogues. However, to secure a conviction for an offense involving an analogue controlled substance, DOJ must, among other elements, prove beyond a reasonable doubt that the substance at issue (1) is intended for human consumption and (2) has either a chemical structure substantially similar to the chemical structure of a Schedule I or II controlled substance or an actual or intended effect similar to or greater than that of a Schedule I or II controlled substance. Thus, DOJ has stated that analogue controlled substance prosecutions can be burdensome because they raise "complex chemical and scientific issues," and has argued that permanent scheduling of fentanyl analogues will reduce uncertainty and aid enforcement. Several proposals in the 116th Congress would seek to permanently schedule fentanyl analogues. For instance, the Stopping Overdoses of Fentanyl Analogues Act would permanently add to Schedule I certain specific synthetic opioids, as well as the whole category of "fentanyl-related substances," as defined in the February 2018 emergency scheduling order. The Modernizing Drug Enforcement Act of 2019 would amend the CSA to add to Schedule I all "mu opioid receptor agonists" not otherwise scheduled, subject to certain exceptions. One of the sponsors of the Modernizing Drug Enforcement Act has stated that the bill's aim is "to automatically classify drugs or other substances that act as opioids, such as synthetic fentanyl, as a schedule I narcotic based on their chemical structure and functions," avoiding the need for such substances to be individually scheduled. A key challenge in permanently scheduling fentanyl analogues is how to define the substances subject to regulation. Not all analogues of fentanyl have effects similar to fentanyl itself, and due to the large number of potential analogues there are many whose effects are unknown. Defining covered substances based on chemical structure may be overinclusive because the definition may include inactive substances, potentially allowing for prosecution of individuals who possess substances that pose no threat to public health and safety. On the other hand, such a definition may also be underinclusive because it excludes opioids that are not chemically related to fentanyl or that are made using different modifications to fentanyl's chemical structure. Alternatively, defining covered opioids based on their effects rather than their chemical structure could impose a heavy burden on prosecutors, similar to the burden they currently face when bringing analogue controlled substance charges. <6.3. Marijuana Policy Gap> Another area raising a number of legal considerations for the 116th Congress is the marijuana policy gap the increasing divergence between federal and state law in the area of marijuana regulation. As of June 2019, 11 states and the District of Columbia have passed laws removing state prohibitions on medical and recreational marijuana use by adults age 21 or older. An additional 35 states have passed laws permitting medical use of marijuana or CBD. However, marijuana remains a Schedule I controlled substance under federal law, and state legislation decriminalizing marijuana has no effect on that status. Because of resource limitations, DOJ typically has not prosecuted individuals who possess marijuana for personal use on private property, but instead has "left such lower-level or localized marijuana activity to state and local authorities through enforcement of their own drug laws." Moreover, in each budget cycle since FY2014 Congress has passed an appropriations rider preventing DOJ from using taxpayer funds to prevent the states from "implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana." The current appropriations rider is in effect through November 21, 2019. Several courts have interpreted the appropriations rider to bar DOJ from expending any appropriated funds to prosecute activities involving marijuana that are conducted in "strict compliance" with state law. However, activities that fall outside the scope of state medical marijuana laws remain subject to prosecution. For example, in United States v. Evans , the Ninth Circuit upheld the prosecution of medical marijuana growers who smoked some of the marijuana they grew because the defendants failed to show they were "qualifying patients" who acted in strict compliance with state medical marijuana law. Notwithstanding the appropriations rider, marijuana-related activity may still give rise to serious legal consequences under federal law. DOJ issued guidance in 2018 reaffirming the authority of federal prosecutors to exercise prosecutorial discretion to target federal marijuana offenses "in accordance with all applicable laws, regulations, and appropriations." Furthermore, regardless whether they are subject to criminal prosecution, participants in the cannabis industry may face numerous collateral consequences arising from the federal prohibition of marijuana because other federal laws impose noncriminal consequences based on criminal activity, including violations for the CSA. For example, cannabis businesses that are legal under state law may be unable to access banking services due to federal anti-money laundering laws, and those businesses may be ineligible for certain federal tax deductions. The involvement of income from a cannabis-related business may also prevent a bankruptcy court from approving a bankruptcy plan. And participation in the cannabis industry, even if legal under state law, may have adverse immigration consequences. Numerous proposals currently before Congress aim to address issues related to the marijuana policy gap. Some proposals target specific issues that arise from the divergence between federal and state law. For instance, the Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) would seek to protect depository institutions that provide financial services to cannabis-related businesses from regulatory sanctions. The Ensuring Safe Capital Access for All Small Businesses Act of 2019 would make certain loan programs of the Small Business Administration (SBA) available to cannabis-related businesses. Other proposals would seek to address the marijuana policy gap more broadly by attempting to mitigate any conflict between federal and state law. For example, the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) would amend the CSA to provide that most provisions related to marijuana "shall not apply to any person acting in compliance with State law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery" of marijuana. The STATES Act would remove the risk of federal prosecution under the CSA for individuals and entities whose marijuana-related activities comply with state law, but the bill does not specifically address the potential consequences of such activity under other areas of federal law. The Responsibly Addressing the Marijuana Policy Gap Act of 2019 would both remove marijuana-related activities that comply with state law from the scope of the CSA and seek to address specific collateral consequences of such activity, including access to banking services, bankruptcy proceedings, and certain tax deductions. By contrast, the State Cannabis Commerce Act would take an approach similar to the current DOJ appropriations rider with respect to all federal agencies: while it would not alter the scope of the CSA's restrictions on marijuana, the State Cannabis Commerce Act would prevent any agency from using appropriated funds "to prevent any State from implementing any law of the State that . . . authorizes the use, distribution, possession, or cultivation of marijuana" within the state. Additional proposed legislation could address the marijuana policy gap by altering the status of marijuana under the CSA across the board. Some proposals would move marijuana from Schedule I to a less restrictive schedule. Others would remove marijuana from the CSA's schedules completely. Removing marijuana from the coverage of the CSA could, however, raise new legal issues. For instance, by default, the repeal of federal criminal prohibitions rarely applies retroactively. As a result, if Congress were to remove marijuana from the CSA, it might want to consider how to address past criminal convictions related to marijuana and whether to take any action to mitigate the effects of past convictions. In addition, Congress would not be precluded from regulating marijuana in other ways if it were to remove the drug from the ambit of the CSA. For instance, legislation has been introduced that would impose new federal regulations on marijuana akin to those applicable to alcohol and cigarettes. In addition, descheduling marijuana would not, standing alone, alter the status of the substance under the FD&C Act and, thus, would not bring the existing cannabis industry into compliance with federal law. FDA has explained that it "treat[s] products containing cannabis or cannabis-derived compounds as [it does] any other FDA-regulated products," and that it is "unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived." FDA is currently engaged in "consideration of a framework for the lawful marketing of appropriate cannabis and cannabis-derived products under our existing authorities." Congress could also pass legislation to alter FDA regulation of cannabis-based products. For example, the Legitimate Use of Medicinal Marihuana Act would provide that neither the CSA nor the FD&C Act "shall prohibit or otherwise restrict" certain activities related to medical marijuana that are legal under state law. Reducing or removing federal restrictions on marijuana might also create tension with certain treaty obligations of the United States. The United States is a party to the Single Convention on Narcotic Drugs of 1961, which requires signatories, among other things, to criminalize "cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, . . . importation and exportation of drugs" contrary to the provisions of the Convention. The United States is also party to the Convention on Psychotropic Substances of 1971, which requires parties to impose various restrictions on controlled substances, including measures "for the repression of acts contrary to laws or regulations" adopted pursuant to treaty obligations. The two treaties are not self-executing, meaning that they do not have the same status as judicially enforceable domestic law. However, failure to abide by its treaty obligations could expose the United States to international legal consequences. <6.4. Research Access> Another significant legal issue before the 116th Congress is the effect of the CSA on researchers' ability to conduct clinical research involving Schedule I controlled substances, including marijuana. Because substances in Schedule I have no accepted medical use, it is only legal to produce, dispense, and possess those substances in the context of federally approved scientific studies. In addition, federal law generally prevents the use of federal funding for such research: a rider to the appropriations bill for FY2019 provides that no appropriated funds may be used "for any activity that promotes the legalization of any drug or other substance included in schedule I" of the CSA, except "when there is significant medical evidence of a therapeutic advantage to the use of such drug or other substance or . . . federally sponsored clinical trials are being conducted to determine therapeutic advantage." Some commentators have expressed concerns that the CSA places too many restrictions on research involving controlled substances, particularly Schedule I controlled substances that might have a legitimate medical use. With respect to clinical research involving marijuana specifically, currently there is one farm that legally produces marijuana for research purposes, and researchers have complained that such marijuana is deficient in both quality and quantity. In 2015, Congress passed the Improving Regulatory Transparency for New Medical Therapies Act, which imposes deadlines on DEA to issue notice of each application to manufacture Schedule I substances for research and then act on the application. In 2016, DEA stated that it planned to grant additional licenses to grow marijuana for research purposes; however, as of June 2019 no new licenses had been granted. One applicant for a license petitioned the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) for a writ of mandamus compelling DEA to issue notice of its application. In July 2019, the D.C. Circuit ordered DEA to respond to the petition. On August 27, 2019, DEA published a notice in the Federal Register (1) providing notice of the 33 applications it has received to manufacture Schedule I controlled substances for research purposes and (2) announcing the agency's intent to promulgate regulations governing the manufacture of marijuana for research purposes. The next day, DEA filed a response to the mandamus petition in the D.C. Circuit, asserting that the petition was moot because DEA had issued the requested notice of application. The petitioner disputes that the matter is moot and asks the court to retain jurisdiction "to ensure the agency acts with dispatch and processes [petitioner's] application promptly." The court has yet to rule on the petition. DEA's Federal Register notice stated that the agency intends to review all pending applications and grant "the number that the agency determines is necessary to ensure an adequate and uninterrupted supply of the controlled substances at issue under adequately competitive conditions." The notice further explained that DEA is engaged in an ongoing "policy review process to ensure that the [marijuana] growers program is consistent with applicable laws and treaties." It remains to be seen how many applications DEA will grant and what new regulations will apply to the successful applicants. As it did with the Improving Regulatory Transparency for New Medical Therapies Act, Congress could pass further legislation to guide DEA's consideration of applications to manufacture marijuana for research purposes. For instance, the Medical Cannabis Research Act of 2019, which was introduced before the recent developments in the D.C. Circuit and remains pending before Congress, would aim to increase the number of licenses to produce cannabis for research purposes, requiring DEA to approve at least three additional manufacturers within a year of passage. Congress could also legislate more broadly to facilitate research involving controlled substances. For example, a proposed amendment to the appropriations bill for FY2020 would have eliminated the appropriations rider restricting the use of federal funding for research involving Schedule I substances. That amendment, which would have applied to research involving all Schedule I controlled substances, was intended to facilitate research involving not only marijuana but also psilocybin, MDMA, and other Schedule I drugs that might have legitimate medical uses.

The Controlled Substances Act (CSA) imposes a unified legal framework to regulate certain drugs—whether medical or recreational, legally or illicitly distributed—that are deemed to pose a risk of abuse and dependence. The CSA does not apply to all drugs. Rather, it applies to specific substances and categories of substances that have been designated for control by Congress or through administrative proceedings. The statute also applies to controlled substance analogues that are intended to mimic the effects of controlled substances and certain precursor chemicals commonly used in the manufacturing of controlled substances. Controlled substances subject to the CSA are divided into categories known as Schedules I through V based on their medical utility and their potential for abuse and dependence. Substances considered to present the greatest risk to the public health and safety are subject to the most stringent controls and sanctions. A lower schedule number corresponds to greater restrictions, so substances in Schedule I are subject to the strictest controls, while substances in Schedule V are subject to the least strict. Most substances subject to the CSA are also subject to other federal or state regulations, including the Federal Food, Drug, and Cosmetic Act (FD&C Act). The Drug Enforcement Administration (DEA) is the federal agency primarily responsible for implementing and enforcing the CSA. DEA may designate a substance for control through notice-and-comment rulemaking if the substance satisfies the applicable statutory criteria. The agency may also place a substance under temporary control on an emergency basis if the substance poses an imminent hazard to public safety. In addition, DEA may designate a substance for control under the United States' international treaty obligations. In the alternative, Congress may place a substance under control by statute. The CSA simultaneously aims to protect public health from the dangers of controlled substances diverted into the illicit market while also seeking to ensure that patients have access to pharmaceutical controlled substances for legitimate medical purposes. To accomplish those two goals, the statute creates two overlapping legal schemes. Registration provisions require entities working with controlled substances to register with DEA and implement various measures to prevent diversion and misuse of controlled substances. Trafficking provisions establish penalties for the production, distribution, and possession of controlled substances outside the legitimate scope of the registration system. DEA is primarily responsible for enforcing the registration provisions and works with the Criminal Division of the Department of Justice to enforce the trafficking provisions of the CSA. Violations of the registration provisions generally are not criminal offenses, but certain serious violations may result in criminal prosecutions, fines, and even short prison sentences. Violations of the trafficking provisions are criminal offenses that may result in large fines and lengthy prison sentences. Drug regulation has received significant attention from Congress in recent years, with a number of bills introduced in the 116th Congress that would amend the CSA in various ways. For example, after Congress passed several bills in recent years in response to the opioid crisis, additional proposals aimed at addressing the crisis are pending before the 116th Congress, including the John S. McCain Opioid Addiction Prevention Act ( H.R. 1614 , S. 724 ), which would limit practitioners' ability to prescribe opioids; the LABEL Opioids Act ( H.R. 2732 , S. 1449 ), which would require prescription opioids to bear certain warning labels; and the Ending the Fentanyl Crisis Act of 2019 ( S. 1724 ), which would increase criminal liability for illicit trafficking in the powerful opioid fentanyl. The 116th Congress has also considered measures specifically seeking to address the proliferation of synthetic drugs that mimic the effects of fentanyl, including the Stopping Overdoses of Fentanyl Analogues Act ( H.R. 2935 , S. 1622 ) and the Modernizing Drug Enforcement Act of 2019 ( H.R. 2580 ). In addition, multiple recent proposals would seek to address the divergence between federal and state marijuana laws. For example, the Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) ( H.R. 1595 , S. 1200 ) would seek to protect depository institutions that provide financial services to cannabis-related businesses from regulatory sanctions, and the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) ( H.R. 2093 , S. 1028 ) would amend the CSA so that most provisions concerning marijuana do not apply to marijuana-related activities that comply with state law. Other proposals, such as the Legitimate Use of Medicinal Marihuana Act ( H.R. 171 ) and the Marijuana Justice Act of 2019 ( H.R. 1456 , S. 597 ) could address the gap between federal and state law in the area of marijuana regulation by moving marijuana from Schedule I to a less restrictive schedule or remove marijuana from the CSA's schedules. Finally, recent legislative proposals would aim to facilitate clinical research involving controlled substances, particularly marijuana. These various proposals raise a number of legal questions as Congress contemplates whether to change the laws governing controlled substances.

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<1. 1. What is the BCA?> When there is concern with deficit or debt levels, Congress will sometimes implement budget enforcement mechanisms to mandate specific budgetary policies or fiscal outcomes. The Budget Control Act of 2011 (BCA; P.L. 112-25 ) was the legislative result of extended budget policy negotiations between congressional leaders and President Barack Obama. These negotiations occurred in conjunction with the government's borrowing authority approaching the statutory debt limit. Budget deficits in FY2009 through FY2011 averaged 9.0% of gross domestic product (GDP) and were higher than any other year since World War II. Those deficits were due to a number of factors, including reduced revenues and increased spending demands attributable to the Great Recession and costs associated with the economic stimulus package passed through the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). The BCA includes several interconnected components related to the federal budget, some of which are no longer in effect. There are five primary components: 1. An authorization to the executive branch to increase the debt limit in three installments, subject to a disapproval process by Congress. (Those provisions were temporary and are no longer in effect.) 2. A one-time requirement for Congress to vote on an amendment to the Constitution to require a balanced budget . 3. The establishment of limits on defense discretionary spending and nondefense discretionary spending, enforced by sequestration (automatic, across-the-board reductions) in effect through FY2021. Under this mechanism, sequestration is intended to deter enactment of legislation violating the spending limits or, in the event that legislation is enacted violating these limits, to automatically reduce discretionary spending to the limits specified in law. 4. The establishment of the Joint Select Committee on Deficit Reduction (often referred to as "the Joint Committee" or "the super committee"), which was directed to develop a proposal that would reduce the deficit by at least $1.5 trillion over FY2012 to FY2021. 5. The establishment of an automatic process to reduce spending, beginning in 2013, in the event that Congress and the President did not enact a bill reported by the Joint Committee reducing the deficit by at least $1.2 trillion. (Such a bill was not enacted.) This automatic process requires annual downward adjustments of the discretionary spending limits, as well as a sequester (automatic, across-the-board reduction) of nonexempt mandatory spending programs. In this case, sequestration was included to encourage the Joint Committee to agree on deficit reduction legislation or, in the event that such agreement was not reached, to automatically reduce spending so that an equivalent budgetary goal would be achieved. <2. 2. What components of the BCA currently affect the annual budget?> The BCA as amended has three main components that currently affect the annual budget. One component imposes annual statutory discretionary spending limits for defense and nondefense spending. A second component requires annual reductions to the initial discretionary spending limits, triggered by the absence of a deficit reduction agreement from the Joint Committee. Third are annual automatic mandatory spending reductions triggered by the same absence of a deficit reduction agreement. Each of those components is described in further detail below. <2.1. Discretionary Spending Limits> The BCA established statutory limits on discretionary spending for FY2012-FY2021. (Such discretionary spending limits were first in effect between FY1991 and FY2002. ) There are currently separate annual limits for defense discretionary and nondefense discretionary spending. The defense category consists of discretionary spending in budget function 050 (national defense) only. The nondefense category includes discretionary spending in all other budget functions. If discretionary appropriations are enacted that exceed a statutory limit for a fiscal year, across-the-board reductions (i.e., sequestration) of nonexempt budgetary resources within the applicable category are required to eliminate the excess spending. The BCA further stipulates that some spending is effectively exempt from the limits. Specifically, the BCA specifies that the enactment of certain discretionary spending such as appropriations designated as emergency requirements or for overseas contingency operations allows for an upward adjustment of the discretionary limits (meaning that such spending is effectively exempt from the limits). <2.2. Annual Reductions to the Discretionary Spending Limits> Another component of the BCA requires reductions to these discretionary spending limits annually. Due to the absence of the enactment of Joint Committee legislation to reduce the deficit by at least $1.2 trillion over the 10-year period (described above), the BCA requires these reductions to the statutory limits on both defense and nondefense discretionary spending for each year through FY2021. These reductions are often referred to as a sequester, but they are not a sequester per se because they do not make automatic, across-the-board cuts to programs. Instead, they lower the spending limits, allowing Congress the discretion to develop legislation within the reduced limits. For information on the spending limit amounts, see the section below titled " 9. How is discretionary spending currently affected by the BCA? " <2.3. Annual Mandatory Spending Sequester> Because legislation from the Joint Committee to reduce the deficit by at least $1.2 trillion over the 10-year period (described above) was not enacted, the BCA requires the annual sequester (automatic, across-the-board reductions) of nonexempt mandatory spending programs. This sequester was originally intended to occur each year through FY2021 but has been extended to continue through FY2029. Many programs are exempt from sequestration, such as Social Security, Medicaid, the Children's Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), and Supplemental Nutrition Assistance Program (SNAP, formerly food stamps). In addition, special rules govern the sequestration of certain programs, such as Medicare, which is limited to a 2% reduction. To see a list of direct spending programs included in the most recent sequester report, see the annual Office of Management and Budget (OMB) report to Congress on the Joint Committee sequester for FY2020. For more information on the budgetary impact of the mandatory spending sequester, see the section below titled How is mandatory spending currently affected by the BCA? <3. 3. What is a sequester and when will it occur?> A sequester provides for the enforcement of budgetary limits established in law through the automatic cancellation of previously enacted spending. This cancellation of spending makes largely across-the-board reductions to nonexempt programs, activities, and accounts. A sequester is implemented through a sequestration order issued by the President as required by law. The purpose of a sequester is to enforce certain statutory budget requirements either to discourage Congress from enacting legislation violating a specific budgetary goal or to encourage Congress to enact legislation that would fulfill a specific budgetary goal. One of the authors of the law that first employed the sequester recently stated, "It was never the objective ... to trigger the sequester; the objective ... was to have the threat of the sequester force compromise and action." As mentioned above, sequestration is currently used as the enforcement mechanism for policies established in the BCA: For the discretionary spending limits, a sequester will occur only if appropriations are enacted that exceed either the defense or nondefense discretionary limits. In such a case, sequestration is generally enforced when OMB issues a final sequestration report within 15 calendar days after the end of a session of Congress. In addition, a separate sequester may be triggered if the enactment of appropriations causes a breach in the discretionary limits during the second and third quarter of the fiscal year. In such an event, sequestration would take place 15 days after the enactment of the appropriation. If the enactment of appropriations causes the discretionary spending limits to be breached in the last quarter of the fiscal year, the spending limit for the following fiscal year for that category must be reduced by the amount of the breach. As mentioned above, the BCA requires reductions to these discretionary spending limits annually. These reductions are to be calculated by OMB and included annually in the OMB Sequestration Preview Report to the President and Congress , which is to be issued with the President's annual budget submission. The reductions would then apply to the discretionary spending limits for the budget year corresponding to the President's submission. While these reductions are often referred to as a sequester, they are not a sequester per se because they do not make automatic, across-the-board cuts to programs. Instead, they lower the spending limits, allowing Congress the discretion to develop legislation within the reduced limits. A sequester of nonexempt mandatory spending programs will take place each year through FY2029. These levels are also calculated by OMB and are included in the annual OMB report to Congress on the Joint Committee reductions, which is also to be issued with the President's budget submission. The sequester does not occur, however, until the beginning of the upcoming fiscal year. <4. 4. What statutory changes have been made to the BCA?> Legislation has been enacted making changes to the spending limits or enforcement procedures included in the BCA for each year from FY2013 through FY2021. Some of the most significant of these changes are the following: The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) postponed the start of FY2013 sequester from January 2 to March 3 and reduced the amount of the spending reductions by $24 billion, among other things. The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67 , referred to as the Murray-Ryan agreement) increased discretionary spending limits for both defense and nondefense for FY2014, each by about $22 billion. In addition, it increased discretionary spending limits for both defense and nondefense for FY2015, each by about $9 billion. It also extended the mandatory spending sequester by two years through FY2023. Soon after the enactment of the Bipartisan Budget Act of 2013, a bill was enacted to "ensure that the reduced annual cost-of-living adjustment to the retired pay of members and former members of the armed forces under the age of 62 required by the Bipartisan Budget Act of 2013 will not apply to members or former members who first became members prior to January 1, 2014, and for other purposes ( P.L. 113-82 )." This legislation extended the direct spending sequester by one year through FY2024. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ) increased discretionary spending limits for both defense and nondefense for FY2016, each by $25 billion. In addition, it increased discretionary spending limits for both defense and nondefense for FY2017, each by $15 billion. It also extended the direct spending sequester by one year through FY2025. In addition, it established nonbinding spending targets for Overseas Contingency Operations/Global War on Terrorism (OCO/GWOT) levels for FY2016 and FY2017 and amended the limits of adjustments allowed under the discretionary spending limits for Program Integrity Initiatives. The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ) increased nondefense and defense discretionary limits in FY2018 and FY2019. In FY2018 BBA 2018 increased the defense limit by $80 billion (to $629 billion) and increased the nondefense limit by $63 billion (to $579 billion); in FY2019 it increased the defense limit by $85 billion (to $647 billion) and increased the nondefense limit by $68 billion (to $597 billion). BBA 2018 also extended the mandatory spending sequester by two years through FY2027. The Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37 ) increased discretionary spending limits for FY2020 and FY2021. In FY2020, it increased the discretionary defense cap by $90 billion, to $667 billion, and increased the nondefense cap by $78 billion, to $622 billion. In FY2021, it increased the discretionary defense cap by $81 billion, to $672 billion, and increased the nondefense cap by $72 billion, to $627 billion. BBA 2019 also extended the mandatory spending sequester by two years, through FY2029. <5. 5. Is Congress bound by the BCA?> Congress may modify or repeal any aspect of the BCA procedures at its discretion, but such changes require the enactment of legislation. Since enactment of the BCA, subsequent legislation has modified both the discretionary spending limits and the mandatory spending sequester (as described above). In considering the potential for Congress to reach agreement on future modifications to the BCA, particularly the discretionary spending limits, it may be worth noting the following: Legislation that would modify the discretionary spending limit would be subject to the regular legislative process. Such legislation would therefore require House and Senate passage, as well as signature by the President or congressional override of a presidential veto. In the House, such legislation would require the support of a simple majority of Members voting, but in the Senate, consideration of such legislation would likely require cloture to be invoked, which requires a vote of three-fifths of all Senators (normally 60 votes) to bring debate to a close. Previous legislative increases to the discretionary spending limits have been coupled with future spending reductions, such as extensions of the mandatory spending sequester. For example, BBA 2013 extended the mandatory spending sequester by two years (from FY2021 to FY2023). Previous legislative increases to the discretionary spending limits have adhered to what has been referred to as the "parity principle." In essence, this means that some Members of Congress have insisted that any legislation changing the limits must increase each of the two limits (defense and nondefense) by equal amounts. For example, BBA 2015 increased discretionary spending limits for both defense and nondefense for FY2016, each by $25 billion. In addition, it increased discretionary spending limits for both defense and nondefense for FY2017, each by $15 billion. <6. 6. Which types of legislation are subject to the discretionary spending limits?> <6.1. Budget Resolutions> Although the budget resolution may act as a plan for the upcoming budget year, it does not provide budget authority and therefore cannot trigger a sequester for violation of the discretionary spending limits. Nevertheless, budget resolutions are often referred to in terms of complying with, or not complying with, the discretionary spending limits. Even if a budget resolution were agreed to that included planned levels of spending in excess of the discretionary spending limits, this would not supersede the discretionary spending limits stipulated by the BCA. While Congress may modify or cancel the discretionary spending limits at its discretion, such changes require the enactment of legislation. <6.2. Authorizations of Appropriations> Authorizations of discretionary appropriations, such as the National Defense Authorization Act (NDAA), do not provide budget authority and therefore cannot trigger a sequester for violation of the discretionary spending limits. Although authorizations often include recommendations for funding levels, budget authority is subsequently provided in appropriations legislation. It is, therefore, appropriations legislation that could trigger a sequester. Nevertheless, authorizations (the NDAA in particular) are often discussed in terms of whether or not the authorized level of funding, if appropriated, would comply with the discretionary spending limits. Even if an authorization bill were enacted that authorized appropriations at levels in excess of the discretionary spending limits, this authorization would not supersede the statutory discretionary spending limits stipulated by the BCA. While Congress may modify or cancel the discretionary spending limits at its discretion, such changes require the enactment of legislation. <6.3. Regular, Supplemental, and Continuing Appropriations> Appropriations legislation that provides budget authority for discretionary spending programs in excess of the discretionary spending limits can trigger a sequester for violation of the discretionary spending limits. This includes regular appropriations legislation, supplemental appropriations legislation, and continuing resolutions (CRs). Any appropriations legislation enacted into law that provides budget authority in excess of the levels stipulated by the BCA would trigger a sequester, canceling previously enacted spending through automatic, largely across-the-board reductions of nonexempt budgetary resources within the category of the breach. The statutory limits established by the BCA as amended apply to budget authority and not outlays. Budget authority is what federal agencies are legally permitted to obligate, and it is controlled by Congress through appropriation acts in the case of discretionary spending or through other acts in the case of mandatory spending. Budget authority gives federal officials the ability to spend. Outlays are disbursed federal funds. Until the federal government disburses funds to make payments, no outlays occur. Therefore, there is generally a lag between when Congress grants budget authority and when outlays occur. <7. 7. Is some spending "exempt" or "excluded" from the BCA?> Some spending is regarded as "exempt" from the BCA. A distinction should be noted between categories of spending that are "excluded" from the discretionary spending limits and spending programs that are "exempt" from sequestration. Some categories of spending are considered "exempt" or "excluded" from the discretionary spending limits, meaning that when an assessment is made as to whether the discretionary spending limits have been breached, they are not counted. (In precise terms, the BCA does not "exempt" such spending but allows for an upward adjustment of the discretionary limits to accommodate such spending.) For example, spending designated as emergency requirements or for OCO/GWOT is effectively excluded from the discretionary spending limits up to any amount (meaning that the designation of such spending allows for an upward adjustment of the discretionary limits to accommodate that spending). The BCA does not define what constitutes this type of funding, nor does it limit the level or amount of spending that may be designated as being for such purposes. Similarly, "disaster funding" and spending for "continuing disability reviews and redeterminations" and "healthcare fraud and abuse control" are effectively exempt up to a certain amount (again meaning that such spending allows for an upward adjustment of the discretionary limits to accommodate that spending), as are other programs. Some programs are exempt from a sequester, such as Social Security, Medicaid, CHIP, TANF, and SNAP. In addition, special rules govern the sequestration of certain programs, such as Medicare, which is limited to a 2% reduction. These exemptions and special rules are found in Sections 255 and 256 of the BBEDCA, as amended, respectively. It may also be helpful to review OMB sequester reports detailing programs that have been subject to sequester. To see a list of both discretionary and direct spending programs subject to the FY2013 sequester, see the OMB report to Congress on the Joint Committee sequestration for FY2013. To see a list of direct spending programs included in the most recent sequester report, see the annual OMB report to Congress on the Joint Committee sequester for FY2020. <8. 8. How does the "parity principle" apply to the BCA?> The "parity principle" refers to the equality between changes made to defense and nondefense budget authority through some deficit reduction measures established by the BCA. While there has never been a statutory requirement to uphold the parity principle, budget parity has followed from deficit reduction measures imposed by the BCA and some of the subsequent amendments to its deficit reduction measures. The specific type of parity in each law evolved over time. The BCA and ATRA reflected parity in the budgetary impact of changes to defense and nondefense budget authority across both discretionary and mandatory spending categories . Subsequent BCA amendments in BBA 2013 and BBA 2015 reflected parity between defense and nondefense budget authority for discretionary spending only , as those laws also extended automatic mandatory deficit reduction measures that had larger budget reductions for nondefense activities than for defense programs. BBA 2018 reflected yet another type of parity, as the amended discretionary cap levels in FY2018 and FY2019 were increased by an equivalent amount relative to the initial BCA levels as established in August 2011. As compared with the caps after the automatic reductions took effect, BBA 2018 included larger increases to the defense caps than to the nondefense caps. As with BBA 2013 and BBA 2015, BBA 2018 also included an extension to the automatic mandatory spending reductions with a larger set of reductions for nondefense programs than for defense programs. BBA 2019 did not include increases that reflected any definition of the parity principle: as with BBA 2018 it imposed larger increases to defense programs than nondefense programs for FY2020 and FY2021, but the difference between the nondefense and defense caps in each year was smaller than the gap initially established by the BCA. The BCA provides for upward adjustments to the discretionary caps, sometimes called spending "outside the caps," for budget authority devoted to OCO, emergency requirements, and other purposes. Budget authority for BCA upward adjustments has not reflected parity between defense and nondefense activities in any effective year of the BCA to date, as upward adjustments have allowed for more defense spending than nondefense spending in each year from FY2012 through FY2017 and FY2019, while upward adjustments were larger for defense spending than nondefense spending in FY2018. <9. 9. How is discretionary spending currently affected by the BCA?> The BCA includes annual statutory caps that limit how much discretionary budget authority can be provided for defense and nondefense activities. These limits are in effect through FY2021 and are enforced by sequestration, meaning that a breach of the discretionary spending limit for either category would trigger a sequester of resources within that category only to make up for the amount of the breach. A second component of the BCA makes automatic decreases to these caps annually. In the absence of the enactment of a Joint Committee bill to reduce the deficit by at least $1.2 trillion, the BCA required downward adjustments (or reductions) to the statutory limit on both defense and nondefense spending each year through FY2021. While these reductions are often referred to as sequesters, they are not technically sequesters because they do not make automatic, across-the-board cuts to programs. The reductions instead lower the spending limits, allowing Congress the discretion to develop legislation within the reduced limits. These reductions are to be calculated annually by O MB and are included in the OMB Sequestration Preview Report to the President and Congress , which is issued with the President's annual budget submission. The BCA stipulates that certain discretionary funding, such as appropriations designated as OCO or for emergency requirements, allows for an upward adjustment of the discretionary limits. OCO funding is therefore sometimes described as being "exempt" from the discretionary spending limits. The BCA does not define what constitutes this type of funding, nor does it limit the level of spending that may be designated as being for such purposes. <9.1. Budgetary Impact> The BCA as enacted was estimated to reduce budget deficits by a cumulative amount of roughly $2 trillion over the FY2012-FY2021 period. Subsequent modifications enacted through ATRA, BBA 2013, and BBA 2015 lessened the level of deficit reduction projected to be achieved by the BCA in selected years. ATRA postponed FY2013 spending reductions and made them smaller. In contrast, BBA 2013, BBA 2015, BBA 2018, and BBA 2019 limited the deficit-reducing impact through increases in the discretionary budget authority caps in FY2014-FY2021. Table 1 shows the evolution of discretionary spending limits established by the BCA from August 2011 through August 2019. The discretionary caps in FY2020 are currently scheduled to be $667 billion for defense activities and $622 billion for nondefense activities, higher than their totals of $647 billion and $597 billion, respectively, in FY2019. The combined discretionary limit in FY2020 ($1,288 billion) is $45 billion higher than its FY2019 value. <10. 10. How is mandatory spending currently affected by the BCA?> The absence of an agreement by the Joint Committee triggered automatic spending reductions (as provided for in the BCA) for all mandatory programs that were not explicitly exempted from FY2013 through FY2021. Notably, Social Security payments were exempted from the automatic reductions, and the effect on Medicare spending was limited to 2% of annual payments made to certain Medicare programs. Extensions of the mandatory spending reductions were included in BBA 2013, BBA 2015, BBA 2018, and BBA 2019 and are currently scheduled to remain in place through FY2029. A recent OMB sequestration report estimated that such measures will reduce mandatory outlays by $20.7 billion in FY2020, with $19.86 billion of that total applied to nondefense programs and $0.84 billion applied to defense programs. <11. 11. Why do discretionary outlays differ from the spending limits established by the BCA?> The limits on discretionary spending established by the BCA apply to budget authority, which is the amount that federal agencies are legally permitted to obligate. Outlays, meanwhile, are disbursed federal funds: In other words, they represent amounts that are actually spent by the government. There is generally a lag between when Congress grants budget authority and when outlays occur, and that lag can vary depending on the agency and specific purpose of the obligation. Furthermore, the budget may classify certain types of spending in a certain way when measuring budget authority and another way when measuring outlays. For example, much of the spending attached to the Highway Trust Fund is classified as mandatory spending when measuring budget authority and as discretionary spending when measuring outlays. <12. 12. How has federal spending changed since enactment of the BCA?> Budget deficits declined for much of the 1990s due to decreased spending, rising revenues, and an improved economy. The federal budget recorded surpluses from FY1998 through FY2001. Prior to that, the last budget surplus occurred in FY1969. Budget deficits returned starting in FY2002 and slowly increased over the next several years due to reduced revenues and increased spending. Net deficits peaked during the Great Recession from FY2009 to FY2011, as negative and low economic growth coupled with increased spending commitments provided for by the American Recovery and Reinvestment Act ( P.L. 111-5 ) contributed to real deficits averaging 9.0% of gross domestic product (GDP) in those years. Real deficits have declined since FY2011, due to the modifications made by the BCA, increased revenues, and the winding down of stimulus programs. However, the FY2019 deficit (4.3% of GDP, or $665 billion) remains higher than the average deficit since FY1969 (2.9% of GDP).The CBO baseline projects that real budget deficits will increase in future years. <13. 13. How do modifications to the BCA affect baseline projections?> Modifications to the limits on discretionary spending, established by the BCA, change authorizations levels, which in turn affect outlays. CBO provides estimates of both discretionary spending effects and mandatory spending effects in its legislative cost estimates. Whether proposed legislation affects discretionary or mandatory spending may have ramifications for congressional budgetary enforcement procedures, however. CBO's baseline projections assume that the discretionary limits imposed by the BCA as amended will proceed as scheduled through FY2021 and that discretionary spending levels will grow with the economy in subsequent years. Such methodology uses the discretionary spending levels in FY2021 as the basis for discretionary spending projections for the remainder of the budget window.

When there is concern with deficit or debt levels, Congress will sometimes implement budget enforcement mechanisms to mandate specific budgetary policies or fiscal outcomes. The Budget Control Act of 2011 (BCA; P.L. 112-25 ), which was signed into law on August 2, 2011, includes several such mechanisms. The BCA as amended has three main components that currently affect the annual budget. One component imposes annual statutory discretionary spending limits for defense and nondefense spending. A second component requires annual reductions to the initial discretionary spending limits triggered by the absence of a deficit reduction agreement from a committee formed by the BCA. Third are annual automatic mandatory spending reductions triggered by the same absence of a deficit reduction agreement. Each of those components is described in further detail in this report. The discretionary spending limits (and annual reductions) are currently scheduled to remain in effect through FY2021, while the mandatory spending reductions are scheduled to remain in effect through FY2029. Congress may modify or repeal any aspect of the BCA procedures, but such changes require the enactment of legislation. Several pieces of legislation have changed the spending limits or enforcement procedures included in the BCA with respect to each year from FY2013 through FY2029. These include the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ), the Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67 , also referred to as the Murray-Ryan agreement), the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ), the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ), and the Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37 ). Those laws included changes to the discretionary limits imposed by the BCA that increased deficits in each year from FY2013 to FY2021. Under current law there are no discretionary spending caps in place for FY2022 and beyond. Following enactment of BBA 2019, the discretionary caps in FY2020 are scheduled to be approximately $667 billion for defense activities and $622 billion for nondefense activities, and the FY2021 discretionary caps are scheduled to be $672 billion for defense activities and $627 billion for nondefense activities. This report addresses several frequently asked questions related to the BCA and the annual budget.

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The United States has created vast federal loan programs offering to millions of students alternatives to private educational loans . According to the U.S. Department of Education's (ED's) Office of Federal Student Aid (FSA), nearly 43 million borrowers owed money on federal student loans as of the second quarter of 2019, and the total amount of outstanding federal student loan debt currently exceeds $1.4 trillion a figure that has nearly tripled since 2007. In recent years, a significant number of these borrowers have experienced difficulty repaying their student loans. Moreover, borrowers who lack financial experience may need guidance to navigate the student loan repayment process, which some borrowers find daunting or confusing. Student loan servicers with whom the United States has contracted to assist with the administration of its sizable student loan portfolio are a key source of guidance and assistance for borrowers struggling to understand and repay their federal student loans. Under its contract with the federal government, a servicer may be responsible for (among other things) communicating with borrowers regarding repayment; disclosing information about student loan terms to borrowers; applying payments to outstanding loan balances; processing applications for enrollment in repayment plans; processing applications for loan forgiveness or discharge; and processing requests for loan forbearance or deferment. Some maintain that at least some of these federal student loan servicers have engaged in various forms of undesirable conduct, such as steering borrowers away from beneficial repayment options or providing inaccurate or incomplete information. Representatives from the servicing industry deny these accusations. These allegations of servicer misconduct have drawn the attention of both federal and state policymakers. At least two congressional subcommittees have conducted hearings on student loan servicing within the past few months , and the House Committee on Financial Services conducted another hearing on the topic on September 10, 2019. Additionally, several state legislatures have enacted new laws to regulate student loan servicers within the past few years. A number of state attorneys general and individual borrowers have also tried to pursue civil litigation against servicers of federal student loans based on alleged violations of state statutory and common law. The states' involvement has raised questions involving the appropriate interaction between federal and state law, as well as the respective roles of the federal and state governments with respect to regulating student loan servicers. Significantly, ED has taken the position that the existing regime of federal regulation of student loan servicers leaves no room for state regulation on the topic. While some courts have agreed with this position, others have concluded that current federal law permits the state to regulate servicers with whom the federal government contracts. This report analyzes the regulation of servicers of federal student loans. After providing necessary background information regarding the federal student loan programs, the report describes federal law governing student loan servicers. The report then discusses how some states and borrowers have tried to enact or enforce state laws to regulate servicers of federal student loans. Then, the report analyzes the legal issues implicated by the interaction of federal and state servicing laws, including whether (and, if so, to what extent) federal servicing regulation preempts the states from creating or enforcing servicing laws of their own. The report concludes by identifying relevant legal considerations for Congress. <1. Background on the Federal Student Loan Programs> The federal government's roles with respect to the operation, supervision, and administration of federal student loan programs have evolved over time. Around the turn of the millennium, for instance, most (though not all) federal student loans were issued under the now-discontinued Federal Family Education Loan Program (FFELP), under which private lenders extended loans to borrowers that the federal government guaranteed against the risk of loss. Although the federal government set the terms and conditions of FFELP loans and subsidized the FFELP program, various entities other than the federal government also helped operate the FFELP. For example, private lenders (or third parties with which those lenders contracted) bore the responsibility of servicing FFELP loans. Several recent developments, however, have shifted the federal government's role in the student loan system. In 2008, for instance, Congress enacted the Ensuring Continued Access to Student Loan Act (ECASLA), which authorized ED to purchase outstanding FFELP loans from private lenders. Thus, for the nearly 4 million loans that ED purchased from private lenders under ECASLA, "the federal government is now the 'lender.'" Then, in 2010, Congress enacted the Student Aid and Fiscal Responsibility Act (SAFRA), which, among other things, terminated the authority to make new FFELP loans. As a result of SAFRA, the United States now issues most new federal student loans through the Federal Direct Loan Program (FDLP), under which the government itself rather than a private lender extends loans directly to students. These developments have thereby expanded the federal government's direct involvement in the student loan industry, which in turn has prompted the United States to rely increasingly on servicers to administer aspects of the federal student loan programs. <2. Federal Laws and Contractual Requirements Governing Student Loan Servicers> A variety of federal statutes and regulations as well as contractual provisions bear on the servicing of federal student loans. <2.1. Statutory Provisions> One such statute is Title IV of the Higher Education Act of 1965 (HEA), which (among other things) establishes programs to provide financial assistance to postsecondary students, including the FDLP. Title IV also governs loans issued under the now-discontinued FFELP that remain outstanding. Title IV contains several provisions that pertain to student loan servicing. The first such provision is 20 U.S.C. 1082, which applies to FFELP loans. 20 U.S.C. 1082(a)(1), for instance, empowers the Secretary of Education (Secretary) to "prescribe . . . regulations applicable to third party servicers," "including regulations concerning financial responsibility standards for, and the assessment of liabilities for program violations against, such servicers." Section 1082(a)(1) explicitly specifies, however, that "in no case shall damages be assessed against the United States for the actions or inactions of such servicers." Section 1082( l )(1) in turn requires the Secretary to promulgate regulations "prescrib[ing] standardized forms and procedures regarding . . . [student loan] servicing." In addition, Section 1082(p) requires certain officers, directors, employees, and consultants of student loan servicing agencies to submit reports to the Secretary disclosing potential financial conflicts of interest. Another provision, 20 U.S.C. 1087f, applies to FDLP loans. Section 1087f(a)(1) directs the Secretary to award federal loan servicing contracts to eligible servicers "to the extent practicable." The Secretary may enter into servicing contracts only with "entities which the Secretary determines are qualified to provide such services" that possess "extensive and relevant experience and demonstrated effectiveness." Additionally, "[i]n awarding such contracts, the Secretary" must "ensure that such services . . . are provided at competitive prices." Yet another provision that has been particularly critical to the current legal debate over student loan servicing regulations is 20 U.S.C. 1098g's express preemption provision, which states that "[l]oans made, insured, or guaranteed pursuant to a program authorized by Title IV of the [HEA] shall not be subject to any disclosure requirements of any State law." As explained below, courts have reached divergent conclusions regarding the significance of this statutory provision. <2.2. Regulations> <2.2.1. Regulations Specifically Governing Loan Servicing> ED has promulgated several servicing-related regulations under its rulemaking authority under Title IV of the HEA. Nearly all of these regulations are codified in Part 682 of Title 34 of the Code of Federal Regulations, which governs FFELP loans rather than FDLP loans. 34 C.F.R. 682.203(a), for instance, contemplates that an FFELP lender "may contract or otherwise delegate the performance of its functions under" governing federal law "to a servicing agency," but emphasizes that doing so "does not relieve the . . . lender . . . of its duty to comply with" all applicable statutes and regulations. 34 C.F.R. 682.208 in turn prescribes actions that a servicer must take when servicing an FFELP loan, including "responding to borrower inquiries, establishing the terms of repayment, and reporting a borrower's enrollment and loan status information." Similarly, 34 C.F.R. 682.416 establishes administrative responsibility and financial responsibility standards that third-party servicers of FFELP loans must satisfy. In addition, 34 C.F.R. 682.416(e) imposes auditing requirements on servicers of FFELP loans. Should a servicer violate any of the federal requirements that apply to it, Subpart G of Part 682 establishes a variety of procedures for addressing those violations, including administrative proceedings to limit, suspend, or terminate the servicer's eligibility to enter into servicing contracts. It is unclear whether and, if so, to what extent these FFELP loan servicing regulations apply to servicers of FDLP loans. Section 1087e(a)(1) of the HEA provides that, with certain exceptions, FDLP loans "shall have the same terms, conditions, and benefits" as FFELP loans. At least one court has therefore concluded that Section 1087e(a)(1) embodies a general congressional preference that FDLP and FFELP loans be governed by the same legal standards. The few judicial opinions interpreting Section 1087e(a)(1) do not conclusively resolve, however, whether FFELP regulations governing third-party servicers qualify as "terms, conditions, and benefits" of FFELP loans that would apply equally to FDLP servicers. Furthermore, courts considering whether FFELP regulations apply to FDLP loans outside the loan-servicing context have reached divergent conclusions. Nor do the portions of the servicing contracts that FSA has posted on its website specify whether servicers of FDLP loans must follow the FFELP servicing regulations. It is possible, however, that ED may nonetheless demand or expect its FDLP servicers to comply with some or all of the FFELP servicing standards. Moreover, some servicers have implicitly suggested in litigation briefs that at least some of the FFELP servicing regulations apply to FDLP servicers. <2.2.2. General Regulatory Duties That ED Has Delegated to Servicers> In addition to regulations that directly concern loan servicing, ED has also promulgated regulations establishing various responsibilities that the Secretary must fulfill, which the Secretary has in turn delegated to servicers. 34 C.F.R. 685.221(e)(3), for instance, requires the Secretary to "notif[y] the borrower in writing of" the requirement to regularly submit income recertification information to remain eligible to participate in an income-driven repayment (IDR) plan, which this report details below. ED has delegated that notification responsibility to servicers with which it contracts. <2.3. Servicer Contracts with the Federal Government> Pursuant its authority to enter into servicing contracts, ED has contracted with multiple entities to service federal student loans. These contracts govern many details of those servicers' operations, including financial reporting, transaction management, internal controls, accounting, and security. The servicing contracts also contain several mechanisms that ED may invoke against servicers that violate applicable federal requirements, including (1) ordering the noncompliant servicer "to return any fees that [it] billed to [ED] from the time of noncompliance" or (2) "reallocating new loan volume to other servicers or transferring all or part of the noncompliant servicer's current loan volume to another servicer until the noncompliant servicer comes back into compliance." Interested parties disagree, however, whether ED uses these contractual provisions with sufficient frequency and diligence to effectively punish and deter servicer misconduct. <2.4. Role of the Consumer Financial Protection Bureau> In addition to ED's own oversight of its servicing relationships, the Consumer Financial Protection Bureau (CFPB) is another federal agency that possesses certain authorities as to federal student loan servicers. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB may exercise supervisory authority over certain nonbank "larger participants" in consumer financial product or service markets that it chooses to define by rule. In 2013, the CFPB exercised this authority to define larger participants in the student loan servicing market. Pursuant to the rule, the CFPB has supervisory authority over student loan servicers servicing more than 1 million accounts. The purposes of CFPB supervision include assessing compliance with consumer financial protection laws and detecting risks to consumers and consumer financial markets. By statute, the CFPB may conduct examinations as well as request information from supervised entities. In addition to its supervisory authority, the CFPB may bring enforcement actions against student loan servicers. In January 2017, for instance, the CFPB sued one of the largest federal student loan servicers, Navient Corporation. As of the date of this report, the case currently remains pending. Notably, questions have arisen regarding the relationship between the CFPB and ED. In the early 2010s, the two agencies entered into Memoranda of Understanding (MOUs) (1) providing for interagency sharing of information pertaining to, among other things, complaints about student loan servicers and (2) coordinating supervisory and oversight activities pertaining to student loans. However, ED terminated these MOUs in 2017. Among its reasons for terminating the MOUs, ED asserted that the CFPB had "unilaterally expand[ed] its oversight role to include the Department's contracted federal loan servicers" in derogation of ED's claimed "full oversight responsibility for federal student loans." The CFPB further represented to Congress in April 2019 that "student loan servicers have declined to produce information requested by the [CFPB] for supervisory examinations related to" FDLP and FFELP loans since 2017. <3. Allegations of Servicer Misconduct> As described below, some claim that the aforementioned federal requirements and oversight mechanisms have not deterred federal student loan servicers from engaging in misconduct. <3.1. Forbearance Steering> Some, for instance, have accused federal student loan servicers of steering borrowers toward forbearance when participating in an IDR plan would be more beneficial for the borrower. Forbearance is a way for a borrower who encounters short-term financial hardship to obtain temporary relief from his obligation to repay a federal student loan. Forbearance allows the borrower to either temporarily cease making student loan payments; temporarily make smaller student loan payments; or extend the deadline by which the borrower must make payments. Interest, however, typically continues to accrue on the loan during the forbearance period, which is then capitalized that is, added to the loan principal when the forbearance period concludes. Thus, for borrowers experiencing long -term financial hardship, this interest accrual and capitalization may render forbearance less advantageous than participation in an IDR plan, the latter of which allows borrowers to make reduced monthly payments based on their income and offers them the prospect of obtaining loan forgiveness after making such payments over a specified period of years. Some allege that certain servicers have systematically encouraged borrowers to enter into forbearance rather than participate in IDR plans that would be more advantageous for the borrower. According to critics, servicers have a financial incentive to steer borrowers into forbearance because enrolling a borrower in an IDR plan requires the servicer to expend more resources than steering the borrower toward forbearance. Representatives from the servicing industry, however, deny that servicers engage in forbearance steering and assert that servicers in fact earn less money when borrowers enter forbearance. <3.2. Income Recertification> Some have also accused servicers of failing to provide critical information to student loan borrowers regarding the income recertification process a borrower must complete to remain in an IDR plan. Because, as noted above, a borrower's monthly payments under an IDR plan depend on the borrower's income, borrowers enrolled in IDR plans must recertify their income and family size each year. A borrower who does not comply with this annual recertification requirement may experience an increase in both his monthly loan payments and his total loan balance. Critics have accused some servicers of failing to "advise borrowers of the negative consequences of failing to submit timely, complete, and correct recertifications to renew borrowers' IDR plans." <3.3. Loan Forgiveness Eligibility> Some borrowers also allege that federal student loan servicers misinformed them about their eligibility for loan forgiveness under federal law. Subject to various conditions, the Public Service Loan Forgiveness (PSLF) program affords loan forgiveness to borrowers who make 10 years of monthly loan payments while employed in a public service job. Critically, however, only loans issued under the FDLP qualify for the PSLF program. Some borrowers claim that they relied to their detriment on their servicers' representations that they qualified for forgiveness under the PSLF program, only to later learn that they were in fact ineligible because their student loans were non-FDLP loans, such as FFELP loans. <4. State Laws Regulating Servicers of Federal Student Loans> Significantly, the HEA does not provide litigants with a private right of action that is, the HEA does not authorize borrowers to directly pursue civil litigation against servicers of federal student loans. Instead, only the Secretary may enforce the HEA. States, however, have developed their own laws empowering entities other than the federal government such as state officials or individual borrowers to pursue legal action against servicers. These state laws fall into two broad categories: (1) statutes that specifically target servicers for regulation and (2) statutes and common law causes of action that apply more generally to a broad range of entities, including servicers of federal student loans. <4.1. State Laws Governing Student Loan Servicers Specifically> First, several states have recently enacted legislation that specifically imposes legal requirements on federal student loan servicers beyond what federal law requires. Because the specifics of each statute vary from state to state, the following subsections of this report survey the most significant similarities and differences between the various state servicing laws. Some state servicing statutes, for instance, prohibit student loan servicers from operating within the state's boundaries unless they maintain an active servicing license issued by the state. A servicer that operates in one of these states without a license is subject to monetary penalties. These statutes also typically provide that the state may revoke a servicer's license and thereby preclude the servicer from servicing loans within the state if the servicer engages in specified acts of misconduct. For example, the District of Columbia's servicer licensing statute states that the Commissioner of the District of Columbia Department of Insurance, Securities, and Banking "may revoke" a student loan servicing license "if, after notice and a hearing, the Commissioner finds that the licensee has" "[d]emonstrated incompetency or untrustworthiness to act as a licensee" or "[c]ommitted any fraudulent acts, engaged in any dishonest activities, or made any misrepresentation in any business transaction." Notably, some of these state licensing statutes contain provisions that appear intended to mitigate potential interference with the federal government and the servicers with which it contracts. For example, New York's servicing statute, which becomes effective on October 9, 2019, will provide that entities hired by ED to service federal student loans will automatically be deemed licensed to service those loans, without the need to submit a license application and otherwise meet the prerequisites for licensure. However, the New York statute will still require federal student loan servicers to comply with many of the statute's other requirements. Several other states, including Colorado and Maine, have likewise enacted similar laws allowing for automatic licensure for federal student loan servicers. Some state statutes designate a student loan ombudsperson to conduct oversight of servicers' operations, review and attempt to resolve borrowers' complaints about student loan servicers, and otherwise assist and educate borrowers with the loan servicing process. Some of these statutes contemplate that if the ombudsperson discovers that a servicer is engaging in unlawful conduct, he may refer that servicer to the responsible state agency for civil enforcement proceedings or even criminal prosecution. In response to allegations that some federal student loan servicers have steered borrowers toward forbearance instead of an IDR program, some states have also enacted laws requiring servicers to evaluate the borrower's eligibility for IDR plans before placing the borrower in forbearance. Relatedly, at least one state prohibits servicers "from implementing any compensation plan that has the intended or actual effect of incentivizing a repayment specialist to violate" applicable servicing regulations "or any other measure that encourages undue haste or lack of quality." Similarly, in response to allegations that servicers have failed to provide borrowers with key information about income recertification, at least one state requires servicers to "disclose the date that a borrower's [IDR] plan certification will expire and the consequences to the borrower for failing to recertify by the date, including the new repayment amount." A few state statutes also attempt to address concerns that some servicers have misinformed borrowers regarding their eligibility for loan forgiveness programs, such as the PSLF. The State of Washington, for instance, makes it unlawful to "[m]isrepresent or omit any material information" about "the availability of loan discharge or forgiveness options." A number of states have also enacted statutory provisions to regulate various other aspects of servicers' operations. For instance, some state statutes purport to require servicers to acknowledge and respond to borrower complaints and requests within a specified time frame. Several statutes also impose recordkeeping or annual reporting requirements upon servicers. Additionally, some laws require servicers to inform the borrower if the identity or address of the party to whom the borrower must send payments or communications changes. There are a host of different remedies for violating state servicing laws. Some states, for instance, have authorized borrowers to pursue a private cause of action against a servicer who violates the state's servicing laws. A Maine statute that becomes effective January 1, 2020, for example, will authorize borrowers to recover compensatory, treble, and punitive damages as well as costs and attorney's fees from servicers who violate the statute's prohibitions. As an alternative to enforcement by private litigants, some state statutes authorize the government to (1) levy fines or penalties against servicers who commit specified acts or omissions or (2) sue servicers who violate the state's servicing laws. Some state servicing statutes explicitly contemplate enforcement by both individual borrowers and the state government alike. Whereas the aforementioned provisions impose servicing requirements that go beyond federal law, some state statutes also incorporate existing federal servicing standards by reference and thereby provide state law remedies for alleged violations of federal requirements. A Connecticut statute, for instance, provides that in addition to complying with all requirements imposed by Connecticut law, a student loan servicer must also "comply with all applicable federal laws and regulations relating to student loan servicing." "[A] violation of any such federal law or regulation shall be deemed a violation of" Connecticut law "and a basis upon which the [Connecticut Banking Commissioner] may take enforcement action" against a noncompliant servicer. <4.2. State Laws of General Applicability> In addition to these statutes that specifically purport to regulate student loan servicers, servicers may also be bound by a state's laws of general applicability. For example, many states have enacted consumer protection statutes that purport to apply to various entities and prohibit an array of activities that state legislatures have deemed deceptive or unfair to consumers. As explained below, some borrowers and states have invoked these consumer protection statutes in civil lawsuits against servicers challenging various forms of alleged misconduct. Additionally, state courts typically recognize common law causes of action for acts like fraud, negligent or fraudulent misrepresentation, breach of fiduciary duty, negligence, unjust enrichment, tortious interference, and breach of contract. Some borrowers have likewise invoked (or tried to invoke) these common law doctrines against servicers allegedly engaged in misconduct. <4.3. Preemption and the Interaction of Federal and State Servicing Laws> With both federal and state laws coexisting in the realm of federal student loan servicing regulations, questions of federal preemption that is, questions regarding whether federal law in a given area displaces or overrides state laws in that area have arisen. <4.3.1. Federal Preemption> Under case law interpreting the Constitution's Supremacy Clause, federal law can preempt conflicting state law in two central ways. First, statutory language that express ly addresses the scope of a law's preemptive effect, such as the express preemption clause in 20 U.S.C. 1098g, may be the basis to conclude that Congress intended federal law to supersede certain state laws. Second, even if a statute is silent as to Congress's preemptive intent, implied preemption principles can also displace state law. A statute can implicitly preempt state law where (1) the scheme of federal regulation is so pervasive, or the federal interest is so dominant, that it can be presumed that Congress intended to supplant all state laws in a particular area (also known as "field preemption"); or (2) the state law conflicts with federal law by either making it impossible to simultaneously comply with both laws or by frustrating the purposes and objectives of the federal law (also known as "conflict preemption"). For each type of preemption, congressional intent is the touchstone of courts' analyses. Influencing the preemption analysis, courts have, at times, employed a "presumption against preemption," meaning that they begin with an assumption that Congress did not intend to displace state law, particularly in areas falling within the traditional police powers of the states. <4.3.2. ED's Interpretation> Invoking several of these principles of federal preemption, in March 2018 ED announced its own position on the issue that is, that federal law preempts a wide range of state laws that regulate federal student loan servicers. Significantly, ED did not promulgate this interpretation through notice-and-comment rulemaking; it instead published its interpretation in the Federal Register as an informal guidance document. Among other things, the ED interpretation claims that federal law displaces state laws that "impose regulatory requirements on servicing," such as laws that "impose deadlines on servicers for responding to borrower inquiries" or "require specific procedures to resolve borrower disputes"; state regulations "requiring licensure of servicers" of certain federal student loans; and state requirements concerning what servicers must disclose to borrowers. ED appears to ground its interpretation in several preemption theories, including conflict preemption (i.e., that state servicing laws allegedly impede Congress's objective of establishing uniform federal loan servicing standards) and field preemption (i.e., that existing federal regulation is comprehensive and adequate, leaving no role for additional state regulation). ED also relies on express preemption principles, arguing that 20 U.S.C. 1098g's preemption provision stating that "[l]oans made, insured, or guaranteed pursuant to a program authorized by Title IV of the [HEA] shall not be subject to any disclosure requirements of any State law" broadly bars states from imposing disclosure requirements. ED "interprets the term 'disclosure requirements' under section 1098g . . . to encompass" not only written disclosures, but also "informal or non-written communications to borrowers." In addition to issuing this interpretation, ED has also submitted filings in several cases , asking courts to dismiss lawsuits against student loan servicers on preemption grounds or otherwise narrow or invalidate state regulations. <4.3.3. Recent Litigation> ED's interpretation and its litigation position have fueled the debate between states and plaintiff borrowers on one side who claim that state servicing statutes may harmoniously exist alongside federal laws and policies and ED and federal student loan servicers on the other, who claim that those state regulations irreconcilably conflict with supreme federal law. Federal courts addressing these disputes, as discussed below, have analyzed the applicability of field preemption, conflict preemption, and express preemption to state student loan servicing laws and state law claims against federal student loan servicers. In doing so, the courts have afforded varying levels of weight to ED's interpretation in conducting their preemption analyses. <4.3.3.1. Field Preemption> Courts have somewhat readily concluded that the HEA does not occupy the field of federal student loan servicing regulation. As an initial matter, several federal appellate courts over the past 25 years in analyzing different legal contexts in the realm of higher education have held that the HEA does not have field preemptive effect more generally. For example, in one such case involving state law negligence claims against national school accrediting agencies (which ED approves pursuant to the HEA), the Ninth Circuit concluded that Congress, in enacting the HEA, "expected state law to operate in much of the field in which it was legislating." Although courts have recognized that the HEA is comprehensive, they have also noted that a regulatory regime's comprehensiveness on its own does not necessarily result in field preemption. Moreover, courts have observed that scattered throughout the HEA are several express preemption provisions, which explicitly foreclose certain state laws such as state usury, garnishment, and, with respect to Section 1098g, disclosure laws. Such explicit preemption provisions, courts have reasoned, would not be necessary if Congress had intended to simply supplant all state laws. When it comes to student loan servicing specifically, courts have uniformly rejected the argument that in the HEA Congress intended for federal regulation of federal student loan servicers to be an exclusive field. The HEA provides ED with the authority to contract with student loan servicers and to "establish minimum standards" governing those servicers' management and accountability. The district court in Student Loan Servicing Alliance v. District of Columbia , for example, concluded that this language merely sets a federal regulatory "floor," without foreclosing supplemental regulation from the states. The servicers in Student Loan Servicing Alliance further raised the argument that the federal government has a dominant interest in regulating federal student loan servicing that would merit field preemption particularly because, with the discontinuation of the FFELP, the federal government now makes over 90% of new student loans through the FDLP. The servicers argued, accordingly, that the federal government has a unique interest in protecting its rights under its servicing contracts for these loans. However, in weighing the federal interests against the "compelling" interest of states in protecting their consumers, the Student Loan Servicing Alliance court concluded that the federal interest was not dominant enough to preclude state regulation. <4.3.3.2. Conflict Preemption> Although field preemption arguments have not thus far posed a hurdle to state student loan servicing regulation, the federal district court in Student Loan Servicing Alliance recently invalidated significant portions of the District of Columbia's student loan servicing law under conflict preemption principles. In its student loan servicing law passed in 2016, the District of Columbia (DC) required student loan servicers to obtain a license from DC and adhere to other substantive regulations and standards of conduct. While one of the primary points raised in ED's Interpretation, as discussed above, was that this type of state licensing scheme conflicted with federal law, the court determined that it did not have to give ED's Interpretation any deference. Rather, the court concluded that the ED Interpretation consisted of informal agency guidance that was insufficiently "thorough, consistent, and persuasive." Yet, in performing its own independent analysis, the district court still held that DC's licensing scheme posed an obstacle to the federal law's underlying purpose by undermining ED's authority provided for in the HEA to select servicers for federal student loans. The court relied on a line of prior federal cases arising in different legal contexts that preempted state laws' impeding the federal government's ability to contract. The court reasoned that the DC law did so by effectively "second-guess ing " the federal government's decisions to contract with a given loan servicer. The court's reasoning applied to FDLP loans and government-owned FFELP loans (e.g., those that ED purchased under ECASLA) , for which ED makes servicer contracting decisions under the HEA. The court held, however, that federal law did not preempt state regulations of servicers of outstanding commercial FFELP loans, where private lenders own and decide whether to contract with student loan servicers and the federal government acts merely as a reinsurer or a guarantor. Beyond the Student Loan Servicing Alliance case and its preemption of DC's licensing requirement for federal student loan servicers, however, courts have generally declined to find conflict preemption in suits brought against servicers for misrepresentations under state laws of general applicability. The main argument that federal student loan servicers have raised in this context is that plaintiffs' ability to sue under state law poses an obstacle to the HEA's objective of providing uniformity in federal student loan servicing regulation, subjecting servicers instead to actions under the laws of 50 different states and DC. However, uniformity is not a stated goal of the HEA. While certain cases have concluded that uniformity is one of the statute's purposes (albeit in arguably distinguishable contexts), other courts have declined to reach that result. Courts have also reasoned that even if uniformity were an objective of the HEA, it does not follow that enforcing state laws prohibiting deceptive conduct would serve as an obstacle to uniformity in the HEA's standards because "uniformity in setting . . . standard parameters for the federal student loan programs is not harmed by prohibiting unfair or deceptive conduct in operating those programs. Moreover, as several courts have noted, a broad reading of servicers' uniformity argument would in effect be akin to a finding of HEA field preemption, which courts have consistently declined to recognize. Courts have also considered whether the Supreme Court's holding in Boyle v. United Technologies Corp . prevents the states from regulating activities that servicers perform under contracts with the federal government. Boyle held that plaintiffs could not pursue state law claims against federal contractors when allowing such claims to proceed would either create "a 'significant conflict'" with "an identifiable 'federal policy or interest'" or "'frustrate specific objectives' of federal legislation." In the 2019 case of Nelson v. Great Lakes Educational Loan Services, Inc. , for example, the Seventh Circuit determined albeit with little elaboration that allowing a borrower to pursue state law misrepresentation claims against a servicer would not impermissibly conflict with federal interests or objectives. <4.3.3.3. Express Preemption> Express preemption arguments in recent federal student loan servicing cases have centered on the preemption clause in Section 1098g of the HEA. Specifically, courts have grappled with whether the preemptive language in Section 1098g which prohibits states from imposing "disclosure requirements" regarding federal student loans precludes suits against servicers brought under state law for misrepresentations or misleading communications made to federal student loan borrowers. Allegations in this category of lawsuits primarily include forbearance steering and misstatements regarding loan forgiveness eligibility, with the allegedly false or misleading statements in many cases being made over the telephone by the servicers' call center representatives. Specifically, some plaintiffs claim that they were "steered" toward placing their loans into forbearance rather than being informed of other options or enrolled in an IDR plan that may have been more beneficial in the long term alleging that forbearance was simply a faster and less burdensome process for the servicer. Other plaintiffs recount, for example, being assured that they were on track to benefit from the PSLF program when that was not the case, thereby preventing them from taking remedial measures. Plaintiffs in these lawsuits which have included both federal student loan borrowers and state attorneys general have brought state law tort claims or claims under state consumer protection statutes of general applicability. The main question at issue has been whether enforcing the state's law would require the servicers in these cases to make additional or different "disclosures" under Section 1098g. Most federal courts considering this question in cases based on these types of allegations have held that Section 1098g does not preempt state law. These courts have allowed the students' lawsuits to proceed, viewing their claims as involving affirmative misrepresentations or otherwise deceptive conduct, which the courts distinguished from the mere failure to provide "disclosures" under Section 1098g. For example, in Pennsylvania v. Navient Corp. , a federal district court in Pennsylvania ruled that the HEA did not preempt the plaintiff's state law claims regarding forbearance steering. The court reasoned that the defendant's argument went "too far" by framing the plaintiff's claim as one for lack of disclosure, rather than a claim concerning unfair and deceptive conduct subject to the state consumer protection statute. A federal district court in Florida in Lawson-Ross v. Great Lakes Higher Education Corp. , however, reached a different conclusion as to express preemption in 2018. The Lawson-Ross plaintiffs alleged that the defendant servicer falsely assured them that they were on track to benefit from PSLF (when they were not in fact eligible for the program), in violation of a Florida consumer protection statute and several state common law duties. The court concluded, however, that federal regulations already prescribe the information that must be provided to federal student loan borrowers, so that the plaintiffs' state law claims would essentially impose additional disclosure requirements on the servicer. Even though the plaintiffs argued that they alleged that the servicer had made an affirmative misrepresentation , the court construed the plaintiffs' claim as one for the servicer's failure to disclose accurate information regarding plaintiffs' eligibility, which it held to be impermissible under Section 1098g. In reaching its conclusion, the Lawson-Ross court afforded Skidmore deference to ED's interpretation after concluding that ED's views on the preemptive effect of federal law were "well-reasoned and sensible." The Lawson-Ross court, and servicers arguing for preemption in similar cases, also relied for support on a 2010 case from the Ninth Circuit called Chae v. SLM Corp oration . In Chae , students sued a federal student loan servicer challenging certain methods it used to calculate interest, late fees, and repayment dates, claiming that these servicing practices rendered their billing statements, coupon books, and loan applications misleading in violation of a state consumer protection law. The court reasoned that Section 1098g preempted the action, stating that "[a]t bottom, the plaintiffs' misrepresentation claims are improper-disclosure claims" and that "[i]n this context, the state-law prohibition on misrepresenting a business practice 'is merely the converse' of a state-law requirement that alternative disclosures be made." While the Lawson-Ross court extended Chae 's logic to servicers' oral misrepresentations about PSLF eligibility, other courts have distinguished Chae , noting, for example, that Chae involved allegations concerning the misleading nature of written account statements and coupon books (i.e., "highly prescribed standardized forms"), rather than the "affirmative misconduct" and types of misleading communications involved in forbearance steering or PSLF allegations. The landscape of decisions concerning Section 1098g's preemptive scope is subject to change as further appellate courts begin to address the issue. Notably, appeals in t he Pennsylvania and Lawson-Ross cases are pending. Moreover, the Nelson case, decided by the Seventh Circuit, may be appealed to the U.S. Supreme Court. <5. Considerations for Congress> Legal debates over the preemptive effect of federal law both within the student loan servicing context and without implicate a variety of considerations. On the one hand, replacing state law with a single uniform national standard can sometimes be advantageous. When each state remains free to enact its own laws on a given topic, the requirements of those laws may differ perhaps irreconcilably from jurisdiction to jurisdiction. Preempting those state laws can thereby release regulated parties from the "administrative and financial burden[s]" of learning and complying with the "laws of 50 States." Moreover, freeing federal contractors from the burden of complying with state laws could mitigate the risk of state intrusions upon federal prerogatives. On the other hand, however, when federal law does not go far enough in policing a particular industry, preemption can prevent the states from filling those regulatory gaps with their own laws. Preempting state law may also deprive the states of opportunities to experiment with novel methods of regulating particular industries and behaviors, which might ultimately prove more effective than methods devised by the federal government. Depending on how Congress weighs these competing considerations, it may enact legislation clarifying or modifying the preemptive effect of federal law in the student loan servicing context. For example, a section of the PROSPER Act introduced in the 115th Congress, if enacted, would have provided that the servicing of student loans under Title IV of the HEA would "not be subject to any law or other requirement of any State or political subdivision of a State with respect to" "disclosure requirements"; "requirements or restrictions on the content, time, quantity, or frequency of communications with borrowers, endorsers, or references with respect to such loans"; or "any other requirement relating to the servicing . . . of a loan made" under Title IV of the HEA. Alternatively, if Congress instead intends to limit the preemptive scope of federal law, it could enact a savings clause specifying that federal law does not preempt any state law that imposes more restrictive requirements on federal student loan servicers than federal statutes and regulations. For instance, one section of the Student Loan Borrower Bill of Rights (S. 1354, 116th Cong.) which, among other things, proposes to subject servicers to more expansive federal regulation explicitly would not "preempt any provision of State law regarding postsecondary education loans where the State law provides stronger consumer protections." If Congress ultimately decides to displace state servicing laws, it may consider preempting state law either narrowly or broadly. For instance, a federal statute that displaces state servicing regulations could expressly preempt all state laws that implicate the servicing of federal student loans in any fashion, or it could preempt only specified categories of state statutes (such as servicer licensing requirements) and thereby preserve some regulatory role for the states. Instead of expressly specifying the preemptive effect and scope of federal laws pertaining to federal student loan servicing, Congress could implicitly preempt state laws by changing the substantive standards governing servicers. Several Members of the 116th Congress have introduced legislation that, if enacted, would clarify or broaden servicers' duties and responsibilities under federal law or subject servicers to increased levels of federal oversight. Depending on their content and scope, new federal laws governing the conduct, obligations, and oversight of federal loan servicers could raise legal questions regarding (1) how those federal standards interact with state servicing laws and (2) the respective roles of federal and state law in regulating federal student loan servicers. The preemptive effect that courts will provide to a given federal law largely depends on the specific statutory text that Congress enacts. One other substantive change that could affect the preemptive scope of federal law is altering how the HEA is enforced. As discussed, the HEA does not presently create a private right of action; instead, the HEA contemplates that ED alone will enforce the statute's mandates. As noted above, however, some observers claim that ED has not diligently policed the servicers with whom it contracts. If Congress agrees with that assessment, it could expressly empower other entities such as states, individual borrowers, or other federal agencies like the CFPB to wield a greater level of enforcement authority over federal student loan servicers. For instance, granting borrowers or states a private right of action under federal law against contractors that violate federal servicing standards could provide an additional means to deter, correct, and punish alleged servicer misconduct. That said, subjecting servicers to litigation and regulation by multiple entities could increase federal contractors' costs. Rendering servicers answerable to multiple stakeholders be they federal agencies, states, or individual borrowers might also undermine the uniformity that some have argued is a central goal of federal student loan servicer regulation, which could in turn undercut arguments that preemption is necessary to preserve the federal government's predominant role in regulating its contractors. Several bills pending in the 116th Congress propose to subject servicers to increased litigation or regulation by entities other than ED. Section 3 o f the Student Loan Borrower Bill of Rights, for example, would allow individuals to sue federal student loan servicers under the Truth in Lending Act's private right of action provision. By contrast, the CFPB Student Loan Integrity and Transparency Act of 2019 (H.R. 2833, 116th Cong.) would (among other things) (1) require federal student loan servicers to provide the CFPB with any information requested by specified CFPB officials and (2) reinstate the aforementioned MOUs between ED and the CFPB that ED terminated in 2017. Unless and until Congress specifies the intended preemptive effect of federal servicing laws, however, legal questions regarding preemption in the loan servicing context will be left to the courts to resolve. Depending on their content, the courts' rulings may affect the uniformity of servicing regulations across jurisdictions and the degree and type of oversight to which federal student loan servicers are subject.

As the federal government's role in the student loan industry has expanded over time, the United States has contracted with student loan servicers to help it administer its growing student loan portfolio. These servicers perform a variety of functions, including (1) communicating with borrowers regarding repayment; (2) disclosing information about student loan terms to borrowers; (3) applying payments to outstanding loan balances; (4) processing applications for enrollment in repayment plans; and (5) processing requests for loan forbearance and deferment. Several federal statutes and regulations—along with an array of contractual provisions—may affect how these servicers conduct these various functions on the government's behalf with respect to federal student loans. Some allege that the existing scheme of federal regulation has not deterred servicers from engaging in various forms of alleged misconduct. According to critics, servicers of federal student loans have engaged in several undesirable behaviors, such as (1) steering borrowers experiencing financial hardship toward forbearance instead of repayment plans that would be more beneficial; (2) neglecting to inform borrowers of the consequences of failing to promptly submit certain required information; (3) misinforming borrowers on their eligibility for loan forgiveness; and (4) misallocating or misapplying loan payments. The servicers deny these allegations. Federal laws governing higher education do not authorize borrowers who have allegedly been harmed by servicer misconduct to directly pursue litigation against servicers. Instead, existing law places the primary burden of policing federal student loan servicers upon the federal government. Some commentators disagree, however, over whether the U.S. Department of Education (ED) has exercised sufficient oversight over the servicers with which it contracts. Observers have also disagreed over the extent to which other federal agencies, such as the Consumer Financial Protection Bureau (CFPB), should participate in the regulation of federal student loan servicers. At the same time, more and more states have enacted legislation specifically targeted at student loan servicers. While the specifics of these laws vary from state to state, many purport to impose legal requirements upon servicers of federal student loans that go beyond those imposed by federal law, such as supervision by a state ombudsperson or mandatory licensing. Furthermore, in addition to new laws specifically aimed at servicers, state attorneys general and borrowers alike have invoked existing state consumer protection statutes and common law causes of action against servicers in civil litigation. These burgeoning disputes between servicers on the one hand and states and borrowers on the other have raised legal questions regarding how existing federal law interacts with the growing body of state servicing regulations. ED has taken the position that federal law "preempts"—that is, displaces—state laws purporting to regulate servicers of federal student loans. While some courts have agreed with ED's conclusions on preemption, the bulk of courts have reached the opposite conclusion that states retain a role in regulating student loan servicing. This ongoing legal debate has significant legal consequences. On the one hand, if federal law preempts state servicing regulations, servicers will be subject to a single uniform national standard and will not need to expend resources to comply with each jurisdiction's state-specific regulatory regime. On the other hand, allowing states to enact and enforce their own servicing laws could fill regulatory gaps where—at least in the view of some critics—existing federal regulation has not ensured that servicers perform their duties with sufficient regard for borrowers' interests. Preserving a regulatory role for the states could also enable each state to experiment with novel regulatory schemes. Given these legal consequences, several Members and committees of the 116th Congress have expressed interest both in the federal regulation of servicers generally and the preemptive scope of that regulation.

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<1. Introduction> Congress establishes advisory commissions for a variety of purposes. These include informing Congress, providing expert advice on complex or controversial issues, and generating policy recommendations. To aid Congress, commissions are generally authorized to hold hearings, conduct research, analyze data, and/or make field visits as they carry out their duties. Most complete their work by delivering their findings, recommendations, or advice in the form of a written report to Congress. For example, the National Commission on Terrorist Attacks Upon the United States (the 9/11 Commission) was created to "examine and report upon the facts and causes relating to the terrorist attacks of September 11, 2001," and to "investigate and report to the President and Congress on its findings, conclusions, and recommendations for corrective measures that can be taken to prevent acts of terrorism." The commission ultimately submitted a final report to Congress and the President containing its findings and conclusions, along with 48 policy recommendations. Commissions also may be established to help commemorate an individual, group, or event. Commissions generally require funding to help meet their statutory goals. When designing a commission, therefore, policymakers may wish to consider both how the commission will be funded, as well as how much funding the commission will be authorized to receive. How commissions are funded and the amounts that they receive vary considerably. Several factors can contribute to overall commission costs. These factors might include hiring staff, contracting with outside consultants, and engaging administrative support, among others. Additionally, most commissions reimburse the travel expenditures of commissioners and staff, and some compensate their members. The duration of a commission can also significantly affect its cost; past congressional commissions have been designed to last anywhere from several months to several years. This report analyzes methods used to fund past congressional commissions; amounts provided for commissions in appropriations acts; and how selected commissions have utilized provided funds. <2. Congressional Commissions: Funding Mechanisms, Appropriations, and Expenditure Patterns> <2.1. Identifying Congressional Commissions> While no formal definition exists, for the purposes of this report a congressional commission is defined as a multimember independent entity that is established by Congress; exists temporarily; serves in an advisory capacity; is appointed in part or whole by Members of Congress; and reports to Congress. This definition differentiates a congressional commission from a presidential commission, an executive branch commission, or other bodies with "commission" in their names, while including most entities that fulfill the role commonly associated with commissions: studying policy problems or organizing commemorative activities, and reporting findings to Congress. To identify congressional commissions, CRS searched Congress.gov for terms and phrases related to commissions within the text of laws enacted between the 101 st (1989-1990) and 115 th (2017-2018) Congresses. Each piece of legislation returned was examined to determine if (1) the legislation established a commission, and (2) the commission met the five criteria outlined above. If the commission met the criteria, its name, public law number, Statutes-at-Large citation, date of enactment, and other information were recorded. This approach identified 153 congressional commissions established by statute between 1989 and 2018. For each commission identified, CRS analyzed the commission's statute to assess whether the law authorized the appropriation of funds. This approach captures only the funding method provided in the commission's original legislation. If a commission's statute was amended by subsequent legislation, that amendment is not reflected in this report. <2.1.1. Commission Types: Commemorative and Noncommemorative> Congressional commissions may be established for a variety of purposes. In general, commissions generally fall into one of two broad categories: commemorative and noncommemorative commissions. Noncommemorative commissions typically conduct studies, perform investigations, and/or provide expert advice on public policy issues. Such commissions have been created to investigate the September 11 attacks, examine the causes of the financial crisis, develop recommendations to prevent the proliferation of weapons of mass destruction, and to review advances in artificial intelligence, among many other issues. The majority of commissions identified (134 of 153, or approximately 88%) are noncommemorative in nature. A smaller number of congressional commissions identified (19 of 153, or approximately 12%) have been created to oversee the commemoration of a person, group, or event. Commemorative commissions often "coordinate celebrations, scholarly events, public gatherings, and other activities, often to coincide with a milestone or event." Although commemorative and noncommemorative commissions generally share many of the same structural features, the scope and nature of the duties assigned often differ considerably in ways that may affect the amount of funding that Congress may wish to provide. For example, a commission created to investigate a national emergency may require a different length of time, or different levels of staff and other resources to satisfactorily accomplish its duties than a commission designed to commemorate an event. Accordingly, figures contained in this report on commission funding mechanisms and authorized or appropriated levels are broken out separately for commemorative and noncommemorative commissions. <2.2. Funding Mechanisms Specified in Authorizing Statutes> Congressional commissions have been funded in a variety of ways. Commissions generally receive specific authorizations of appropriations, receive funding from a federal agency, or rely on private donations. Some commissions are funded in multiple ways. For example, certain commissions are authorized to receive both appropriations and private donations. Of the 153 commissions identified, the majority of commission statutes (118, or approximately 77%) state how the commission shall be funded. When establishing how a commission is to be funded, such statutes generally either authorize appropriations to be provided in separate legislation for commission expenses; provide that commission expenses shall be paid from appropriations otherwise available to a department or agency official; or direct that the commission should be funded solely by private donations. Table 1 shows the number and percentage of commissions falling into each category, broken down by commission type. Each category is discussed in more detail below, along with examples of statutory language. Commission statutes that prescribe a funding mechanism may vary substantially in the level of detail provided. For example, some statutes specify a dollar amount that is authorized to be appropriated in separate legislation or otherwise made available to the commission; others may identify a source of funding without specifying a dollar value. Similarly, some statutes limit the time period during which funds may be made available to a commission, while others do not. <2.2.1. Authorization of Appropriations> Sixty-four of 153 commission statutes identified (approximately 42%) authorized appropriations for commission expenses. Of these, a majority authorized a specific dollar amount, while a smaller number authorized "such sums" as may be necessary. Provisions authorizing appropriations were included for a slightly larger percentage of noncommemorative commissions (approximately 43%) than for commemorative commissions (approximately 37%). Authorizations of appropriations do not themselves provide funds for commissions; funding may be provided in appropriations acts. Some statutes identify specific fiscal years in which appropriations were authorized, and others do not. For example, the statute creating the Antitrust Modernization Commission stated that "[t]here is authorized to be appropriated $4,000,000 to carry out this subtitle." By contrast, the statute creating the Census Monitoring Board provided that "[t]here is authorized to be appropriated $4,000,000 for each of fiscal years 1998 through 2001 to carry out this section." <2.2.2. Authorize Use of Otherwise Appropriated Funds> Some commission statutes authorize the use of otherwise appropriated funds for commission expenses. Most often, such statutes either authorize the use of funds appropriated for a particular agency, or instruct a specified agency official to make funds available for commission expenses. A smaller number explicitly authorize a transfer to the commission of funds from a particular account. As shown in Table 1 , this approach is relatively common among noncommemorative commissions, but less common among commemorative commissions. As with commission statutes that authorize appropriations, these statutes may or may not identify a specific dollar amount that will be provided for the commission. Statutes that do specify a dollar amount for commission expenses may further specify that "up to" or "not more than" a particular amount be made available. For example, the John S. McCain National Defense Authorization Act for Fiscal Year 2019 created the National Security Commission on Artificial Intelligence, and specified that up to $10 million be provided to the commission from amounts authorized to be appropriated for the Department of Defense: (d) FUNDING. Of the amounts authorized to be appropriated by this Act for fiscal year 2019 for the Department of Defense, not more than $10,000,000 shall be made available to the Commission to carry out its duties under this subtitle. Funds made available to the Commission under the preceding sentence shall remain available until expended. By contrast, the legislation creating the Veterans' Disability Benefits Commission directed the Secretary of Veterans Affairs to make funds available for commission expenses, but did not identify a dollar figure. The statute read: (a) IN GENERAL. The Secretary of Veterans Affairs shall, upon the request of the chairman of the commission, make available to the commission such amounts as the commission may require to carry out its duties under this title. <2.2.3. Donated Funds> Some commissions are expected to operate using nonappropriated funds and so are authorized to receive private donations. This approach is more common among commemorative commissions. For example, the act establishing the 400 Years of African-American History Commission authorized the commission to "solicit, accept, use, and dispose of gifts, bequests, or devises of money or other property," to accept and use voluntary and uncompensated services, and provided that "[a]ll expenditures of the Commission shall be made solely from donated funds." Similarly, the act creating the Ronald Reagan Centennial Commission provided the commission with the authority to accept and use gifts of money, services, and property, and further stated that "[n]o Federal funds may be obligated to carry out this Act." Commissions are often authorized to accept and use donations, including donations of money, property, volunteer service, and other items, even when private monetary donations are not the sole source of a commission's funding. P.L. 102-343 , for example, provided the Thomas Jefferson Commemoration Commission the authority to accept and use donated funds to carry out the commission's duties; it also authorized the appropriation of $312,500 over two fiscal years for commission expenses. The authority to receive donations may also be provided to commissions to facilitate their commemorative functions. For example, the Benjamin Franklin Tercentenary Commission was authorized to accept and use donations of "money, personal services, and real or personal property related to Benjamin Franklin on the occasion of the tercentenary of his birth." <2.3. Appropriations for Congressional Commissions> Although statutes establishing commissions typically specify a method by which the commission is to be funded, most do not themselves provide funds for the commission. A statute that authorizes appropriations for a commission, for example, might be followed by an appropriations act that provides funding for the commission. For other commissions, there may be an authorization of appropriations, but an appropriation may not subsequently be made. Actual funding levels provided for congressional commissions have ranged from several hundred thousand dollars to several million dollars. A commission's need for funds may depend on such factors as the commission's scope and duties, staff compensation, payments to consultants, administrative support, travel expenses, and commissioner compensation, among others. The availability of funding and other resources may affect a commission's ability to satisfactorily accomplish its duties. Accordingly, funding levels for previous commissions may be of interest to policymakers and staff. As commissions have been funded in a variety of ways, no single data source comprehensively documents the amounts made available to commissions. To better understand the range of funding levels provided to past congressional commissions, this section provides data on amounts specified in appropriations acts for commission expenses. <2.3.1. Methodology> As discussed previously, many commission statutes authorize appropriations for commission expenses. To identify any actual appropriations made for congressional commissions, CRS searched for the name of each of the 153 identified commissions within the text of appropriations acts enacted since the 101 st Congress. Each identified appropriations act was analyzed to determine whether the bill provided some specified dollar amount for an identified commission. When identified, each dollar amount associated with the commission was recorded, in addition to the public law number and fiscal year of the relevant appropriations act. <2.3.1.1. Data Limitations> Although CRS was able to identify a number of appropriations made for commissions, there are several limitations to the data and subsequent interpretations. As a result, the amounts listed may in some cases be an approximation of the amount received by the commission, rather than a precise amount. These limitations include the following: Amounts identified for commissions in appropriations acts do not necessarily reflect the total amount available for any particular commission. Some commissions may be funded through a combination of appropriations and other sources. For example, the Thomas Jefferson Commemoration Commission was provided the authority to receive donations of money and volunteer services to carry out its functions, and was also provided funds in two subsequent appropriations acts. As discussed previously, commissions have been funded in a variety of ways, including appropriations, private donations, authorization of the use of funds within a lump-sum provided for an account, and the transfer or reprogramming of appropriated funds. The data presented below on amounts contained in appropriations acts should not be considered exhaustive of all funding received by congressional commissions over time, as commissions that did not receive a specific appropriation will necessarily be excluded. Committee reports that accompany appropriations bills may provide details regarding committee expectations about how certain appropriated funds are to be spent. Because this search was conducted within the text of appropriations acts, directions for commission appropriations within committee reports are not included. When making amounts available to commissions, appropriations acts may cite the statute creating the commission rather than the name of the commission. For example, P.L. 105-78 directed that "$900,000 shall be for carrying out section 4021 of Public Law 105-33." Section 4021 of P.L. 105-33 established the National Bipartisan Commission on the Future of Medicare. Because CRS's search was conducted using the name of the commission, similar results may be excluded. Along similar lines, continuing resolutions generally provide funding to continue governmental activities without explicitly referencing specific activities by name. Because CRS's search was conducted using the name of the commission, any amounts made available to commissions by continuing resolutions may be omitted. In some cases, an appropriations act may place a maximum on the level of funding available. For example, the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act for FY1994 provided that, of funds appropriated for a particular account, "not more than $1,800,000" be made available for expenses of the Commission on the Social Security "Notch" Issue. In such cases, the amount of funding ultimately received by the commission may be less than the specified amount. <2.3.2. Data> Table 2 and Table 3 display data on amounts specified in appropriations acts for noncommemorative and commemorative commissions, respectively. For commissions where amounts in appropriations bills were identified, each table contains the name of the commission and a citation to the public law that created it, as well as the dollar amount identified. For every dollar amount, the fiscal year and public law number of the relevant appropriations act are included. Amounts are provided in both nominal as well as constant 2019 dollars. Any identifiable rescissions of commission funding contained in appropriations acts are shown in parentheses. As shown in Table 2 and Table 3 below, amounts made available to commissions vary widely. Some commissions receive a single appropriation; others receive multiple appropriations over several fiscal years. Amounts provided range from several hundred thousand dollars to several million dollars, and may or may not be equal to any amounts explicitly authorized to be appropriated for commission expenses in the commission's original authorizing statute. <2.4. Analysis of Expenditures, Selected Commissions> Generally, a commission may utilize its funds to pay commissioners and staff, hire consultants, and reimburse travel expenses, in addition to other administrative costs. Understanding how commissions utilize funds may be of interest to policymakers wishing to design new commissions or oversee existing commissions. As with commission funding, no single data source contains comprehensive information on commission expenditures. Congress has required some commissions to periodically submit financial reports that detail commission expenditures, but for most identified congressional commissions, expenditure data are not publicly available. To better understand how commissions have used funds provided to them, this report analyzes data for the subset of congressional commissions that reported their expenditures in the Federal Advisory Committee Act (FACA) database. <2.4.1. Methodology> FACA requires formal reporting, administration, and oversight procedures for committees or commissions advising the executive branch. Whether FACA requirements apply to a particular advisory commission may depend on a number of factors, including whether most appointments to the commission are made by members of the legislative or the executive branch, and to which branch of government the commission must issue its report, findings, or recommendations. Although many congressional commissions are exempt from FACA, some are subject to FACA and report their expenditures to the General Services Administration (GSA). GSA collects and reports advisory commission operational data, including information on commission expenditures, in the FACA database. Within the FACA database, CRS searched for the name of the 153 congressional commissions identified to locate commissions that reported expenditures. Twenty of 153 identified commissions appeared in the database and reported expenditures during one or more fiscal years. FACA committees report their expenditures across several categories, including personnel costs, travel and per diem costs, and "other" costs. Personnel and travel costs are both further disaggregated by whether those costs were attributable to federal commission members, nonfederal commission members, federal staff, or consultants. CRS calculated the total reported expenditures of each commission, as well as the percentage of commission expenditures attributable to commissioner pay; staff pay; consultant pay; total travel and per diem expenses of all members, staff, and consultants; and "other" expenses. <2.4.1.1. Data Limitations> Congressional commissions that are subject to FACA and appear in the FACA database may differ from commissions that are not subject to FACA in ways that might affect their overall costs and expenditure patterns. Consequently, figures on cost and expenditures presented below may not be representative of costs and expenditures of all congressional commissions. The accuracy and completeness of expenditure data contained in the FACA database have not been independently verified by CRS. <2.4.2. Data> Table 4 contains data on the reported expenditures of 20 congressional commissions that appeared in the FACA database. Specifically, Table 4 contains the commission name and statute establishing the commission; fiscal years during which the commission reported expenditures; the total amount spent, in both nominal and constant 2019 dollars; and the percentage of reported expenditures attributable to commissioner pay, federal staff pay, consultant pay, travel and per diem expenditures, and other expenditures. The total amount spent by the selected commissions varied from a low of $286,851 to a high of $13,855,998 (between $388,480 and $17,117,361 in constant 2019 dollars). Among the commissions analyzed, expenditures on federal staff and consultant pay often constituted a significant portion of reported spending; expenditures attributable to federal staff and consultant pay constituted a majority of spending for more than half of the commissions identified. Total travel and per diem expenditures ranged from a low of approximately 2% to a high of approximately 34% of commission spending. Many congressional commissions do not compensate their members. Consistent with this finding, many commissions listed in Table 4 report zero expenditures on the pay of federal and nonfederal commission members. Among commissions that report payments to members, these payments constituted as much as approximately 29% of commission spending, though most constituted less than 10%. <3. Concluding Remarks> Congressional commissions have been established for a variety of purposes, and can help serve a critical role by informing Congress, providing expert advice on complex or controversial issues, generating policy recommendations, or organizing commemorative activities. These commissions have been funded in a variety of ways, and their total cost has varied considerably. The cost of any particular commission may depend on its scope, duties, and duration, among other factors, and the degree to which it can satisfactorily accomplish its duties may depend in part on the resources made available to it. No single data source comprehensively documents either the funds made available for congressional commissions, or how commissions have utilized the funds available to them. More complete and reliable data on commission funding and expenditure patterns may benefit policymakers who wish to use such data to guide the creation of future commissions, or to facilitate the oversight of such entities. If Congress wished to systematize the collection of information on commission funding or expenditures, a number of options are available. Congress has on several occasions required commissions to submit periodic financial reports that detail any income and expenditures. Similar approaches that require commissions to submit periodic financial reports, to include funding and expenditure data within the commission's final report, or otherwise make financial data publicly available, may assist Congress in keeping informed of commission operations and ensure that a commission is utilizing its resources in a desired manner. On the other hand, such reporting requirements may place additional burdens on limited commission time and resources.

Congressional commissions have been established for a variety of purposes, and can help serve a critical role by informing Congress, providing expert advice on complex or controversial issues, and generating policy recommendations. In general, commissions hold hearings, conduct research, analyze data, and/or make field visits as they carry out their duties. Most complete their work by delivering their findings, recommendations, or advice in the form of a written report to Congress. For example, the National Commission on Terrorist Attacks Upon the United States (the 9/11 Commission) was created to "examine and report upon the facts and causes relating to the terrorist attacks of September 11, 2001," and to "investigate and report to the President and Congress on its findings, conclusions, and recommendations for corrective measures that can be taken to prevent acts of terrorism," among other duties. The commission ultimately submitted a final report to Congress and the President containing its findings and conclusions, along with 48 policy recommendations. A variety of factors c an contribute to the overall cost of a commission. For instance, many commissions hire paid staff, and are often able to request detailees from federal agencies, hire consultants, and obtain administrative support from one or more federal agencies on a reimbursable basis. Additionally, most commissions reimburse the travel expenditures of commissioners and staff, and some compensate commission members. The duration of a commission may also significantly affect its cost; past congressional commissions have been designed to last anywhere from several months to several years. Using a dataset of congressional commissions that were established from the 101 st Congress (1989-1990) through the 115 th Congress (2017-2018), this report analyzes methods used to fund 153 congressional commissions. Additionally, this report analyzes actual amounts provided for commissions in appropriations acts, and expenditure patterns of congressional commissions for which data are readily available because they appear in the Federal Advisory Committee Act (FACA) database. When specifying how a commission is funded, most commission statutes either authorize appropriations for commission expenses, authorize the use of funds from other appropriations or accounts, or direct that private donations be the sole source of funding for the commission. Most statutes establishing noncommemorative commissions—commissions that are generally designed to conduct a study, investigate an event, and/or make policy recommendations—either authorize appropriations for commission expenses, or authorize the use of funds from other appropriations or accounts. By contrast, statutes establishing commemorative commissions—commissions designed to celebrate an individual, group, or event—typically authorize appropriations, and/or provide the commission the authority to receive donations, including donations of money, property, and volunteer services. Although commission statutes typically specify a method by which the commission will be funded, most do not actually provide funds for the commission; funds may be provided in annual appropriations acts, or by other means. Actual funding levels appropriated for past congressional commissions vary from several hundred thousand dollars to several million dollars. No single data source comprehensively documents commission funding or expenditures. Among those congressional commissions whose expenditures are reported in the FACA database, the total amount reportedly spent by any individual commission ranges from several hundred thousand dollars to over $13 million. Payments to federal staff and consultants frequently comprise a significant portion of commission expenditures. Many commissions also incur travel expenses, payments to commission members, and other expenses. For an overview of congressional commissions, see CRS Report R40076, Congressional Commissions: Overview, Structure, and Legislative Considerations , by Jacob R. Straus. For additional information on the design of congressional commissions, see CRS Report R45328, Designing Congressional Commissions: Background and Considerations for Congress , by William T. Egar. For additional information on commemorative commissions, see CRS Report R41425, Commemorative Commissions: Overview, Structure, and Funding , by Jacob R. Straus. For additional information on commission membership structures, see CRS Report RL33313, Congressional Membership and Appointment Authority to Advisory Commissions, Boards, and Groups , by Jacob R. Straus and William T. Egar.

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In October 2018, the Office of the U.S. Trade Representative (USTR) officially notified the Congress, under Trade Promotion Authority (TPA), of the Trump Administration's plans to enter into formal trade negotiations with the European Union (EU). This action followed a July 2018 U.S.-EU Joint Statement by President Trump and then-European Commission (EC) President Juncker announcing that they would work toward a trade agreement to reduce tariffs and other trade barriers, address unfair trading practices, and increase U.S. exports of soybeans and certain other products. Previously, in 2016, U.S.-EU negotiations as part of the Transatlantic Trade and Investment Partnership (T-TIP) stalled after 15 rounds under the Obama Administration. The outlook for new U.S.-EU talks remains uncertain. There continues to be disagreement about the scope of the negotiations, particularly the EU's intent to exclude agriculture from the talks on the basis that it "is a sensitivity for the EU side." EU sensitivities stem in part from commercial and cultural practices that are often embodied in EU laws and regulations and vary from those of the United States. For food and agricultural products, such differences include regulatory and administrative differences between the United States and the EU on issues related to food safety and public health or Sanitary and Phytosanitary (SPS) measures, and Technical Barriers to Trade (TBTs). Other differences include product naming schemes for some types of food and agricultural products subject to protections involving Geographical Indications (GIs). Addressing food and agricultural issues in the negotiations remains important to U.S. exporters given the sizable and growing U.S. trade deficit with the EU in agricultural products. Renewed trade talks also come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced 25% steel and 10% aluminum tariffs on most U.S. trading partners, including the EU, after a Section 232 investigation determined that these imports threaten U.S. national security. In response, the EU began applying retaliatory tariffs of 25% on certain U.S. exports to the EU. Additionally, as part of the Boeing-Airbus subsidy dispute, in October 2019 the United States began imposing additional, World Trade Organization (WTO)-sanctioned tariffs on $7.5 billion worth of certain U.S. imports from the EU. This report provides an overview of U.S.-EU trade in agriculture and background information on selected U.S.-EU agricultural trade issues concerning a potential trade liberalization agreement between the United States and the EU. Following a review of U.S.-EU agricultural trade trends, this report describes recent agricultural trade trends and tariff actions affecting certain U.S.-EU traded food and agricultural goods. It then describes potential issues in U.S.-EU trade agreement negotiations involving food and agricultural trade. Figure 1 shows a timeline of selected events. Figure 1. Selected Timeline of Events Related to U.S.-EU Agricultural TradeSource: CRS. Actions related to the U.S.-EU Trade Agreement negotiations are shown in red.Note: USTR = U.S. Trade Representative (USTR). WTO = World Trade Organization. EU27 includes the current 27 EU member states, excluding the United Kingdom (UK). EU28 includes the UK. <1. Trade Data and Statistics> Following are trade data and statistics for the current 27 EU member states (EU27). Unless otherwise noted, these figures exclude the United Kingdom (UK), which formally exited the EU in January 2020. Moving forward, U.S. trade negotiations with the EU are expected to exclude the UK, which may enter into trade discussions with the United States separately. Trade data presented here are compiled from U.S. Department of Agriculture (USDA) trade statistics for "Agricultural and Related Products." As defined by USDA, this product grouping includes agricultural products (including bulk and intermediate products and also consumer-oriented products) and agricultural-related products (including fish and shellfish products, distilled spirits, forest products, and ethanol and biodiesel blends). Additional information on the various data sources is discussed in the t ext box . The United States and the EU are the world's largest trade and investment partners. While food and agricultural trade between the United States and the EU27 accounts for less than 1% of the value of overall trade in total goods and services ( Figure 2 ), the EU27 remains a leading market for U.S. agricultural exports. It accounted for about 8% of the value of all U.S. exports and ranked as the fifth-largest market for U.S. food and farm exports in 2019 after Canada, Mexico, China, and Japan. Data depicted in Figure 2 do not reflect trade in fish and seafood, distilled spirits, and bioenergy products. During the past two decades, growth in U.S. agricultural exports to the EU has not kept pace with growth in trade to other U.S. markets. U.S. agricultural imports from the EU27 currently exceed U.S. exports to the EU27. In 2019, U.S. exports of agricultural and related products to the EU27 totaled $12.4 billion, while U.S. imports of agricultural and related products from the EU27 totaled $29.7 billion, resulting in a U.S. trade deficit of approximately $17.3 billion. This reverses the U.S. agricultural trade surpluses with the EU27 during the early 1990s ( Figure 3 ). Leading U.S. agricultural exports to the EU27 were corn and soybeans, tree nuts, distilled spirits, fish products, wine and beer, planting seeds, and processed foods. Leading U.S. imports from the EU27 were wine and spirits, beer, drinking waters, olive oil, cheese, and processed foods. While data shown in the graphic reflect total trade in "Agricultural and Related Products," including agricultural products, fish and shellfish products, distilled spirits, and other agricultural related products, the trade picture may vary by product category (as shown in Table 1 ). Trade data presented here do not include the UK, which is a major importer of U.S. agricultural products. In 2019, U.S. agricultural and related product exports to the UK totaled $2.8 billion, which roughly equaled the value of imports from the UK ( Figure 4 ). <2. U.S.-EU Tariff Retaliation> The U.S.-EU trade negotiations come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced 25% steel and 10% aluminum tariffs on most U.S. trading partners after a Section 232 investigation determined that these imports threaten to impair U.S. national security. The EU was not among the trading partners with whom the Trump Administration negotiated permanent exemptions from tariffs or alternative quota arrangements, and U.S. tariffs on U.S. imports from the EU went into effect in June 2018. The EU views the U.S. national security justification as groundless and the U.S. tariffs to be inconsistent with WTO rules. The EU has challenged the U.S. actions at the WTO. Effective June 2018, the EU began applying retaliatory tariffs of 25% on imports of U.S. whiskies, corn, rice, kidney beans, preserved and mixed vegetables, orange juice, cranberry juice, peanut butter, and tobacco products, along with selected non-agricultural products ( Figure 5 ). This action includes the EU27 countries and the UK (EU28), as U.S. exports to the UK remain subject to the additional tariffs. The value of U.S. agricultural exports to the EU28 targeted by these additional tariffs is estimated to have been approximately $1.2 billion in 2018, or nearly 9% of total U.S. agricultural exports to the EU28 (excluding nonagricultural products) ( Table 2 ). Some analysts estimate that U.S. agricultural exports subject to tariff retaliation in 2018-2019 experienced a 33% decline in the EU28 market. In October 2019, U.S.-EU trade tensions escalated further when the United States imposed additional tariffs on $7.5 billion worth of certain U.S. imports from the EU, or about 1.5% of all U.S. imports from the EU28 in 2018 (including the UK and nonagricultural products). This action, authorized by WTO dispute settlement procedures, followed a USTR investigation initiated in April 2019 under Section 301 of the Trade Act of 1974. The USTR determined that the EU had denied U.S. rights under WTO agreements. Specifically, USTR concluded that the EU and certain member states (including the UK) had not complied with a WTO Dispute Settlement Body ruling recommending the withdrawal of WTO-inconsistent EU subsidies to Airbus for the manufacture of large civil aircraft. The list of products subject to additional tariffs stemming from the Airbus subsidy dispute targets mainly the EU member states responsible for the illegal subsidies. It includes agricultural products such as spirits and wine, cheese and dairy products, meat products, fish and seafood, fresh and prepared fruit products, coffee, and bakery goods. Agricultural imports account for about 56% of the total value of EU28 products subject to these additional tariffs. As of February 2020, tariff increases are limited to 25% on agricultural products, and they target primarily France, Germany, UK, and Spain ( Figure 6 ). By agricultural product category, whiskies, liqueurs, and wine (mainly from UK and France) account for approximately 38%, and other food and agricultural products (mainly from Spain and France) account for 19% ( Table 3 ). In December 2019, USTR began a review to determine if the list of imports subject to additional tariffs should be revised or tariff rates increased. In February 2020, USTR made some changes to the list of products affected by Section 301 tariffs. In terms of U.S. agricultural imports from the EU, the only change will be the removal of prune juice from the list, which will not be subject to additional 25% tariffs effective March 5, 2020. U.S.-EU trade negotiations could be affected further if the EU retaliates and imposes tariffs on U.S. exports, in response to either these U.S. actions or an upcoming WTO decision in the parallel EU dispute case against the United States. Later this year a WTO arbitrator is expected to authorize the EU to seek remedies in the form of tariffs on U.S. exports to the EU, after the WTO determined in early 2019 that the United States had also failed to abide by WTO subsidies rules in supporting Boeing. <3. Selected U.S.-EU Agricultural Trade Issues> In January 2019, USTR announced its negotiating objectives for a U.S.-EU trade agreement, following a public comment period and a hearing involving several leading U.S. agricultural trade associations. These objectives include agricultural policies both market access and non-tariff measures such as tariff rate quotas (TRQ) administration and other regulatory issues. Among regulatory issues, key U.S. objectives include harmonizing regulatory processes and standards to facilitate trade, including SPS standards, and establishing specific commitments for trade in products developed through agricultural biotechnologies. The U.S. objectives also include addressing GIs by protecting generic terms for common use. U.S. agricultural interests generally support including agriculture in a U.S.-EU trade agreement. The stated overarching goal for the U.S. side is addressing the U.S. trade deficit in agricultural products with the European Union. Early on, the EU indicated that it was planning for a more limited negotiation that does not include agricultural products and policies. The EU negotiating mandate, dated April 2019, states that a key EU goal is "a trade agreement limited to the elimination of tariffs for industrial goods only, excluding agricultural products." Several Members of Congress opposed the EU's decision to exclude agricultural policies in its negotiating mandate. A letter to USTR from a bipartisan group of 114 House members states that "an agreement with the EU that does not address trade in agriculture would be, in our eyes, unacceptable." Senate Finance Committee Chairman Chuck Grassley reiterated, "Bipartisan members of the Senate and House have voiced their objections to a deal without agriculture, making it unlikely that such a deal would pass Congress." Then, in January 2020, public statements by U.S. and EU officials signaled the possibility that the U.S.-EU trade talks might include negotiation on SPS and regulatory barriers to agricultural trade. It is not clear, however, that both sides agree on which specific types of non-tariff trade barriers might actually be part of the U.S.-EU trade talks. As reported in the press, statements by some USDA officials have suggested that selected SPS barriers as well as GIs would need to be addressed by the trade talks. Meanwhile, other press reports indicate that some EU officials have downplayed the extent that certain non-tariff barriers such as biotechnology product permits, approval of certain pathogen rinses for poultry, regulations on pesticides, or food standards would be part of the talks; instead, regulatory barriers might be lowered for certain "non-controversial" foods. The United States continues to push for additional concessions from the EU. More formal discussions are expected in the spring of 2020 in an effort to ease trade tensions regarding the imposition of retaliatory tariffs. The EU has taken certain measures to avoid escalating agricultural trade tensions with the United States. For example, it has expanded the U.S.-specific quota for EU imports of hormone-free beef, increased imports of U.S. soybeans as a source of biofuels, approved a number of long-pending genetically engineered products for food and feed uses, and proposed to lift a ban on certain pest-resistant American grapes in EU wine production, and other trade-related measures. In a separate but indirectly related action, in August 2019, USTR asked the U.S. International Trade Commission (USITC) to conduct an investigation examining SPS barriers related to pesticide maximum residue levels (MRLs) across all U.S. markets, including Europe. Previously, during T-TIP negotiations, both market access and non-tariff barriers were part of the U.S. negotiating objectives. At that time, non-tariff barriers to agricultural trade including SPS and TBT measures, and GIs were among the agricultural issues actively debated. In addition, regulatory coherence and cooperation was part of USTR's stated objectives. Some of the same issues that proved to be challenging during the T-TIP talks may continue to challenge negotiators. Various studies at the time reported that removing tariff and non-tariff barriers in U.S.-EU trade would result in economic benefits to the U.S. and EU agricultural sectors. Another study by the European Parliament acknowledged that gains from tariff cuts would be limited unless regulatory and administrative barriers were also addressed. <3.1. Market Access> Market access issues are not slated to be discussed in the U.S.-EU trade talks. However, these issues remain important for U.S. agricultural exporters. This is especially true regarding the EU's use of restrictive tariff rate quotas (TRQs) on certain agricultural products. TRQs allow imports of fixed quantities of a product at a lower tariff. Once the quota is filled, a higher tariff is applied on additional imports. The EU allocates TRQs to importers using licenses issued by the member states' national authorities. Only companies established in the EU may apply for import licenses. For exports under a U.S.-specific TRQ, a certificate of origin must be supplied. The EU applies TRQs on many types of beef and poultry products, sheep and goat meat, dairy products, cereals, rice, sugar, and fruit and vegetables. Some products are heavily protected by both TRQs and non-tariff SPS measures. Import tariffs for agricultural products into Europe tends to be relatively high compared to tariffs for similar products into the United Sates. The WTO reports that the simple average most-favored-nation (MFN) tariff applied to agricultural products entering the United States is about 5%, compared to an average tariff of about 13% for products entering the EU. Including all products imported under an applied tariff or a TRQ, USDA reports that the calculated average rate across all U.S. agricultural imports is roughly 12%, well below the EU's average of 30%. By commodity group, EU tariffs average more than 40% for imported meat products, grains, and grain products and average at or above 20% for most fruit and vegetable products. For some products, EU tariffs are even greater, averaging more than 80% for imported dairy products, more that 50% for sugar cane and sweeteners, and nearly 350% for sugar beets. The EU has concluded preferential trade agreements with more than 35 non-EU countries and continues to negotiate agreements with several others. This preferential access provides U.S. export competitors an advantage over U.S. agricultural exporters, particularly in countries where the United States does not have a preferential agreement in place. Previously, during the T-TIP negotiations, Senate leadership sent a letter to USTR reiterating that a final agreement would need to include "a strong framework for agriculture," including "tariff elimination on all products including beef, pork, poultry, rice, and fruits and vegetables" and that "liberalization in all sectors of agriculture" was a priority, if the agreement were to obtain the support of Congress. The letter also addressed the importance of "longstanding regulatory barriers," including the EU's import approval process of U.S. biotechnology products and GI protections promoted by the EU. <3.2. Non-Tariff Barriers to Trade> High tariff barriers are further exacerbated by additional non-tariff barriers that may limit U.S. agricultural exports, including SPS measures, and other types of non-tariff barriers. Non -t ariff m easures (NTMs) generally refer to policy measures other than tariffs that may have a negative economic effect on international trade. NTMs include both technical and nontechnical measures. Technical measures include both SPS and TBTs and pre-shipment formalities and related requirements that are intended to govern public health and food safety. Nontechnical measures include quotas, price control measures, rules of origin requirements, and government procurement restrictions. Non-tariff barriers affect agricultural trade in various ways, including delays in reviews of biotech products (creating barriers to U.S. exports of grain and oilseed products), prohibitions on growth hormones in beef production and certain antimicrobial and pathogen reduction treatments (creating barriers to U.S. meat and poultry exports), and burdensome and complex certification requirements (creating barriers to U.S. processed foods, animal products, and dairy products). Extensive EU regulations and difficulty finding up-to-date information are among the primary concerns of U.S. businesses, particularly for makers of processed foods. U.S. businesses report a lack of a science-based focus in establishing SPS measures, difficulty meeting food safety standards and obtaining product certification, differences across countries in food labeling requirements, and stringent testing requirements that are often applied inconsistently across EU member nations. Non-tariff barriers to agricultural trade including SPS and TBT measures, and GIs were among the agricultural issues actively debated in the T-TIP negotiation. Previous negotiations were complicated by longstanding trade disputes between the United States and EU involving food safety and product standards that are often embodied in laws and regulations in the United States and EU, as well as separate requirements that may be in force within individual EU member states. For example, the EU restricts some types of genetically engineered (GE) seed varieties and also prohibits the use of hormones in meat production and certain pathogen reduction treatments in poultry production. As these types of practices are commonplace in the United States, this tends to restrict U.S. agricultural exports to the EU. Other EU regulations and standards involve pesticide residues on foods, drug residues in animal production, and certain animal welfare requirements that may vary from those in the United States. The United States has also opposed the EU's GI protections that govern product labeling on products within the EU and within some countries that have a formal trade agreement with the EU. Such GI protections also tend to restrict U.S. agricultural exports to the EU and to some other countries where such protections have been put in place. As part of a trade negotiation, non-tariff barriers tend to be broadly grouped along with other issues related to regulatory coherence. The U.S. Chamber of Commerce defines regulatory coherence as "good regulatory practices, transparency, and stakeholder engagement in a domestic regulatory process" and regulatory cooperation as "the process of interaction between U.S. and EU regulators, founded on the benefits regulators can achieve through closer partnership and greater regulatory interoperability." Related terminology may refer interchangeably to regulatory convergence, cooperation, and/or harmonization. Trade negotiations involving regulatory and intellectual property rights issues have focused, in part, on the goals of ensuring greater transparency, harmonization, and coherence to improve cooperation and streamline the regulatory approval process among the trading partners. Previous USDA estimates calculated the ad valorem equivalent effects of EU non-tariff barriers to U.S. agricultural exports, which were estimated to range from 23% to 102% for some more heavily protected products, including meat products, fruits and vegetables, and some crops. In general, SPS and related regulatory issues tend to be addressed in free trade agreements (FTAs) within an agreement's agriculture chapter or chapter on regulatory coherence, while GIs tend to be addressed along with other types of intellectual property rights (IPR) issues, in an FTA's IPR chapter. The following section provides additional background on SPS and TBT measures, as well as GI protections. <3.2.1. SPS/TBT Issues> SPS measures are laws, regulations, standards, and procedures that governments employ as "necessary to protect human, animal or plant life or health" from the risks associated with the spread of pests, diseases, or disease-carrying and causing organisms, or from additives, toxins, or contaminants in food, beverages, or feedstuffs. Examples include product standards, requirements for products to be produced in disease-free areas, quarantine and inspection procedures, sampling and testing requirements, residue limits for pesticides and drugs in foods, and limits on food additives. TBT measures cover both food and non-food traded products. TBTs in agriculture include SPS measures, but also include other types of measures related to health and quality standards, testing, registration, and certification requirements, as well as packaging and labeling regulations. Both SPS and TBT measures regarding food safety and related public health protection are addressed in various multilateral trade agreements and are regularly notified to and debated within both the SPS Agreement and TBT Agreement within the WTO. In general, under the SPS and TBT agreements, WTO members agree to apply such measures, based on scientific evidence and information, only to the extent necessary to protect human, animal, or plant life and health and to not arbitrarily or unjustifiably discriminate between WTO members where identical standards prevail. Member countries are also encouraged to observe established and recognized international standards. Improper use of SPS and TBT measures can create substantial barriers to trade when they are disguised protectionist barriers, are not supported by scientific evidence, or are otherwise unwarranted. Bilateral and regional FTAs between the United States and other countries regularly address SPS and TBT matters. Provisions in most U.S. FTAs have generally reaffirmed rights and obligations of both parties under the WTO SPS and TBT agreements. Some FTAs have established standing bilateral committees to enhance understanding of each other's measures and to consult regularly on related matters. Other FTAs have included side letters or agreements for the parties to continue to cooperate on scientific and technical issues, which in some cases may be related to certain specific market access concerns. Most FTAs have not addressed specific non-tariff trade concerns directly. <3.2.1.1. Differences in U.S. and EU Laws and Regulations> Regulatory differences between the United States and EU have contributed to trade disputes regarding SPS and TBT rules between the two trading blocs. The United States has several formal WTO trade disputes regarding SPS and TBT measures with the EU. These include concerns regarding the EU's prohibitions on the use of growth-promoting hormones (and ractopamine ) in meat production, the EU's restrictions on chemical treatments ("pathogen reduction treatments" or "PRTs") on U.S. poultry, and the EU's approval process of biotechnology products. Other SPS concerns have involved regulations related to bovine spongiform encephalopathy (BSE, commonly known as mad cow disease) and regulations involving plant processing, chemical residues, endocrine-disrupting chemicals, antibiotics, and animal welfare. There are major differences in how the United States and the EU regulate food safety and related public health protection, including various administrative and technical review differences, which in turn influences how each applies various SPS and TBT measures. Such differences have often been central to SPS and TBT disputes, including those involving the use of hormones in meat production and pathogen reduction treatments in poultry processing. Other disputes invoking the SPS and TBT agreements between the U.S. and EU have included beef and poultry products, eggs, frozen bovine semen, milk products, animal byproducts, seafood, pesticide and animal drug residues, seeds, wheat, wine and spirits, and food packaging requirements. Differences are also evident in how the United States and EU regard biotechnology in agricultural production. In general, EU officials have been cautious in allowing genetically engineered crops commonly referred to in Europe as genetically modified organisms (or GMOs) to enter the EU market. As such, any GE-derived food and feed must be labeled accordingly. The EU's regulatory framework regarding biotechnology is generally regarded as one of the most stringent systems worldwide. During the T-TIP negotiations, U.S. agricultural and food groups actively called for changes to the EU's approach for approving and labeling biotechnology products. The EU has reported concerns about perceived U.S. SPS barriers to EU exports of sheep and goat meat, egg products, beef, certain dairy products, live bivalve mollusks, apples, and pears, along with difficulties protecting its own GIs on certain food and drinks. Other EU concerns have involved the use of "Buy American" restrictions in the United States governing public procurement. During the T-TIP negotiations, some expressed concern that including "Buy American" provisions could affect local food procurement, including restricting bidding contract preferences contained in U.S. and EU farm-to-school programs. The EU's application of the so-called precautionary principle remains central to the EU's risk management policy regarding food safety and animal and plant health and is often cited as the rationale behind the EU's more risk-averse approach. The precautionary principle was reportedly referenced as part of the 1992 Treaty on European Union that further integrated the EU, and its use was further outlined in a 2000 communication and then formally established in EU food legislation in 2002 (Regulation EC No 178/2002). The EU's 2000 communication further outlines guidelines for implementation, the basis for invoking the principle, and the general standards of application. Regarding international trade, under EU law, the precautionary principle provides for "rapid response" to address "possible danger to human, animal, or plant health, or to protect the environment" and can be used to "stop distribution or order withdrawal from the market of products likely to be hazardous." Although the principle may not be used as a pretext for protectionist measures, many countries have challenged some EU actions that invoke the precautionary principle as "protectionist." The EU, however, continues to invoke the precautionary principle to justify its policies regarding various regulatory issues and generally rejects arguments, on the grounds of risk management, that the lack of clear evidence of harm is not evidence of the absence of harm. No universally agreed-upon definition of the precautionary principle exists, and many differently worded or conflicting definitions can be found in international law. However, within the context of the WTO and the SPS agreement, the precautionary principle (or precautionary approach) allows a country to set higher standards and methods of inspecting products. It also allows countries to take "protective action" including restricting trade of products or processes if they believe that scientific evidence is inconclusive regarding their potential impacts on human health and the environment (provided the action is consistent and not arbitrary). The WTO has generally acknowledged that the need to take precautionary actions in the face of scientific uncertainty has long been widely accepted, particularly in the fields of food safety and plant and animal health protection. Examples might include a sudden outbreak of an animal disease that is suspected of being linked to imports, which may require a country to impose certain trade restrictions while the outbreak is assessed. Application of the precautionary principle by some countries remains an ongoing source of contention in international trade, particularly for the United States, and is often cited as a reason why some countries may restrict imports of some food products and processes. <3.2.1.2. Addressing SPS and TBT Measures in FTA Negotiations> In the lead up to the previous T-TIP and Trans-Pacific Partnership (TPP) negotiations, there were active efforts to "go beyond" the rules, rights, and obligations in the WTO SPS Agreement and TBT Agreement, as well as commitments in existing U.S. FTAs. These efforts were referred to as "WTO-Plus" rules or, alternatively, as "SPS-Plus" and "TBT-Plus" rules. Related efforts called for improvements in regulatory cooperation and coherence, along with enhanced partnerships and interactions among regulators in each country. Modernizing the rules governing the application of SPS and TBT measures in U.S.-EU trade by incorporating "SPS-Plus" and "TBT-Plus" rules as part of a trade agreement could represent a positive step for U.S. food and agricultural exporters. Changes regarding SPS and TBT measures agreed to in the U.S.-Mexico-Canada Agreement (USMCA) and the U.S.-China Phase One Trade Agreement incorporated policy changes regarding SPS and TBT measures consistent with previous "SPS-Plus" and "TBT-Plus" efforts. According to USITC, USMCA "goes further in requiring transparency and encouraging harmonization or equivalence of SPS measures" and incorporates all of the proposed enhanced TPP disciplines "in the areas of equivalence, science and risk analysis, transparency, and cooperative technical consultations." Some industry representatives claim that USMCA "goes beyond TPP in establishing deadlines for 'import checks,' by requiring importing parties to inform exporters or importers within five days of shipments being denied entry." Both agreements contain language that directly relates to the use of biotechnology. Alternative efforts to modify the EU's application of the precautionary principle could present more of a challenge for U.S. agricultural producers and exporters. Previously, during the T-TIP negotiations, some in the U.S. agriculture and food industry urged U.S. negotiators to address the EU's use and application of the precautionary principle. Many U.S. agricultural and food organizations contended that the EU's application of the precautionary principle undermines sound science and innovation and results in "unjustifiable restrictions" on U.S. exports, allowing the EU "to put in place restrictions on products or processes when they believe that scientific evidence on their potential impact on human health or the environment is inconclusive." Some asserted that application of the principle results in a bias against new technologies, such as biotechnology and nanotechnology. As a result, these groups said that "science-based decision making and not the precautionary principle must be the defining principle in setting up mechanisms and systems" to address SPS concerns. The U.S. Chamber of Commerce supported a "science-based approach to risk management, where risk is assessed based on scientifically sound and technically rigorous standards" and opposed "the domestic and international adoption of the precautionary principle as a basis for regulatory decision making." Many in Congress also called for "effective rules and enforceable rules to strengthen the role of science" to resolve international trade differences. More recently, the EU's SPS were among the issues that raised the most concerns during a WTO review of the EU's trade policies. Among the cited concerns were certain SPS measures that were viewed to be not based on science or on international standards, and that were also deemed to not allow for adequate opportunity to take into account for the views of third countries. <3.2.1.3. Efforts to Resolve SPS and TBT Measures Outside FTA Negotiations> Outside of the FTA negotiation process, various U.S. federal agencies regularly address trade concerns involving SPS and TBT measures as part of their day-to-day oversight and regulatory responsibilities. For example, USDA's Animal and Plant Health Inspection Service (APHIS) administers various regulatory and control programs pertaining to animal and plant health and quarantine, humane treatment of animals, and the control and eradication of pests and diseases. APHIS also oversees SPS certification requirements for imported and exported agricultural goods. This work is ongoing. The United States also maintains ongoing interagency processes and mechanisms to identify, review, analyze, and address foreign government standards-related measures that may be barriers to trade. These activities are coordinated through the USTR-led Trade Policy Staff Committee, which is composed of representatives from several federal agencies, including USDA, the Department of Commerce, and the State Department. USTR also chairs an interagency group (i.e., both USDA and non-USDA agencies with SPS and TBT responsibilities) that reviews SPS and TBT measures that are notified to the WTO, as required under the SPS and TBT agreements. These agency officials also work with their international counterparts on concerns involving SPS and TBT measures. USTR tracks issues related to such measures as part of its annual reports. <3.2.2. Geographical Indications> GIs are geographical names that act to protect the quality and reputation of a distinctive product originating in a certain region. The term GI is most often applied to wines, spirits, and agricultural products. GIs allow some food producers to differentiate their products in the marketplace. GIs may also be eligible for relief from acts of infringement or unfair competition. While GIs may protect consumers from deceptive or misleading labels, they can also impair trade when names that are considered common or generic in one market are protected in another. Examples of registered or established GIs include Parmigiano Reggiano cheese and Prosciutto di Parma ham from the Parma region of Italy, Toscano olive oil from the Tuscany region of Italy, Roquefort cheese from France, Champagne from the region of the same name in France, Irish whiskey, Darjeeling tea, Florida oranges, Idaho potatoes, Vidalia onions, Washington State apples, and Napa Valley wines. GIs are an example of IPR, along with patents, copyrights, trademarks, and trade secrets. The use of GIs has become a contentious international trade issue, particularly for U.S. wine, cheese, and sausage makers. In general, some consider GIs to be protected intellectual property, while others consider them to be generic or semi-generic terms. GIs are included among other IPR issues in the current U.S. trade agenda. GIs were an active area of debate during the T-TIP negotiations. Laws and regulations governing GIs differ markedly between the United States and EU, which further complicates this issue. GIs are protected by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets binding minimum standards for intellectual property protection that are enforceable by the WTO's dispute settlement procedure. Under TRIPS, WTO members must recognize and protect GIs as intellectual property. Both the United States and the EU are signatories of TRIPS and therefore subject to its rights and obligations. Accordingly, under TRIPS, the United States and EU have committed to providing a minimum standard of protection for GIs (i.e., protecting GI products to avoid misleading the public and prevent unfair competition) and an "enhanced level of protection" to wines and spirits that carry a GI, subject to certain exceptions. TRIPS builds on treaties administered by the World Intellectual Property Organization, a specialized agency in the United Nations with the mission to "lead the development of a balanced and effective international intellectual property (IP) system." It also oversees the "International Register of Appellations of Origin" established in the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. The agreement's multilateral register covers food products and beverages and related products, as well as non-food products. The EU's GI program remains a contentious issue for some U.S. producer groups, particularly among wine, cheese, and sausage makers. Some have long expressed their concerns about EU protections for GIs, which they claim are being misused to create market and trade barriers. Much of this debate involves certain terms used by cheesemakers, such as parmesan, asiago, and feta cheese, which the U.S. cheese sectors consider to be generic terms. For example, feta cheese produced in the United States may not be exported for sale in the EU, since only feta produced in countries or regions currently holding GI registrations may be sold commercially. A 2019 study commissioned by the U.S. dairy industry forecasts declining U.S. cheese exports due to expanding restrictions on parmesan, asiago, and feta cheese. Another study concluded that up to $15 million in cheese trade might need to be relabeled due to the restriction on certain GI terms, while other traded foods, such as oilseeds and vinegars, would experience little impact. Some U.S. industry groups, however, are trying to institute protections for U.S. products similar to those in the EU GI system to promote certain distinctive American agricultural products. The American Origin Products Association represents certain U.S. potato, maple syrup, ginseng, coffee, and chile pepper producers and certain U.S. winemakers, among other regional producer groups. It seeks to work with federal authorities to create "a list of qualified U.S. distinctive product names, which correspond to the GI definition." <3.2.2.1. Differences in U.S. and EU Laws and Regulations> Laws and regulations governing GIs differ markedly between the United States and EU. In the United States, GIs generally fall under the common law right of possession or "first in time, first in right" as trademarks or collective or certification marks under the purview of the existing trademark regime, administered by the U.S. Patent and Trademark Office (PTO) and protected under the U.S. Trademark Act. Trademarks are distinctive signs that companies use to identify themselves and their products or services to consumers and can take the form of a name, word, phrase, logo, symbol, design, image, or a combination of these elements. Trademarks do not refer to generic terms, nor do they refer exclusively to geographical terms. Trademarks may refer to geographical names to indicate the specific qualities of goods either as certification marks or as collective marks. PTO does not have a special database register for GIs in the United States. PTO's trademark register, the U.S. Trademark Electronic Search System, contains GIs registered as trademarks, certification marks, and collective marks. USTR says that EU farm products hold nearly 12,000 trademarks. These register entries are not designated with any special field (such as "geographical indications") and cannot be readily compiled into a complete list of registered GIs. In the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB) also plays a role overseeing the labeling of wine, malt beverages, beer, and distilled spirits. In the EU, a series of regulations governing GIs was initiated in the early 1990s covering agricultural and food products, wine, and spirits. Legislation adopted in 1992 covering agricultural products (not including wines and spirits) was replaced by changes enacted in 2006 following a WTO panel ruling that found some aspects of the EU's scheme inconsistent with WTO rules. The new rules came into force in January 2013. The EU laws and regulations provide product registration markers for the different quality schemes. The EU regulations establish provisions regarding products from a defined geographical area given linkages between the characteristics of products and their geographical origin. The EU defines a GI as "a distinctive sign used to identify a product as originating in the territory of a particular country, region or locality where its quality, reputation or other characteristic is linked to its geographical origin." EU registered products often fall under GI protections in certain third-country markets, and some EU GIs have been trademarked in some non-EU countries. This has become a concern for U.S. agricultural exporters following a series of trade agreements the EU has concluded with Canada, Japan, South Korea, South Africa, and other countries that in many cases are also trading partners of the United States. For example, Canada has agreed to recognize a list of 143 EU GIs in Canada, and Japan has agreed to recognize more than 200 EU GIs in Japan. These GI protections could limit U.S. sales of certain products to these countries. The EU is in the process of negotiating FTAs with several other U.S. trading partners, including Mexico, Australia, New Zealand, and the Mercosur states (Argentina, Brazil, Paraguay, and Uruguay). Each of these efforts includes a selected list of GIs that would become protected under an FTA between these countries and the European Union. In December 2019, the EU also entered into an agreement with China regarding GIs that would protect a reported 100 EU GIs in China. As of January 2020, 3,316 product names are registered and protected in the EU for foods, wine, and spirits originating in both EU member states and other countries. <3.2.2.2. Addressing GI Barriers in FTA Negotiations> GIs continue to be actively debated as part of the official U.S. trade agenda, involving concerns about their possible improper use as well as the lack of transparency and due process under some country GI systems. USTR is working "to advance U.S. market access interests in foreign markets and to ensure that GI-related trade initiatives of the EU, its Member States, like-minded countries, and international organizations, do not undercut such market access," and states that the EU's GI agenda "significantly undermines the scope of trademarks and other [IPR] held by U.S. producers and imposes barriers on market access for American-made goods that rely on the use of common names." Statements by USDA officials in early 2020 have signaled that this issue could resurface as part of the U.S.-EU trade talks. Previously, during T-TIP negotiations, U.S. officials indicated that the United States would likely not agree to EU demands to reserve certain food names for EU producers and have expressed concerns about the EU's system of protections for GIs. At the time, U.S. trade policy objectives regarding the EU's GI protections was to ensure that they "do not undercut U.S. industries' market access" and to defend the use of certain "common food names." In general, the United States is seeking protection for current U.S. owners of trademarks that overlap with EU-protected GIs, the ability to use U.S. trademarked names in third countries, and the ability to use U.S. trademarked names in the EU. In recent developments, according to USITC, USMCA "increases the transparency of applications, approvals, and cancellations" regarding GIs and "provides guidelines for determining whether a term is customary in common use." In addition, a side letter between the United States and Mexico commits Mexico to not restrict market access for a list of more than 30 cheeses. USITC says this could "help prevent future losses of U.S. market access for cheeses with common names" such as "blue" or "Swiss" cheese. The final U.S.-China Phase One Trade Agreement also addresses longstanding concerns regarding IPR, including GIs, building on previous commitments regarding IPR and GIs. The agreement is expected to require that China ensure that it will "not undermine market access for U.S. exports to China of goods" and will apply relevant factors when providing certain GI protections, as well as provide the United States with "necessary opportunities to raise disagreement" regarding GIs. GI provisions in these two recent U.S. FTAs, however, could prove to be incompatible with other EU agreements regarding GIs with these countries. For Mexico and Canada, these include GI protections that are likely to be part of the EU-Mexico Global Agreement, as well as existing GI protections in the EU-Canada Comprehensive Economic and Trade Agreement. For China, these include GI protections agreed to in the 2019 EU-China agreement protecting certain EU GIs in China. <4. Next Steps> The U.S.-EU Trade Agreement negotiations present Congress with the challenge of determining to what extent food and agriculture issues will be addressed in the trade talks, if at all. Although market access and tariff reductions may be off the table, addressing regulatory restrictions and other non-tariff barriers to U.S. agricultural trade are considered important for many U.S. producers. Some press reports indicate that certain non-tariff barriers and regulatory cooperation could become part of the new trade talks, while other press reports raise questions about the EU's willingness to address specific types of non-tariff barriers as part of the negotiation. Even if regulatory coherence and cooperation become part of the U.S.-EU trade talks, their resolution in a manner that benefits U.S. agricultural exporters is far from assured. Instead, some of the same non-tariff and regulatory barriers to U.S. trade that proved to be challenging during the T-TIP negotiation could prove to be equally intractable today. The UK's exit from the EU could also complicate future trade negotiations. The UK is a close ally of the United States and has been one of its strongest advocates among the EU bloc. In general, the regulatory framework and actions taken by the UK's Food Standards Agency are more aligned with those in the United States. Now that the UK is no longer part of the EU, the EU trade gains for U.S. agriculture could be reduced while its agricultural trade deficit may become more pronounced, given a more favorable trade situation with the UK.

The Office of the U.S. Trade Representative (USTR) officially notified the Congress of the Trump Administration's plans to enter into formal trade negotiations with the European Union (EU) in October 2018. In January 2019, USTR announced its negotiating objectives for a U.S.-EU trade agreement, which included agricultural policies—both market access and non-tariff measures. However, the EU's negotiating mandate, released in April 2019, stated that the trade talks would exclude agricultural products. U.S.-EU27 Agricultural Trade, 1990-201 9 Improving market access remains important to U.S. agricultural exporters, especially given the sizable and growing U.S. trade deficit with the EU in agricultural products (see figure). Some market access challenges stem in part from commercial and cultural practices that are often enshrined in EU laws and regulations and vary from those of the United States. For food and agricultural products, such differences are focused within certain non-tariff barriers to agricultural trade involving Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBTs), as well as Geographical Indications (GIs). SPS and TBT measures refer broadly to laws, regulations, standards, and procedures that governments employ as "necessary to protect human, animal or plant life or health" from the risks associated with the spread of pests and diseases, or from additives, toxins, or contaminants in food, beverages, or feedstuffs. SPS and TBT barriers have been central to some longstanding U.S.-EU trade disputes, including those involving EU prohibitions on hormones in meat production and pathogen reduction treatments in poultry processing, and EU restrictions on the use of biotechnology in agricultural production. As these types of practices are commonplace in the United States, this tends to restrict U.S. agricultural exports to the EU. GI protections refer to naming schemes that govern product labeling within the EU and within some countries that have a formal trade agreement with the EU. These protections tend to restrict U.S. exports to the EU and to other countries where such protections have been put in place. Plans for U.S.-EU trade negotiations come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced tariffs on steel and aluminum imports on most U.S. trading partners after a Section 232 investigation determined that these imports threaten U.S. national security. Effective June 2018, the EU began applying retaliatory tariffs of 25% on imports of selected U.S. agricultural and non-agricultural products. In October 2019, the United States imposed additional tariffs on imports of selected EU agricultural and non-agricultural products, as authorized by World Trade Organization (WTO) dispute settlement procedures in response to the longstanding Boeing-Airbus subsidy dispute. Public statements by U.S. and EU officials in January 2020, however, signaled that the U.S.-EU trade talks might include SPS and regulatory barriers to agricultural trade. Statements by U.S. Department of Agriculture (USDA) officials cited in the press call for certain SPS issues as well as GIs to be addressed in the trade talks. However, other press reports of statements by EU officials have downplayed the extent that specific non-tariff barriers would be part of the talks. More formal discussions are expected in the spring of 2020. Previous trade talks with the EU, as part of the Transatlantic Trade and Investment Partnership (T-TIP) negotiations during the Obama Administration, stalled in 2016 after 15 rounds. During those negotiations, certain regulatory and administrative differences between the United States and the EU on issues of food safety, public health, and product naming schemes for some types of food and agricultural products were areas of contention.

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Agrowing number of reported Coronavirus Disease 2019 (COVID-19) cases have been identified in the United States, significantly impacting many communities. As this situation rapidly evolves, the economic impact due to illnesses, quarantines, social distancing, local stay-at-home orders, and other business disruptions will be large. Consequently, many Americans will lose income and face financial hardship due to the impact of the COVID-19 pandemic. In response, four pieces of COVID-19-related legislation have been enacted most relevant for this report is the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136 ) enacted on March 27, 2020. The act establishes consumer rights to be granted forbearance for many types of mortgages (Section 4022) and for most federal student loans (Section 3513). The law also protects the credit histories of consumers with forbearance agreements (Section 4021). In addition, financial regulatory agencies have updated their guidance to provide clarity to financial institutions responding to these events. For loan obligations where the CARES Act does not guarantee a right to loan forbearance, such as auto loans, credit cards, private student loans, and bank-owned mortgages, a consumer's ability to access this option may vary. Reports suggest that many consumers have requested payment relief for these types of loans not covered by the CARES Act. Different financial institutions may be subject to different laws and incentives to handle consumer relief requests. For this reason, an individual consumer may find a range of responses from different financial institutions when requesting relief options. This report focuses on policy responses relating to the financial services industry for consumers who may have trouble paying their loan obligations, such as mortgages, student loans, auto loans, and credit cards. First, it provides an overview of loan forbearance and other possible relief options for consumers. Then, the report discusses relevant CARES Act provisions and federal financial regulatory responses. Lastly, the report describes the impact this pandemic and the proceeding policy responses have had on financial institutions and consumers. Ov erview of Loan Forbearance and O ther Relief Options for Consumers During previous natural disasters, government shutdowns, or other similarly destabilizing events, the financial industry has provided financial assistance to some affected consumers, particularly those having temporary difficulties repaying their mortgages, credit cards, or other loans. For example, financial institutions have agreed to defer payments, limit late or other fees, and extend credit to ease consumer financial struggles. In response to the coronavirus pandemic, many banks have recently announced measures to offer various forms of assistance to affected consumers. However, the COVID-19 pandemic is more widespread than previous events, affecting consumers across the country; therefore, financial industry responses may differ from the past. This section begins with a discussion of loan forbearance, a common form of consumer relief. It then describes other types of assistance that financial institutions could provide to impacted consumers. Loan Forbearance Loan forbearance plans are agreements allowing borrowers to reduce or suspend payments for a short period of time, providing extended time for consumers to become current on their payments and repay the amounts owed. These plans do not forgive unpaid loan payments. Loan forbearance plans between consumers and financial institutions usually include a repayment plan, which is an agreement allowing a defaulted borrower to repay the amount in arrears and become current on the loan according to an agreed upon schedule. Repayment plans take many shapes. For example, these plans may include a requirement that all suspended payments are to be due at the end of the loan forbearance period; the past due amount is to be added to the regular payment amount over the year after loan forbearance ends; or payments are to be added to the end of the loan's term. Interest or fees may or may not accrue during the loan forbearance period. As loan forbearance and repayment plans are generally offered to consumers experiencing a temporary hardship, they have become a common form of consumer relief during the COVID-19 pandemic. During this pandemic, many businesses might be closed either by mandate (e.g., restaurants, concerts, or sporting event venues) or facing significant revenue declines due to social distancing efforts (e.g., more space between people at open stores or restaurants) or changes in consumer behavior (e.g., airlines, hotels, and the travel industry). Many of these disruptions may be temporary, lasting only for the duration of the pandemic. Many financial institutions offer loan forbearance plans as an option for consumers who have experienced job loss or temporary income loss but may be able to continue to repay their credit obligations after the disruption ends. In addition, financial institutions may see loan forbearance plans as a good option for consumers at this time because these plans often do not involve renegotiating contracts. Loan forbearance may be a less viable option to deal with the financial ramifications of the pandemic if it causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures. Other Relief Options Available to Consumers Loss mitigation (or workout options) refers to a menu of possible options financial institutions may offer to help a distressed borrower become and stay current with loan payments and avoid default. Loan forbearance is one type of loss mitigation. Loan modifications are another type of loss mitigation that renegotiates the contract with concessions to the borrower. These concessions can take the form of principal balance reductions, interest rate reductions, term to maturity extensions, or some combination of such options. Financial institutions or loan servicers generally weigh the costs and benefits of the various loss mitigation options and offer borrowers the least costly option from a business perspective. Loan forbearance can be the least costly option when the duration of consumer hardship is temporary and short, and the lender can be paid back quickly. Loan modifications may also be beneficial to the lender under circumstances when the costs to modify and retain the loan are lower than the costs of default. If a borrower's circumstances, such as becoming disabled or long-term unemployed, make it difficult for servicers to offer a workout option, the lender may find options such as debt collection, auto repossession, foreclosure, or wage garnishment a less costly way to resolve the default. Finally, various contractual arrangements that loan servicers are obligated to follow may dictate servicer actions from the time the loan became distressed until resolution. These arrangements may limit servicers' authorities and options. Financial institutions can provide other types of relief to consumers, such as agreeing to limit late or other fees and offering new credit or loan products. For example, a consumer can refinance out of a distressed mortgage into a new mortgage contract, potentially pulling equity out of their home to repay arrears and accumulated penalties. Generally financial institutions would choose to extend new credit only if they determine that the borrower is in a good position to pay the loan back in the future. During the COVID-19 pandemic, some banks have decided to limit new credit to consumers due to increased economic risk. Loss mitigation procedures provided by financial institutions or loan servicers are regulated in order to help protect consumers. For example, during the 2008 financial crisis, many consumers had trouble paying their mortgages due to unemployment and decreasing house prices. When mortgage delinquency and foreclosure rates rose, federal regulators identified pervasive documentation issues at many mortgage servicers, which became an issue when a large number of consumers defaulted. In response, the Consumer Financial Protection Bureau (CFPB), using its authority under the Real Estate Settlement Procedures Act (RESPA; P.L. 93-533 , implemented by Regulation X), issued the RESPA Mortgage Servicing Rule in January 2013. Among other things, the rule created an obligation for mortgage servicers to establish consistent policies and procedures to contact delinquent borrowers, provide information about mortgage loss mitigation options, and evaluate borrower applications for loss mitigation in a timely manner. <1. Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136)> This section of the report discusses various relief provisions of the CARES Act for borrowers and consumer lenders. Table 1 presents a summary of CARES Act provisions that pertain to loan forbearance by consumer credit type. In addition, other provisions of the CARES Act, which help financial institutions cope financially when experiencing increased loan losses, will be discussed. Lastly, this section discusses legislative policy issues relating to consumers missing loan payments. <1.1. Mortgage Forbearance> The CARES Act includes some measures to provide temporary forbearance relief for certain affected mortgage borrowers those with "federally backed" mortgages. Section 4022 allows borrowers with federally backed mortgages to request forbearance from their mortgage servicers (the entities that collect payments and manage the mortgage on behalf of the lender/investor) due to a financial hardship caused directly or indirectly by COVID-19. The borrower must attest to such hardship, but no additional documentation is required. Servicers must grant forbearance for up to 180 days and must extend the forbearance up to an additional 180 days at the borrower's request. Either period can be shortened at the borrower's request. The servicer may not charge fees, penalties, or interest beyond what would have accrued if the borrower had made payments as scheduled. The CARES Act mortgage provisions potentially raise the question of what happens after the forbearance period. The act does not address how repayment should occur. Servicers are to negotiate repayment terms with borrowers, subject to existing requirements or any additional guidance provided by the entity backing the mortgage. <1.2. Federal Student Loan Forbearance18> Federal loans to support students' postsecondary educational pursuits are currently available under the William D. Ford Federal Direct Loan (Direct Loan) program and the Federal Perkins Loan program. Loans were previously available through the Federal Family Education Loan (FFEL) program, and some of those loans remain outstanding. Due to the current economic situation, many consumers may have trouble repaying their federal student loans. In response, Section 3513 of the CARES Act suspends all payments due and interest accrual for all loans made under the Direct Loan program and for FFEL program loans held by the Department of Education through September 30, 2020. A suspended payment is to be treated as if it were a regularly scheduled payment made by a borrower for the purpose of reporting information about the loan to a consumer reporting agency and toward specified loan forgiveness (e.g., public service loan forgiveness) or loan rehabilitation programs. In addition, involuntary collections on defaulted loans are suspended through September 30, 2020. <1.3. Consumer Credit Reporting> Consumers can harm their credit scores when they miss consumer loan payments, and lower credit scores can impact their access to credit in the future. Section 4021 of the CARES Act requires financial institutions to report to the credit bureaus that consumers are current on their credit obligations if they enter into an agreement to defer, forbear, modify, make partial payments, or get any other assistance on their loan payments from a financial institution and fulfil those requirements. The covered period for this section starts on January 31, 2020, and extends to the later of 120 days after enactment or 120 days after the national emergency declared by the President on March 13, 2020, terminates. Before this law was enacted, lenders could choose whether to report loans in forbearance as paid on time; with this law, these options are no longer voluntary for the lender. Some affected consumers may still experience harm to their credit record because the CARES Act does not give consumers a right to be granted forbearance for many types of consumer loans (such as auto loans, credit cards, and mortgages and student loans not covered by the CARES Act; see Table 1 ). Although many financial institutions have announced efforts to provide assistance to affected consumers, lenders have discretion whether to enter into an assistance agreement with an individual consumer. Therefore, the ability of consumers to protect their credit scores could vary. <1.4. Bank and Credit Union Loan Loss Related Provisions> Other provisions in the CARES Act are intended to reduce or remove potential disincentives related to accounting and capital requirements that banks may face when deciding whether to grant a forbearance for non-federally backed loans. When the inflow of payments on loans unexpectedly decreases, as happens when unanticipated forbearances are granted, banks must account for this by writing down the value of the loans. The lost value must be reflected with a reduction in income or value of the bank's capital, which can be thought of as the bank's net worth. Banks face a number of requirements to hold minimum levels of capital; if the value were reduced, the bank eventually would fail to comply with those requirements. Thus, these accounting and capital requirements may make a bank hesitant to grant a forbearance (if it judges that the borrower will ultimately be able to make payment) or cause a bank to put off accounting for realized losses at a later date. Sections 4012, 4013, and 4014 of the CARES Act may mitigate these concerns. Certain small banks can elect to be subject to a single, relatively simple but relatively high capital rule called the Community Bank Leverage Ratio (CBLR). Bank regulators are authorized to set the CBLR between 8% and 10%. Prior to the enactment of the CARES Act, it was set at 9%. Section 4012 directs regulators to lower it to 8% and give banks that fall below that level a reasonable grace period to come back into compliance with the CBLR. As a result, qualifying banks are to be able to write down the value of more loans before they reach the minimum CBLR level. This relief expires the earlier of (1) the date the public health emergency ends or (2) the end of 2020. When a lender grants a loan forbearance, it may be required to record it as troubled debt restructuring (TDR) in its accounting. Generally Accepted Accounting Principles (GAAP) require the lender to reflect in its financial records any potential loss as a result of a TDR. Section 4013 requires federal bank and credit union regulators to allow lenders to determine if they should suspend the GAAP requirements for recognizing any potential COVID-19-related losses from a TDR related to a loan modification. This relief expires the earlier of (1) 60 days after the public health emergency declaration is lifted or (2) the end of 2020. Another feature of bank and credit union accounting is determining the amount of credit loss reserves , which help mitigate the income overstatement on loans and other assets by adjusting for expected future losses on related loans and other assets. In response to banks' financial challenges during and after the 2007-2009 financial crisis, the Financial Accounting Standards Board promulgated a new credit loss standard Current Expected Credit Loss (CECL) in June 2016. CECL requires earlier recognition of losses than the current methodology. All public companies were required to issue financial statements that incorporated CECLs for reporting periods, beginning on December 15, 2019. Section 4014 gives banks and credit unions the option to temporarily delay CECL implementation until the earlier of (1) the date the public health emergency ends or (2) the end of 2020. <1.5. Policy Issues> Some consumer advocates argue that during the COVID-19 pandemic, Congress could do more to help consumers experiencing financial hardship. Some consumers may not receive loan forbearance for credit obligations outside of those with rights under the CARES Act. In addition, consumers may continue to incur bank fees and face issues relating to debt collection and negative credit reporting. For this reason, other legislative proposals would prevent creditors and debt collectors from collecting on delinquent loans, charging fees and interest, or reporting negative information to the credit bureaus during the coronavirus pandemic period. Some financial institutions would likely incur significant costs under these proposals. Some proponents of these proposals argue that the federal government may consider compensating financial institutions for these losses in order to implement these policies. On the other hand, other types of government policies outside of the financial industry, such as unemployment insurance or small business aid to keep people employed, can also target impacted Americans. <2. Non-Legislative Federal COVID-19 Responses> In addition to legislative responses, financial regulatory agencies have taken other steps to respond to the COVID-19 pandemic by encouraging loan forbearance and other financial relief options for impacted consumers. On March 9, 2020, federal and state financial regulators coordinated a guidance statement to the financial industry, encouraging it to help meet the needs of consumers affected by the virus outbreak. The regulators stated that "financial institutions should work constructively with borrowers and other consumers in affected communities," as long as they employ "prudent efforts that are consistent with safe and sound lending practices." This statement was similar to financial regulators' past statements during disruptive events, such as natural disasters and government shutdowns. Beyond this statement, financial regulatory agencies have used existing authorities to issue new COVID-19 guidance to help financial firms support consumer needs during this time. Regulatory guidance does not force a financial institution to take any particular action for consumers (such as offering loan forbearance), but it can increase the incentives or reduce the disincentives of taking such actions. <2.1. Consumer Regulatory Guidance> When processing these loan forbearance or other consumer relief requests, financial institutions must ensure that they are acting fairly and complying with the law. For mortgage loan forbearance requests, financial institutions must comply with RESPA mortgage servicing standards. In addition, for all consumer loan forbearance or relief requests, financial institutions must also ensure that they are complying with fair lending laws. The main federal consumer financial regulator in the United States is the CFPB, which implements and enforces federal consumer financial law while ensuring that consumers can access financial products and services. In response to the COVID-19 pandemic, the CFPB issued new guidance about complying with legal requirements during this period of increased loan forbearance requests. The CFPB released additional guidance on regulatory compliance with Regulation X during the mortgage loan transfer process. In addition, the CFPB announced a new joint initiative with the Federal Housing Finance Agency (FHFA) to share mortgage servicing information to protect borrowers. The FHFA is to share information with the CFPB about forbearances, modifications, and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac. In combination with CFPB consumer complaints, these data would help the CFPB monitor whether mortgage servicers are complying with the law when they offer these relief options to impacted customers. In addition to mortgage servicing guidance, federal and state financial regulatory agencies also instructed financial institutions that for all consumer credit products, "when working with borrowers, lenders and servicers should adhere to consumer protection requirements, including fair lending laws, to provide the opportunity for all borrowers to benefit from these arrangements." The CFPB has also issued guidance to temporarily reduce regulatory burden by delaying industry reporting requirements for mandatory data collections and providing flexibility on timing requirements. The agency also stated that while continuing to do its supervisory work, it would work with affected financial institutions in scheduling examinations and other supervisory activities to minimize disruption and burden as a result of operational challenges due to the pandemic. These efforts to reduce regulatory burden aim to allow financial institutions more bandwidth to work with impacted consumers and provide them with financial relief during the pandemic. Financial institutions can also provide other types of relief to consumers, such as offering new credit or loan products, so a consumer can pay their loan payments, medical bills, or other expenses to maintain their standard of living during the pandemic period. For this reason, financial regulators have encouraged financial institutions to provide small-dollar loans to affected consumers. However, financial institutions generally would choose to extend new credit only if they were to determine that the borrower is in a good position to pay the loan back in the future, and there may be a significant amount of uncertainty in making such a determination during this pandemic. Therefore, it is unclear whether this guidance will encourage financial institutions to provide small-dollar loans to many consumers. <2.2. Financial Institution Regulatory Guidance> A variety of financial institutions make different types of credit available to consumers. In particular, bank and mortgage institutions are subject to various regulatory controls to ensure they are operating in a safe and sound manner while complying with relevant laws. In response to COVID-19, regulators have issued guidance to signal to financial institutions that it is acceptable to take certain actions that may temporarily weaken their financial positions without facing regulatory actions. <2.2.1. Guidance for Depository Institutions> The banking regulators the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA) have worked together to issue guidance and updates to the financial institutions they regulate about how those institutions should work with customers who are negatively impacted by COVID-19. Regulators' efforts to deal with the potential effects of COVID-19 began in early March with attempts to ensure that depository institutions were adequately planning for potential risks. On March 6, 2020, the Federal Financial Institutions Examination Council (FFIEC) updated its influenza pandemic guidance to minimize the potentially adverse effects of COVID-19. The guidance identifies business continuity plans as key tools to address pandemics and provides a comprehensive framework to ensure the continuation of critical operations. Since then, regulators have built on this guidance to encourage financial institutions to take actions to continue to serve customers financially affected by the virus. On March 13, 2020, the Federal Reserve, the OCC, and the FDIC issued guidance identifying ways to assist customers, including waiving fees, offering repayment accommodations, extending payment due dates, increasing credit card limits, and increasing ATM withdrawal limits. Repayment accommodations include allowing borrowers to defer or skip payments or extending payment due dates to help consumers avoid delinquencies, which is a form of forbearance. Regulators can also use incentives to encourage financial institutions to work with consumers and offer repayment accommodations. Recent regulatory guidance signaled to financial institutions that certain activities with consumers would be eligible to earn credit toward their performance assessments under the Community Reinvestment Act (CRA; 12 U.S.C. 2901), which encourages banks to extend credit to the communities from which they accept deposits by considering this factor in applications to bank regulators to expand operations, such as through mergers and acquisitions. On March 19, 2020, banking regulators issued a new statement encouraging depository institutions to continue working with affected customers and communities particularly those that are low- and moderate-income by providing favorable CRA consideration for activities including "offering payment accommodations, such as allowing borrowers to defer or skip payments or extending the payment due date, which would avoid delinquencies and negative credit bureau reporting, caused by COVID-19-related issues." <2.2.2. Guidance for the Housing Finance System> The many federal agencies involved in housing finance have taken actions to encourage or authorize financial institutions to offer forbearance to mortgage borrowers affected by COVID-19. <2.2.2.1. Government-Sponsored Enterprises> Fannie Mae and Freddie Mac, commonly referred to as government-sponsored enterprises (GSEs), provide liquidity to the housing finance market by purchasing mortgages from lenders and subsequently guaranteeing the default risk linked to their issuances of mortgage-backed securities (MBS, a process known as securitization). In 2008, Fannie Mae and Freddie Mac were placed under conservatorship by their primary regulator, FHFA. The FHFA also regulates the Federal Home Loan Bank (FHLB) system, which is also a GSE, and comprises 11 regional banks that provide wholesale funding to its members mortgage lenders, such as banks, credit unions, and insurance companies. On March 18, 2020, Fannie Mae issued guidance signaling to Fannie Mae single-family mortgages borrowers affected by COVID-19 that they could request mortgage assistance by contacting their mortgage servicer this guidance was updated with the enactment of the CARES Act and includes forbearance for up to 12 months with no late fees. Similarly, Freddie Mac issued guidance to provide mortgage relief options in line with the CARES Act that include loan modifications and mortgage forbearance for up to 12 months. <2.2.2.2. Federal Housing Agencies> The Federal Housing Administration (FHA) an agency within the Department of Housing and Urban Development (HUD) as well as the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA), each have loan programs that insure or guarantee loans for certain mortgages. Ginnie Mae is a federal government agency that issues MBS linked to mortgages whose default risks are guaranteed by the FHA, VA, and USDA. Ginnie Mae guarantees its MBS investors timely principal and interest payments. On April 1, 2020, HUD instructed mortgage servicers for mortgages with FHA insurance to extend deferred or reduced mortgage payment options (forbearance) for up to six months. In addition, they must provide an additional six months of forbearance if requested by the borrower. This mandate implements provisions contained in the CARES Act. On April 8, 2020, the VA issued a circular that similarly aligns with CARES Act provisions. Through its home loan program, the VA stated that borrowers may request forbearance from their servicer on VA-guaranteed loans or VA-held loans, including Native American Direct Loans or Vendee loans, if they are facing financial hardship from COVID-19. <2.2.2.3. Mortgage Servicers> After the passage of the CARES Act, the federal banking agencies and state bank regulators issued a joint statement encouraging mortgage servicers to continue to work with homeowners affected by COVID-19. Much of this guidance aligns with the CARES Act provisions for federally backed mortgages, but many banks issue mortgages that are not federally backed; therefore, they are not required to offer mortgage forbearance. This guidance, while not binding, encourages financial institutions to consider ways to work with consumers through short-term forbearance programs similar to the ones established in the CARES Act. <2.3. Policy Issues> Some observers argue that the federal financial regulators could do more to promote fair access to consumer relief options during the COVID-19 pandemic. Although recent guidance from financial regulators mentioned fair lending concerns, some commentators argue that to ensure fair treatment when consumers apply for loan relief options or become delinquent, additional more detailed guidance to financial institutions about how to comply with consumer protection and fair lending laws during the COVID-19 pandemic would be helpful. In addition, with its data partnership with FHFA, some argue that the CFPB could compile and make public information on how many consumers are accessing relief options and how the frequency of use varies based on type of financial institution. These types of data could help policymakers determine whether relief requests are allocated appropriately or whether additional measures should be considered to help those in need. <3. Forbearance Implications for the Financial System> The large economic impact of the COVID-19 pandemic affects the financial system in many important ways. For example, if many consumers were to miss loan payments, this would have negative consequences on banks and other financial institutions. These institutions have worked to comply with the CARES Act and relevant regulatory guidance during the COVID-19 pandemic period to provide loan forbearance and other flexibilities to distressed consumers. However, the potential strain on the financial system might make it challenging for institutions to provide this support, and these efforts may be insufficient to provide widespread assistance without direct government intervention. This section of the report describes which types of financial institutions hold different types of consumer loans and how the CARES Act or different financial regulatory regimes may impact consumer's access to loan forbearance. It also discusses how private sector institutions may be significantly impacted by missed consumer loan payments and the economic impact of the COVID-19 pandemic. <3.1. Consumer Loans Owners> A consumer's ability to get a forbearance and under what terms may be significantly influenced by what type of institution owns the loan. These various institutions including banks and credit unions, private nonbank financial institutions, GSEs, and the federal government are subject to different laws, regulations, and business considerations. In addition, different types of loans such as mortgages, student loans, and other consumer debt are subject to different regulations and legal mandates related to forbearance. <3.1.1. Mortgages72> Of the $11.2 trillion dollars of mortgages outstanding on one-to-four-family homes at the end of 2019, 63% of mortgage loans in the United States were held or insured by the federal government and therefore covered by the CARES Act's consumer right to be granted loan forbearance, as shown in Figure 1 . Most of these "federally backed" mortgages were held by GSEs or in mortgage pools backed by GSEs or other agencies (such as Fannie Mae, Freddie Mac, and Ginnie Mae). Banks held almost $2.7 trillion in mortgage loans, nearly 24% of the total, and credit unions held over $572 billion, making up 5%. The remaining 8% are mostly held by a variety of nonbank financial institutions, such private issuers of MBS, real estate investment trusts, nonbank lenders, and insurance companies. Mortgage servicers can be banks and nonbanks. <3.1.2. Nonmortgage Consumer Loans> In contrast, most nonmortgage consumer loans are not covered by the CARES Act. At the end of 2019, the amount of consumer loans outstanding was nearly $4.2 trillion dollars. Over $1.6 trillion (39% of the total) were student loans; about $1.2 trillion (29%) were auto loans; nearly $1.1 trillion (26%) were credit card debt; and $258 billion (6%) were other consumer installment loans. As shown in Figure 2 , four types of institutions hold the vast majority of this debt: (1) banks about $1.8 trillion, or 42% of the total; (2) the federal government more than $1.3 trillion, or 31%; (3) finance companies $537 billion, or 13%; and (4) credit unions $482 billion, or 12%. Analysis of other data sources indicate all, or nearly all, of the $1.3 trillion of consumer debt held by the federal government is student loan debt. Federal student loans are generally eligible for CARES Act loan forbearance relief. For other types of nonmortgage credit such as auto loans, credit cards, and private student loan banks, credit unions, and finance companies are large players. In these markets, the CARES Act does not guarantee a right to loan forbearance; therefore, financial institutions are to have discretion about whether to offer consumers various loss mitigation options based on what is most profitable for the institution. Although banks and credit unions are regulated to ensure they are operating in a safe and sound manner, nonbank finance companies generally are not subject to this type of regulation. In addition, all institutions must comply with fair lending and other consumer laws when offering loss mitigation options, but supervision and enforcement of these laws may vary based on the institutions' regulatory regime. For these reasons, different financial institutions may respond to consumers' requests for relief options in varying ways. In addition, the financial impact of missed consumer loan payments may vary by institution. <3.2. Potential Impacts on Banks and Mortgage Servicers> Many financial institutions may be impacted by missed consumer loan payments due to the COVID-19 pandemic. Two industries that will be significantly impacted are banks and mortgage servicers. <3.2.1. Potential Impacts on Banks> A bank's main business is to make loans and buy securities using funding it raises by taking deposits. A bank earns money largely through borrowers making payments on their loans and securities issuers making payments on securities, along with charging fees for certain services. In addition to accepting deposits, a bank also raises funds by issuing debt (such as bonds) and capital (such as stock). Unlike deposits and debt that place specific payment obligations on a bank, payments on capital can generally be reduced, delayed, or cancelled, and the value of capital can be written down. Thus, if incoming payments unexpectedly stop, capital allows a bank to withstand losses to a point. However, if a bank exhausts its capital reserves, it could face financial distress and potentially fail. A significant portion of a typical bank's assets consists of loans to households, which consumers use to purchase houses, cars, and other consumer goods. Thus, when consumers unexpectedly stop making payments on their loans, such as during a loan forbearance, this can cause banks to incur losses. Current data on U.S. bank balance sheets suggest that as a whole, the banking industry is comparatively well positioned to withstand losses on household debt due to low exposure to mortgage loans and high capital buffers relative to historic norms. Yet, individual banks differ across the business models they choose to deploy, and some banks specialize in a particular loan type, such as mortgage or consumer loans. CRS analysis suggests that some banks have a high exposure to consumer loans; therefore, if consumers miss loan payments, these banks could be especially vulnerable. These high-exposure banks tend to be smaller than an average bank. These financial considerations could also limit banks' abilities to provide relief options to consumers during the COVID-19 pandemic. <3.2.2. Potential Impacts on Mortgage Servicers> After a mortgage has been originated, a mortgage servicer carries out various administrative tasks, including collecting payments from borrowers and remitting the principal and interest to the owner (e.g., lender, investor); processing the loan title once paid in full; and administering loss mitigation (e.g., forbearance plans or foreclosure resolution on behalf of the lender) when payments are not made. Mortgage servicers are often required to advance payments to securities holders, even if borrowers do not make payments on time. Because of this obligation, there are rising concerns about the impact of a large volume of forbearances on mortgage servicer liquidity. Some of the federal housing agencies have taken steps to address potential liquidity issues. The FHFA and Ginnie Mae have recently announced a number of measures to facilitate liquidity by making it easier for mortgage lenders and servicers to receive various forms of short-term cash advances. GSE Servicers : On March 23, 2020, the FHFA announced that it would allow flexibility in some of the appraisal and employment verification requirements for new mortgages purchased by Fannie Mae and Freddie Mac until May 17, 2020. The FHFA announced on April 21, 2020, that Freddie Mac and Fannie Mae would limit the obligation of mortgage servicers to advance payments to the GSEs for loans that are in forbearance to four months of payments, allowing servicers to forgo remitting payments after that time frame. Similarly, the FHFA announced on April 22 that the GSEs would be allowed to purchase qualified loans in forbearance to facilitate market lending. Ginnie Mae Servicers : Approved financial institutions that service mortgages underlying Ginnie Mae MBS are among the servicers that are required to remit timely payments to investors, even when monthly payments are not received from borrowers. As consumers are allowed to defer payments and others involuntarily miss payments due to financial hardship, Ginnie Mae servicers particularly nondepository servicers could face significant liquidity shortages. On March 27, 2020, Ginnie Mae announced a last resort financing option, the Pass-Through Assistance Program, to allow servicers facing shortfalls to request a cash advance to meet the scheduled payments to investors. These measures apply to single-family mortgages. Ginnie Mae also announced that similar programs are expected for reverse mortgages and multifamily mortgages in the near term. <4. Consumer Awareness and Education Issues> Most households rely on credit to finance some expenses because they do not have enough assets saved to pay for them . Some consumers may not be aware of their right to loan forbearance for certain loan obligations or other relief options their financial institution is offering, so these efforts might not reach the most in need. In addition, an increase in COVID-19 pandemic-related scams might further confuse or harm consumers. <4.1. Consumer Awareness of Their Relief Options> Communication and financial education may play an important role in consumers receiving forbearances or other assistance. Many consumers may not realize that the CARES Act gives consumers a right to loan forbearance in certain circumstances, and that their financial institutions can provide loan forbearance, access to credit, or other assistance. Both government agencies and financial institutions can play an important role communicating with impacted consumers. The CFPB has published resources for consumers financially affected by the COVID-19 pandemic, including those having trouble paying their bills or experiencing loss of income. Fannie Mae and Freddie Mac have created a new portal for consumers to find out whether these GSEs own the consumer's mortgage loan and whether consumers are thus eligible for loan forbearance and other relief options. Many financial institutions also have conducted outreach to consumers to let them know about their possible options. Some observers argue that the federal government agencies could do more to ensure appropriate communication with consumers during the COVID-19 pandemic. For example, a recent HUD study from their Office of Inspector General (OIG) found that CARES Act loan forbearance information to consumers from FHA mortgage servicers was often incomplete, inconsistent, outdated, and unclear. Some argue that more guidance to financial institutions about how to comply with relevant consumer protection laws and to share best practices during the coronavirus pandemic may be helpful. In addition, the federal regulatory agencies could also prioritize supervisory exams around COVID-19 pandemic communication efforts to better ensure appropriate conduct. <4.2. Consumer Scams> Since February 2020, concerns about financial fraud scams related to the COVID-19 pandemic have increased. Driven by fear and confusion about the COVID-19 pandemic, as well as an increased dependence on internet and phone-based communication while "social distancing," more fraud schemes seem to be appearing. On February 10, 2020, the Federal Trade Commission (FTC) published a warning about rising COVID-19 pandemic scams, and it has since then published additional consumer resources. In addition, on March 26, 2020, a bipartisan group of 34 Senators sent a letter to the FTC urging it to inform and assist senior citizens affected by COVID-19-related fraud. Some of these consumer scams focus on consumer financial products or services. On March 16, 2020, Ranking Member Patrick McHenry and other members of the House Financial Services Committee sent a letter to CFPB Director Kathleen Kraninger expressing their concerns about the increasing number of elder financial fraud cases due to misinformation related to the COVID-19 pandemic, and they requested an update to applicable guidance for financial institutions. Since this letter, the CFPB has published COVID-19 pandemic scam resources for consumers on its website. <5. Conclusion> During the COVID-19 pandemic, Congress and various financial regulators have taken significant actions to require, incentivize, and encourage lenders to grant loan forbearances and other types of relief to financially impacted consumers. However, despite these major actions, the impact of these efforts on consumers and financial firms is still unclear due to uncertainty about the pandemic's persistence. If the economic ramifications of the COVID-19 pandemic causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures, loan forbearance may become a less viable option. In this scenario, Congress may choose to consider additional types of assistance to consumers and financial institutions.

A growing number of reported Coronavirus Disease 2019 (COVID-19) cases have been identified in the United States, significantly impacting many communities. This situation is evolving rapidly, and the economic impact has been large due to illnesses, quarantines, social distancing, local stay-at-home orders, and other business disruptions. Consequently, many Americans will lose income and face financial hardship due to the COVID-19 pandemic. Many consumers may have trouble paying their loan obligations, such as mortgages, student loans, auto loans, and credit cards. Due to increasing hardship, l oan forbearance has become a common form of consumer relief during the COVID-19 pandemic. Loan forbearance plans are agreements that allow borrowers to reduce or suspend payments for a short period of time, providing extended time for consumers to become current on their payments and repay the amounts owed. These plans do not forgive unpaid loan payments and tend to be appropriate for borrowers experiencing temporary hardship. Loan forbearance may become a less viable option to deal with the financial ramifications of COVID-19 if the pandemic causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures. A consumer's ability to get a forbearance and under what terms may be significantly influenced by what type of institution owns the loan. These various institutions—including banks and credit unions, private nonbank financial institutions, government-sponsored enterprises (GSEs), and the federal government—are subject to different laws, regulations, and business considerations. In response to the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136 ) on March 27, 2020. The act establishes consumer rights to be granted forbearance for federally insured mortgages (Section 4022) and federal student loans (Section 3513). The law also protects the credit histories of consumers with forbearance agreements (Section 4021). The CARES Act establishes consumer rights to be granted forbearance for many types of mortgages and federal student loans, but the act does not grant consumers these rights for other types of consumer loan obligations, such as auto loans, credit cards, private student loans, and bank-owned mortgages. In these cases, financial institutions have discretion about when and how to offer loan forbearance or other relief options to consumers. Therefore, a consumer's ability to access these options may vary. In addition to legislative responses, financial regulatory agencies have responded to the COVID-19 pandemic using existing authorities to encourage loan forbearance and other financial relief options for impacted consumers. Many financial regulatory agencies have updated their guidance to help financial firms support consumer needs during this time. Regulatory guidance does not force financial institutions to take any particular action for consumers (such as offering loan forbearance), but it can encourage them to offer various forms of support. In recent weeks, many banks and credit unions have announced measures to offer various forms of assistance to affected consumers . The economic effects of the COVID-19 pandemic impact the financial system in important ways. Large numbers of missed consumer loan payments can have significant negative consequences for financial institutions. Because of the potential strain on the financial system, it might be challenging for institutions to provide consumer relief, and financial relief efforts may be insufficient to provide widespread assistance to impacted consumers without direct government intervention. Many consumers having trouble paying their loans may not realize that the CARES Act gives consumers a right to be granted loan forbearance in certain circumstances, and that their financial institutions can provide loan forbearance, access to credit, or other assistance. If consumers are not aware of these existing relief options, it is possible that relief might not reach the most in need. In addition, increasing fraud schemes relating to COVID-19 seem to be occurring, which can drive consumer confusion. Both government agencies and financial institutions can play an important role in communicating with financially impacted consumers.

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<1. The Political Structure, Reform, and Human Rights1> The site of the ancient Bronze Age civilization of Dilmun, Bahrain was a trade hub linking Mesopotamia and the Indus valley until a drop in trade from India caused the Dilmun civilization to decline around 2,000 B.C. The inhabitants of Bahrain converted to Islam in the 7 th century. Bahrain subsequently fell under the control of Islamic caliphates based in Damascus, then Baghdad, and later Persian, Omani, and Portuguese forces. The Al Khalifa family, which is Sunni Muslim and generally not as religiously conservative as the leaders of neighboring Saudi Arabia, has ruled Bahrain since 1783. That year, the family, a branch of the Bani Utbah tribe, left the Saudi peninsula and captured a Persian garrison controlling the island. In 1830, the ruling family signed a treaty establishing Bahrain as a protectorate of Britain, which was then the dominant power in the Persian Gulf. In the 1930s, Reza Shah Pahlavi of Iran unsuccessfully sought to deny Bahrain the right to grant oil concessions to the United States and Britain. As Britain reduced its military presence in the Gulf in 1968, Bahrain and the other smaller Persian Gulf emirates (principalities) sought a permanent status. A 1970 U.N. survey (some refer to it as a "referendum") determined that Bahrain's inhabitants did not want to join with Iran, a finding that was endorsed by U.N. Security Council Resolution 278 and recognized formally by Iran's parliament. Bahrain negotiated with eight other Persian Gulf emirates during 1970-1971 on federating with them, but Bahrain and Qatar each decided to become independent, and Bahrain became independent on August 15, 1971. The seven other emirates formed the United Arab Emirates (UAE). <1.1. The Ruling Family and Its Dynamics> Bahrain is led by King Hamad bin Isa Al Khalifa (69 years old, born January 1950), who succeeded his father, Shaykh Isa bin Salman Al Khalifa, upon his death in 1999. Educated at Sandhurst Military Academy in Britain, King Hamad was previously commander of the Bahraini Defense Forces (BDF). The king is considered to be a proponent of accommodation with Bahrain's Shias, who constitute a majority of the citizenry but many of whom have long asserted they are treated as "second class citizens," deprived of political power and of a fair share of the nation's economic wealth. About 25% of the citizen population is age 14 or younger. Within the upper echelons of the ruling family, the most active proponent of accommodation with the Shia opposition is the king's son and designated successor, the U.S.- and U.K.-educated Crown Prince Shaykh Salman bin Hamad, who is about 50 years old. He and his allies, including Deputy Prime Minister Muhammad bin Mubarak Al Khalifa and Foreign Minister Khalid bin Ahmad bin Muhammad Al Khalifa, assert that further reforms could calm Bahrain's internal strife. The Crown Prince and his faction were strengthened by his appointment in 2013 to a newly created position of First Deputy Prime Minister, staffed with young, well-educated reformists. A younger son of the king, Shaykh Nasser bin Hamad Al Khalifa, who is about 35 years old, could potentially succeed King Hamad should Salman step aside. The Crown Prince's wife, Shaykha Hala, passed away in June 2018. The "anti-reform" faction who assert that concessions to the Shia majority cause it to increase its political demands is led by the King's uncle (the brother of the late Amir Isa), Prime Minister Khalifa bin Salman Al Khalifa, who has been in position since Bahrain's independence in 1971. He is about 82 years old but still active, and the King is likely unwilling to risk unrest within the ruling family by removing him. The Prime Minister's allies include Minister of the Royal Court Khalid bin Ahmad bin Salman Al Khalifa and his brother, BDF Commander Khalifa bin Ahmad Al Khalifa. These brothers are known as "Khawalids," hailing from a branch of the ruling family traced to a Khalid bin Ali Al Khalifa, with like-minded allies throughout the security and intelligence services and the judiciary. In September 2013, Bahrain appointed BDF Lieutenant Colonel Abdullah bin Muhammad bin Rashid Al Khalifa as Ambassador to the United States. <1.2. Executive and Legislative Powers> The king, working through the Prime Minister and the cabinet, has broad powers, including appointing all ministers and judges and amending the constitution. Al Khalifa family members hold 12 out of 26 cabinet posts, including the ministries of defense, interior (internal security), and foreign affairs. Typical Bahrain cabinets include five or six Shia ministers. Upon taking office in 1999, Hamad assumed the title of king a title that implies more accountability than the former title "Amir." A public referendum on February 14, 2001 adopted a "National Action Charter," provisions of which were incorporated into a new constitution issued by the King in 2002. However, many Shias and reform-minded Sunnis criticized the government for not putting the new constitution to a public ratification vote and for deviating from the 1973 constitution by establishing an all-appointed Shura (consultative) Council of equal size (40 seats each) of the elected Council of Representatives (COR). Together, these bodies constitute the National Assembly. The government has tended to appoint generally more educated, pro-Western, and progovernment members to the Shura Council. There is no quota for women in the body. The Assembly only partially checks government power, despite constitutional amendments of May 2012 that gave the body greater authority. The amendments declared the elected COR as the presiding chamber of the Assembly, enhancing its authority on issues on which the two chambers disagree. The National Assembly does not have the power to confirm individual cabinet appointments, but as of 2012, it has had the power to reject the government's four-year work plan and therefore the whole cabinet. The COR has always had the power to remove individual ministers through a vote of no-confidence (by two-thirds majority). The COR can also, by a two-thirds majority, declare "non-cooperation" with the Prime Minister, but the king rules on whether to dismiss the Prime Minister or disband the COR. Either chamber of the National Assembly can originate legislation but enactment into law requires concurrence by the King. Prior to the May 2012 constitutional amendments, only the COR could originate legislation. The king's "veto" can be overridden by a two-thirds majority vote of both chambers. A 2012 decree gives the National Assembly the ability to recommend constitutional amendments, which are vetted by a "Legislation and Legal Opinion Commission" before consideration by the king. The adoption of the National Charter and other early reforms instituted by King Hamad, although still short of the Shia majority's expectations, were more extensive than those made by his father, Amir Isa. Amir Isa's most significant reform was his establishment in late 1992 of a 30-member all-appointed Consultative Council, whose mandate was limited to commenting on government-proposed laws. In June 1996, he expanded it to 40 members. However, that body did not satisfy broad demands for the restoration of the elected national assembly that was established under the 1973 constitution but abolished in August 1975 because of Sunni-Shia tensions. Amir Isa's refusal to restore an elected Assembly was at least partly responsible for sparking daily Shia-led antigovernment violence during 1994-1998. <1.3. Political Groups and Elections> COR elections have been held every four years since 2002, each time generating substantial tension over perceived government efforts to deny Shias a majority in the COR. The Shia opposition has sought, unsuccessfully to date, to establish election processes and district boundaries that would allow them to translate their numbers into political strength. If no candidate in a district wins more than 50% in the first round, a runoff is held one week later. Political parties are banned, but factions organize as functionally equivalent "political societies": Wifaq (Accord National Islamic Society) is the most prominent Shia political society. Its officials have, at times, engaged with the government in and outside of formal "national dialogues" since the 2011 uprising began. Wifaq' s leaders are Secretary-General and Shia cleric Shaykh Ali al-Salman and his deputy Khalil al-Marzuq. Shaykh Salman remains jailed. Another top figure in the faction is the 79-year-old Shia cleric Isa Qasim, whose citizenship was revoked on June 20, 2016. In 2016, Bahraini courts approved government requests to dissolve Wifaq entirely and to seize and auction off its assets. W if aq allies include the National Democratic Action Society, the National Democratic Assembly, the Democratic Progressive Tribune, and Al Ekhaa. Al Haq (Movement of Freedom and Democracy), a small Shia faction, is outlawed because of its calls for outright change of regime and has boycotted all the COR elections. Its key leaders, Dr. Abduljalil Alsingace and Hassan Mushaima, have been imprisoned since the uprising. The Bahrain Islamic Action Society and Amal. Two other small Shia factions linked to the the Islamic Front for the Liberation of Bahrain (IFLB) - a party linked to alleged Iran-backed plots to overthrow Bahrain's government in the 1980s and 1990s are outlawed. Amal's leader, Shaykh Muhammad Ali al-Mafoodh, has been in prison since 2011. Waad ("promise") is a secular opposition group that includes both Sunnis and Shias. Its former leader, Ibrahim Sharif, has been repeatedly arrested, released, and rearrested. Its current leader is Sami Fuad Sayedi. On May 31, 2017, the High Civil Court approved a government request to dissolve it. Sunni Islamist s . Among the prominent Sunni factions are Minbar (Arabic for "platform"), an offshoot of the Muslim Brotherhood, and Al Asala , which is a harder-line "Salafist" political society. Smaller Sunni Islamist factions include Al Saff , the Islamic Shura Society , and the Al Wasat Al Arabi Islamic Society . In June 2011, a non-Islamist, generally progovernment Sunni political coalition the National Unity Assembly (NUA) was formed as a response to the uprising. <1.3.1. Pre-uprising Elections> In several elections held during 2002-2010, which are generally held in the fall of the year they are held, tensions between the Shia majority and the regime escalated. October 2002 . In the first elections under the 2002 constitution, Wifaq and other Shia political groups boycotted on the grounds that establishing an elected COR and an appointed Shura Council of the same size diluted popular will. There were 170 candidates, including 8 women. Sunnis won two-thirds of the 40 COR seats, and none of the women was elected. November 2006. Sunni-Shia tensions escalated in advance of the COR and municipal elections amid a government adviser's revelations that the government had adjusted election districts to favor Sunni candidates and had issued passports to Sunnis to increase the Sunni vote. Wifaq participated, helping lift turnout to 72%, and the faction won 17 seats (virtually all it contested) to become the largest COR bloc. Sunnis won the remaining 23 seats, of which eight were secular and 15 were Islamists. One woman, who ran unopposed, was elected (out of 18 women candidates). The King appointed a Shura Council with 20 Shias, 19 Sunnis, one Christian, and nine women. A Wifaq supporter was subsequently appointed minister of state for foreign affairs. October 2010 . Even though oppositionists again accused the government of gerrymandering to favor Sunnis, and despite the arrest of 23 Shia leaders a month before the election, Wifaq participated. Of the 200 candidates, six were women. Turnout was about 67%. The election increased Wifaq's representation to 18 seats, reduced Sunni Islamists to five seats from 15; and greatly increased the number of Sunni independents to 17 seats (from nine). The one female incumbent was reelected. The king reappointed 30 of the 40 Shura Council incumbents. Of the total membership, 19 were Shias, including the speaker. Four were women, of which one was Jewish and one was Christian. <1.4. 2011 Uprising: Origin, Developments, and Prognosis> The aspirations of Bahraini Shias were demonstrated as unsatisfied when a major uprising began on February 14, 2011, following the toppling of Egypt's President Hosni Mubarak. After a few days of confrontations with security forces, mostly Shia demonstrators converged on the interior of a major traffic circle ("Pearl Roundabout"). The unrest escalated on February 17-18, 2011, when security forces using rubber bullets and tear gas killed four demonstrators. All 18 Wifaq deputies in the COR resigned. Following large demonstrations in late February, the Crown Prince invited protester representatives to formal dialogue, many demonstrators were released, and two Al Khalifa family members were dropped from the cabinet. In March 2011, the Crown Prince advanced a "seven principles" proposal for a national dialogue that would agree on a "parliament with full authority"; a "government that meets the will of the people"; fair voting districts; and several other measures. Protest leaders welcomed dialogue but asserted that the seven principles fell short of their demands for a constitutional monarchy in which the Prime Minister and cabinet are selected by the fully elected parliament. They also demanded ending gerrymandering of election districts to favor Sunnis, and more jobs and economic opportunities demands encapsulated in the October 2011 "Manama Document" unveiled by W ifaq and Waad . On March 13, 2011, protesters blockaded the financial district of Manama, triggering the Gulf Cooperation Council (GCC: Saudi Arabia, Kuwait, Bahrain, UAE, Qatar, and Oman) to send forces into Bahrain on March 14, 2011. The GCC's joint Peninsula Shield force, including 1,200 Saudi armored forces and 600 UAE police, took up positions at key locations and Kuwait sent naval forces to help secure Bahrain's maritime borders. On March 15, the King declared a three-month state of emergency. GCC-backed security forces cleared demonstrators from Pearl Roundabout and demolished the Pearl Monument on March 18. The king ended the state of emergency as of June 1, and the vast bulk of the GCC force departed in June 2011, with some UAE police and other GCC forces remaining. <1.4.1. Bahrain Independent Commission of Inquiry (BICI)> On June 29, 2011, as a gesture toward the opposition and international critics, the king named a five-person "Bahrain Independent Commission of Inquiry" (BICI), headed by international legal expert Dr. Cherif Bassiouni, to investigate the government response to the unrest and not the broader sources of the unrest. The 500+ page BICI report, released on November 23, 2011, provided support for the narratives of both sides as well as recommendations. It stated that there was "systematic" and "deliberate" use of excessive force, including torture and forced confessions, against protesters; the opposition increased its demands as the uprising progressed; and the government did not provide evidence to link Iran to the unrest. The report contained 26 recommendations to hold accountable those government personnel responsible for abuses during the uprising. King Hamad promised full implementation of all recommendations. On November 26, 2011, the king established a 19-member National Commission to oversee implementation of the recommendations, chaired by the Shura Council Chairman (a Shia). A "Follow-Up Unit" was established by the Ministry of Justice. <1.4.1.1. Assessments of Compliance with the BICI Recommendations> Bahrain Government . Bahrain officials assert that the government has fully implemented the vast majority of the 26 BICI recommendations. However, other assessments broadly agree that Bahrain has only partially implemented those recommendations that address prevention of torture, provision of legal counsel, allowing free access to media, holding security officials accountable, or integrating Shias into the security services. There appears to be consensus that the government has rebuilt almost all of the 53 Shia religious sites demolished in 2011. State Department . The FY2013 defense authorization act ( P.L. 112-239 ) directed the Secretary of State to report to Congress on Bahrain's implementation of the BICI recommendations, as did the FY2016 Consolidated Appropriation ( P.L. 114-113 ). The latest such report, dated June 21, 2016, indicated that Bahrain's government had: made the office of the inspector general of the Ministry of Interior independent of the ministry's hierarchy; stripped the Bahrain National Security Agency (BNSA) of arrest powers through an amendment to the 2002 decree establishing that agency; provided compensation and other remedies for families of the deceased victims of the government's response to the unrest. About $26 million was budgeted by the government to provide the compensation; ensured that dismissed employees were not dismissed because of the exercise of their right to freedom of expression, association, or assembly. This assessment was based on data that almost all of 2,700+ workers who had been fired for participating in the unrest had been rehired; and developed programs to promote religious, political, and other forms of tolerance and promotion of human rights and the rule of law. The report recommended that the government needs to allow oversight agencies greater independence, and implement recommendations on freedom of expression. Outside Assessments . Reports and testimony by the staff of the Project on Middle East Democracy (POMED) have asserted that the government has fully implemented only three BICI recommendations, partially implemented about half of them, and not implemented at all at least six. The group characterized the June 2016 State Department report referenced above as "a real effort to pull punches and avoid clear evaluations of progress, in order to avoid antagonizing the Bahraini government." A November 2015 report by Americans for Democracy and Human Rights in Bahrain asserted that the government had only fully implemented two of the BICI recommendations, and that that the issues that caused the uprising had not been addressed. BICI-Related U.S. Legislation . In the 114 th Congress, S. 2009 and H.R. 3445 would have prohibited specific U.S. weapons and crowd control equipment sales to Bahrain (tear gas, small arms, light weapons and ammunitions for same, Humvees, and "other" crowd control items) until the State Department certified that Bahrain has fully implemented all BICI recommendations. A Senate-passed State Department authorization bill, S. 1635 , would have required another State Department assessment of implementation of the BICI recommendations, and the effect of such findings on the U.S. defense posture in the Gulf. The provision was not included in P.L. 114-323 . <1.4.2. The "National Dialogue" Process> The BICI process created conditions for a government-opposition "National Dialogue" process, which was inaugurated on July 2, 2011. Chaired by the COR speaker, about 300 delegates participated, of which 40-50 were members of the Shia opposition (including five W ifaq members). The weeks-long dialogue addressed political, economic, social, and human rights issues, but the detention of senior oppositionists caused Wifaq to exit the talks on July 18, 2011. The dialogue concluded with the following consensus recommendations, which were endorsed by the government on July 29, 2011: an elected parliament (lower house) with expanded powers, including to confirm a nominated cabinet. In addition, the overall chairmanship of the National Assembly should be exercised by the elected COR, not the Shura Council; a government "reflecting the will of the people"; "fairly" demarcated electoral boundaries; reworking of laws on naturalization and citizenship; combating financial and administrative corruption; and efforts to reduce sectarian divisions. Despite the opposition's assertions that the consensus dialogue recommendations did not resolve core issues, the National Assembly adopted significant elements of them in January 2012 and the King signed them into law on May 3, 2012, as constitutional amendments that imposed limitations on the power of the king to appoint the members of the Shura Council, and a requirement that he consult the heads of the two chambers of the National Assembly before dissolving the COR; gave either chamber of the National Assembly the ability to draft legislation or constitutional amendments; changed the overall chair of the National Assembly to the speaker of the elected COR instead of the chairman of the Shura Council; and gave the COR the ability to veto the government's four-year work plan essentially an ability to veto the nomination of the entire cabinet. This was an expansion of previous powers to vote no confidence against individual ministers. Second National Dialogue . In January 2013, Wifaq and five allied parties accepted the King's call to restart political dialogue. The second dialogue began on February 10, 2013, consisting of twice per week meetings attended by the Minister of Justice (an Al Khalifa family member) and two other ministers, eight opposition representatives ( Wifaq and allied parties), eight representatives of progovernment organizations, and five members of the National Assembly. The talks quickly stalled over opposition insistence that consensus recommendations be put to a public referendum, while the government insisted that agreements be enacted by the National Assembly. The opposition also demanded that the dialogue include representatives of the King rather than ministers. In September 2013, the opposition began boycotting the talks, citing the arrest of Wifaq 's deputy chief, and the dialogue was suspended on January 8, 2014. The Crown Prince sought to revive negotiations by meeting with Wifaq leaders in January 2014, despite the fact that the two top leaders were charged for their roles in the uprising. The meeting addressed Wifaq 's demand that political dialogue be conducted with senior Al Khalifa members. In September 2014, the Crown Prince issued a five-point "framework" for a new dialogue including (1) redefining electoral districts; (2) revising the process for appointing the Shura Council; (3) giving the elected COR new powers to approve or reject the formation of a new cabinet; (4) having international organizations work Bahrain's judiciary; and (5) introducing new codes of conduct for security forces. Opposition political societies rejected the proposals as not satisfying a core demand for the selection of a prime minister by an elected COR, and no further national dialogue has convened to date. <1.4.3. Current Situation, Post-Uprising Elections, and Prospects> Unrest continues, although at far less intensity than in 2011, and observers have accused the government of backsliding in its implementation of the BICI recommendations and other human rights reforms. In 2017, the King signed a National Assembly bill amending the constitution to allow military courts the right to try civilians accused of terrorism, and the government returned arrest powers to the BNSA (see above). As noted below, the government also has stepped up citizenship revocations and expulsions and continues to incarcerate opposition leaders. Each February 14 anniversary of the uprising has been marked by demonstrations. The government and the opposition have, at times, discussed confidence-building measures such as appointments of oppositionists to the cabinet. The King appears to have ruled out replacing the Prime Minister even though some oppositionists have suggested they would accept a more moderate ruling family member or a Sunni non-royal in that role. Hardline Sunnis within and outside the government, reportedly with the support of Saudi officials, continue to urge the ruling family to refuse compromise. <1.4.3.1. COR Elections in 2014> In an effort to present an image of "normalization" of the domestic political situation, the government urged the opposition to participate in the November 22, 2014, COR election. However, the government reduced the number of electoral districts to four, from five, further reducing the chances that Shias would win a majority of COR seats. Wifaq and its allies boycotted, reducing the turnout to about 50% (Bahrain official figures). There was little violence. The seats were mostly won by independent candidates, suggesting that voters sought to reduce polarization. Only three candidates of the Sunni Islamist political societies won, and none of the 10 pro-government Al Fatih coalition candidates was elected. The 14 Shias elected were independents, and Shias were the deputy COR speaker and the chairman of the Shura Council. <1.4.3.2. COR Elections in 2018> Observers sought to gauge the state of Bahrain's politics from the 2018 COR elections, held on November 24, 2018, with a runoff on December 1, 2018, Municipal council elections were held concurrently. The elections produced significant tensions, and the outcome was widely derided by Bahraini oppositionists and regional and international observers as neither free nor fair. In May 2018, the National Assembly enacted legislation banning dissolved political societies ( Wifaq and Waad ) from participating, and the government decreed that no members of banned parties could run. Yet, in part to try to instill legitimacy to the elections, the government reportedly encouraged Shias to compete as independents. Wifaq members boycotted the vote, but a small Wifaq ally, the Democratic Progressive Tribute, participated. Several Sunni groupings, including the National Unity Assembly (NUA, see above), Minbar, and Asala, competed in order not to cede representation to independent Sunnis. One liberal political society composed of both Shias and Sunnis, the National Action Charter Society ( Mithaq) , competed as well. The final list of candidates included 293 persons, of whom 41 were women the highest number of women candidates in any Bahrain COR elections. There were 137 candidates for the 30 seats on Bahrain's three municipal councils, of which eight candidates were women. Only nine COR seats were decided on November 24, including victories by two women. Also undecided were 23 municipal council seats. Final results awaited a runoff for the 31 undecided seats (no candidate received a majority) on December 1. The government claimed turnout was very high at 67%, but oppositionists who widely derided the election as a sham and urged a broad boycott claimed turnout was only about 30%. Following the December 1 runoff, the government noted that five political societies participated but that 85% of the seats were won by independents. Government officials noted that only five incumbents retained their seats, and that the victories by six women was the highest ever. No breakdown by sect was announced, but the Wi faq boycott virtually ensured that Sunnis constitute a CoR majority. The new COR voted its first female speaker, Fawzia Zainal. Bahrain observers report that the Shia deputy speaker, Abdunabi Salman, is serving as an unofficial envoy to the Shia community, aggregating its grievances and attempting to redress them. A Shura Council was appointed in early December, with roughly the same sect and gender composition as recent Shuras, but the King excluded members of political societies from membership. <1.4.3.3. Violent Underground Groups Cloud Outlook> Aggravating government-opposition tensions is the activity of apparently small but violent underground groups that have periodically attacked security forces with bombs and improvised explosive devices (IEDs). These groups have not targeted civilians, although on at least one occasion civilians have been killed or injured. In April 2015, the government arrested 29 persons for a December 2014 bombing that wounded several police officers. On December 25, 2017, six Bahraini Shias were sentenced to death for allegedly forming a terrorist cell and plotting to assassinate a senior Bahrain military official. On January 1, 2017, 10 detainees who had been convicted of militant activities such as those discussed above broke out of Bahrain's Jaw prison with the help of attackers outside the jail. According to the State Department international terrorism report for 2017, "Terrorist activity in Bahrain increased in 2017," citing Shia militant attacks that the report says killed four police officers in 2017. Mainstream opposition factions deny any connection to underground violent groups, the most active include the following: Al Ashtar Brigades (AAB) . This group, the most well-known of the underground groups, issued its first public statement in April 2013. It has claimed responsibility for about 20 bombings against security personnel, including a March 2014 attack that killed three police officers, including a UAE officer. In January 2017, the government executed three Shias for that attack the first executions since the 2011 uprising began. On March 17, 2017, the Trump Administration designated two Ashtar Brigades members, one of which is Iran-based, as Specially Designated Global Terrorists (SDGTs) under Executive Order 13224, which blocks U.S.-based property of entities that conduct terrorism. On July 10, 2018, the State Department named the Al Ashtar Brigades as a Foreign Terrorist Organization (FTO) under Section 219 of the Immigration and Nationality Act. The group was also named as an SDGT under E.O. 13224. On August 13, 2018, the Trump Administration designated Qassim Abdullah Ali Ahmad, a purported Al Ashtar leader, as an SDGT. The "14 February Coalition" (named for the anniversary of the Bahrain uprising) claims inspiration from antiregime protesters in Egypt in the uprising there in 2011. The group claimed responsibility for an April 14, 2013, explosion in the Financial Harbour district. In September 2013, 50 Shias were sentenced to up to 15 years in prison for alleged involvement in the group. On November 10, 2017, militants allegedly from the group attacked a key pipeline that supplies Saudi oil to the Bahrain Petroleum Company refinery in Sitra, Bahrain. Others: Other groups, using the names Bahrain Liberation Movement, al-Wafaa , the Resistance Brigades, the Mukhtar Brigades, the Basta organization, and the Imam Army, are offshoots of the Al Ashtar Brigades, or separate small cells. In March 2018, authorities arrested 116 persons allegedly part of an armed network supported by the IRGC-QF. In late September 2018, the government charged 169 persons with forming a "Bahrain Hezbollah" a Bahrain version of Lebanese Hezbollah with Iranian backing. On May 6, 2019, Bahrain's Court of Cassation sentenced 19 al-Wafaa activists varying jail terms for maintaining links to Iran's Islamic Revolutionary Guard Corps (IRGC) and Lebanese Hezbollah. Oppositionists accuse the government of exaggerating Iran's support for these violent groups, but the State Department reports that some Bahraini groups are working with the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), which reportedly supplies the militants with weapons. In late 2016, Bahraini authorities uncovered a large warehouse containing equipment, apparently supplied by Iran, suitable to constructing "explosively-forced projectiles" (EFPs) such as those Iran-backed Shia militias used against U.S. armor in Iraq during 2004-2011. No EFPs have actually been used in Bahrain, to date. <1.4.4. U.S. Posture on the Uprising> The United States has repeatedly urged Bahraini authorities not to use force against protesters and to release jailed opposition leaders, but has not at any time called for the Al Khalifa regime to step down, asserting that the government has tried to address many opposition grievances. High-level U.S. engagement with Bahraini leaders has continued and no sanctions have been imposed on any Bahraini officials. The Obama Administration withheld or conditioned some arms sales to Bahrain, but U.S. military cooperation with Bahrain continued without interruption. In a September 21, 2011, speech to the U.N. General Assembly, President Obama said the following: In Bahrain, steps have been taken toward reform and accountability. We're pleased with that, but more is required. America is a close friend of Bahrain, and we will continue to call on the government and the main opposition bloc the Wifaq to pursue a meaningful dialogue that brings peaceful change that is responsive to the people. We believe the patriotism that binds Bahrainis together must be more powerful than the sectarian forces that would tear them apart. It will be hard, but it is possible. Then-Secretary of State Kerry stated upon the July 17, 2016, dissolution of Wifaq that This ruling is the latest in a series of disconcerting steps in Bahrain.... These actions are inconsistent with U.S. interests and strain our partnership with Bahrain.... We call on the Government of Bahrain to reverse these and other recent measures, return urgently to the path of reconciliation, and work collectively to address the aspirations of all Bahrainis. Critics said that the Obama Administration was insufficiently critical of Bahrain's leaders, citing then-Secretary of State Clinton's comments in Bahrain on December 3, 2010, referring to the October 2010 elections, saying "I am impressed by the commitment that the government has to the democratic path that Bahrain is walking on.... " On July 7, 2014, the government ordered then-Assistant Secretary of State for Democracy, Human Rights, and Labor (DRL) Tom Malinowski out of Bahrain for meeting with Wifaq leader Shaykh Salman. Then-Secretary Kerry, in a phone call to Bahrain's Foreign Minister, called that expulsion "unacceptable." A July 18, 2014, letter to King Hamad, signed by 18 Members of the House of Representatives, called on the king to invite Assistant Secretary Malinowski back. Bahrain reversed its position, and he and Assistant Secretary of State for the Near East Anne Patterson visited Bahrain in December 2014. <1.4.4.1. Trump Administration Policy> As part of its stated goal of pressuring Iran, the Trump Administration has downplayed U.S. concerns about Bahrain's human rights record, dropped conditions on the approval of new sales to Bahrain's military, and imposed new U.S. sanctions on Bahrain militant groups (discussed above). In May 2017, during his visit to the region, President Trump assured King Hamad that U.S.-Bahrain relations would be free of the "strain" that characterized U.S.-Bahrain relations on human rights issues during the Obama Administration. Crown Prince Salman visited Washington, DC, in November 2017 and discussed with President Trump a wide range of regional and bilateral issues, including defense and economic relations. In 2017, the State Department criticized the dissolution of Waad as unhelpful to political reconciliation. Yet, Secretary of State Michael Pompeo was criticized by some U.S. human rights organizations for not publicly raising human rights issues during his January 2019 visit to Bahrain and meeting with King Hamad; the trip was part of a visit to the GCC states to promote unity among them and their cooperation with the United States against Iran. Bahrain opposition figures have expressed concerns that the policy could cause the opposition to draw closer to Iran. <1.4.4.2. U.S. Programs to Promote Political Reform/Civil Society> The United States has funded programs to accelerate political reform in Bahrain and empower its political societies since long before the uprising. The "Middle East Partnership Initiative (MEPI)" began funding prodemocracy programs in Bahrain in 2003, including for an American Bar Association (ABA) program to support the Ministry of Justice's Judicial and Legal Studies Institute (JLSI) specialized training for judges, lawyers, law schools, and Bahrain's bar association. The ABA also provided technical assistance to help Bahrain implement the BICI recommendations, including legislation on fair trial standards. MEPI funds are also used to train Bahraini journalists. The National Democratic Institute (NDI) had received some U.S. funds for its programs to enhance the capabilities of Bahrain's National Assembly. For example, in FY2016, the United States provided about $350,000 for democracy and human rights promotion programs in Bahrain, of which about $250,000 was provided through NDI. <1.5. Other Human Rights Issues35> The bulk of worldwide criticism of Bahrain's human rights practices focuses on the government response to the unrest, including relative lack of accountability of security forces, suppression of free expression, and treatment of prisoners. The government, as have several of the other Gulf states, has increasingly used laws allowing jail sentences for "insulting the king" to silence opponents. However, State Department human rights reports and outside assessments note additional problems that might be unrelated to the unrest. Several organizations are chartered as human rights groups, although the government characterizes most of them and their leaders as advocates for or members of the opposition. The most prominent are the Bahrain Human Rights Society (the primary licensed human rights organization), the Bahrain Transparency Society, and the Bahrain Center for Human Rights (BCHR, a U.S. grantee in FY2016) and the Bahrain Youth Society for Human Rights (BYSHR), which was officially dissolved but remains active informally. Some of the leaders of these organizations have been repeatedly arrested. In 2013, in line with the BICI report, the king issued a decree reestablishing the "National Institution for Human Rights" (NIHR) to investigate human rights violations. It issues annual reports. In October 2016, King Hamad issued a decree enhancing the NIHR's powers, including the ability to make unannounced visits to detention centers and to request formal responses by the various ministries to NIHR recommendations. There is also a quasigovernmental Commission on Prisoner and Detainee Rights (PDRC). Bahrain has drawn increasing attention from U.N. human rights bodies and other governments. Each March since the uprising began, the U.N. Human Rights Council has issued statements condemning the government's human rights abuses. The United States, Britain, and eight other EU countries have sometimes opposed these statements on the grounds that the government has sought to address international concerns on this issue. Opposition activists reportedly have requested the appointment of a U.N. Special Rapporteur on human rights in Bahrain and the establishment of a formal U.N. office in Bahrain that would monitor human rights practices there. These steps have not been taken. Bahrain has often denied entry to international human rights researchers and activists, including from U.S. organizations such as Human Rights Watch. <1.5.1. Women's Rights> Experts and other observers have long perceived Bahrain as advancing women's rights. The Council of Ministers (cabinet) regularly has at least one, and often several, female ministers. The number of women in the National Assembly is provided in Table 1 and, as noted, the CoR elected its first female CoR speaker after the 2018 elections. Still, traditional customs and some laws tend to limit women's rights in practice. Women can drive, own and inherit property, and initiate divorce cases, but religious courts may refuse a woman's divorce request. A woman cannot transmit nationality to her spouse or children. Some prominent Bahraini women, backed by the wife of the King and the "Supreme Council for Women," have campaigned for a codified family law. Other women's rights organizations in Bahrain include the Bahrain Women's Union, the Bahrain Women's Association, and the Young Ladies Association. <1.5.2. Religious Freedom37> The State Department's recent reports on international religious freedom focus extensively on abuses related to the unrest, asserting that the government discriminates against the Shia majority and Shia clergy. In 2014, the Ministry of Justice and Islamic Affairs, which regulates Islamic affairs, dissolved the Islamic Ulema Council, the main assembly of Shia clerics in Bahrain, for allegedly engaging in illegal political activity. A Court of Cassation upheld that dissolution in April 2015. In June 2016, the king signed an amendment to a 2005 law regulating political societies, banning persons who are active in religious positions from engaging in political activities an amendment that appeared to be an effort to further weaken Wifaq . On the other hand, the government does offer some financing for Shia seminaries ( hawzas ). In July 2017, Bahrain became the first country in the region to enact a unified personal status law, covering both Shias and Sunnis, and thereby weakening the power of religious courts to regulate matters such as marriage and divorce. The law was enacted despite opposition from Shia legislators who argue that only senior Shia clerics, such as Iraq-based Grand Ayatollah Ali al-Sistani, have the authority to legislate on such matters. According to the recent State Department reports, the government allows freedom of worship for Christians, Jews, and Hindus although the constitution declares Islam the official religion. Non-Muslim groups must register with the Ministry of Social Development to operate and Muslim groups must register with the Ministry of Justice and Islamic Affairs. There are 19 registered non-Muslim religious groups and institutions, including Christian churches of a wide variety of denominations, and Hindu and Sikh groups. The government donated land for the Roman Catholic Vicariate of Northern Arabia to relocate from Kuwait to Bahrain. A small Jewish community of about 36-40 persons mostly from families of Iraqi Jews who settled in Bahrain in the 19 th century remains in Bahrain, and apparently does not face any harassment or other difficulty. Some of Bahrain's Jews came from southern Iran. Members of the Baha'i faith, which is declared blasphemous in Iran and Afghanistan, have been discriminated against in Bahrain. However, members of that community can worship openly. <1.5.3. Human Trafficking and Labor Rights> Bahrain remains a destination country for migrant workers from South and East Asia, as well as some countries in Africa. Domestic workers are highly vulnerable to forced labor and sexual exploitation because they are largely unprotected under the labor law. The State Department's "Trafficking in Persons Report" for 2018 upgraded Bahrain to "Tier 1," from the "Tier 2" rating it had for the three previous years. The upgrade was based on an assessment that the government had made "key achievements" on this issue in the reporting period, including the first ever conviction of a national for forced labor and the first ever conviction of a complicit government official. In 2014, the Obama Administration waived a mandatory downgrade for Bahrain to Tier 3 after it was assessed for three consecutive years as "Tier 2: Watch List." Bahrain subsequently was assessed as making notable progress on the issue. Regarding the related issue of labor rights, U.S. government reports credit Bahrain with significant labor reforms, particularly a 2002 law granting workers, including noncitizens, the right to form and join unions. The law holds that the right to strike is a legitimate means for workers to defend their rights and interests, but that right is restricted for workers in the oil and gas, education, and health sectors. There are about 50 trade unions in Bahrain, but all unions must join the General Federation of Bahrain Trade Unions (GFBTU). The GFBTU has many Shia members, and during the height of the unrest in 2011, the federation called at least two general strikes to protest use of force against demonstrators. During March-May 2011, employers dismissed almost 5,500 workers from both the private and public sectors, including 25% of the country's union leadership. The government claims that virtually all were subsequently rehired. The State Department has asserted that the government made efforts in 2015 to reinstate workers dismissed or suspended during the period of high unrest. Some U.S. MEPI funds (see above) have been used for AFL-CIO projects with Bahraini labor organizations. The architect of some recent labor reforms is the Labor Market Regulatory Authority (LMRA), which is separate from and considered more forward looking than the Ministry of Labor and Social Development. The LMRA has made strides to dismantle the "sponsorship system" that prohibited workers from changing jobs, and has helped institute requirements that every expatriate worker must be provided with health insurance. The LMRA has also instituted public awareness campaigns against trafficking in persons and has established a publicly funded "labor fund" to upgrade worker skill levels. Still, the slow payment of wages led hundreds of expatriate workers to protest on several occasions during the year. After mediation by the Ministry of Labor, all back wages were paid by the end of 2018, according to the State Department. <1.5.4. Torture> Well before the 2011 uprising, Human Rights Watch and other groups asserted that Bahraini authorities were practicing torture, allegations that continue today, including in the State Department human rights report for 2017. A May 13, 2011, hearing of the Tom Lantos Human Rights Commission asserted that torture was being used regularly on those (mostly Shias) arrested in the unrest. The State Department human rights report for 2011 said there were numerous reports of torture during the state of emergency (March-June 2011). Since 2013, the government has not facilitated visits by the U.N. Special Rapporteur on Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment. <2. U.S.-Bahrain Relations43> U.S.-Bahrain ties are long-standing and have deepened over the past several decades. The American Mission Hospital was established in 1903 as the first hospital in what is now Bahrain. A U.S. Embassy opened in Manama, Bahrain's capital, immediately after Bahrain became independent. Hundreds of Bahraini students come to the United States each year to study. The bilateral security relationship dates to the end of World War II, well before Bahrain's independence, and remains central to the U.S. ability to address regional threats such as those posed by Iran and by terrorist movements. There are about 7,000 U.S. military personnel deployed in Bahrain, mostly Navy, implementing various missions discussed below, including against the Islamic State. Bahrain signed a formal Defense Cooperation Agreement (DCA) with the United States in 1991. In March 2018, then-Secretary of Defense James Mattis met with King Hamad and Crown Prince Salman in Bahrain and expressed "appreciation for Bahrain's continued support of the U.S. military presence in the Kingdom since shortly after World War II." Secretary of State Pompeo made similar comments after his January 11, 2019 meeting with King Hamad. As a GCC member, Bahrain also engages in substantial defense cooperation with other GCC states. Bahrain also has formal relations with NATO under a 2004 NATO-GCC "Istanbul Cooperation Initiative"(ICI). As do the other GCC members in that forum (Kuwait, UAE, and Qatar), Bahrain has opened a diplomatic mission at NATO headquarters in Brussels. The U.S. Ambassador to Bahrain is Justin Siberell, a career diplomat. <2.1. U.S. Naval Headquarters and Other Facilities> The cornerstone of U.S.-Bahrain defense relations is U.S. access to Bahrain's naval facilities. The the United States has had a U.S. naval command presence in Bahrain since 1948: MIDEASTFOR (U.S. Middle East Force); its successor, NAVCENT (naval component of U.S. Central Command); and the U.S. Fifth Fleet (reconstituted in June 1995), have been headquartered at a sprawling facility called "Naval Support Activity (NSA)-Bahrain." It is also home to U.S. Marine Forces Central Command, Destroyer Squadron Fifty, and three Combined Maritime Forces. The "on-shore" U.S. command presence in Bahrain was established after the 1991 U.S.-led war against Iraq; prior to that, the U.S. naval headquarters in Bahrain was on a command ship docked and technically "off shore." Some smaller U.S. ships, such as minesweepers, are home-ported there, but the Fifth Fleet consists mostly of ships that are sent to the region on six or seven-month deployments. In 2012-13, the U.S. Navy added to the force homeported there by doubling the number of minesweepers homeported there to eight, sending additional mine-hunting helicopters, and adding five coastal patrol ships. NSA-Bahrain coordinates the operations of over 20 U.S. and allied warships in Combined Task Force (CTF) 151 and 152 that seek to interdict the movement of terrorists, pirates, arms, or weapons of mass destruction (WMD)-related technology and narcotics across the Arabian Sea. Bahrain has taken several turns commanding CTF-152, and it has led an antipiracy task force in Gulf/Arabian Sea waters operations that are offshoots of Operation Enduring Freedom (OEF) that ousted the Taliban from power in Afghanistan in 2001. The coalition conducts periodic naval exercises, such as mine-sweeping drills, intended at least in part to signal resolve to Iran and U.S.-GCC naval patrols are being increased as U.S.-Iran tensions increased in May 2019. To further develop the NSA-Bahrain, the U.S. military implemented a $580 million military construction program that ran from 2010 until the end of 2017. The latest construction doubled the size of the facility (to over 150 acres) by integrating the decommissioned Mina (port) Al Salman Pier, leased by the Navy under a 2008 agreement, and added buildings for administration, maintenance, housing, warehousing, and dining. The expansion supports the deployment of additional U.S. coastal patrol ships and the Navy's new littoral combat ship, and the docking of larger U.S. ships. The expansion has also allowed for infrastructure for families of U.S. military personnel, including schools for young children. The United States has spent over $2 billion to improve the facility. Alternatives? Some urge the United States to examine alternatives to NSA-Bahrain on the grounds that the unrest in Bahrain poses threats to U.S. personnel deployed there, or that the Al Khalifa government could fall. The U.S. military has, through social media and other directives, instructed its personnel in Bahrain to avoid any areas where demonstrations are taking place. The enacted FY2016 National Defense Authorization Act did not contain a provision of an earlier version ( H.R. 1735 ) to mandate a Defense Department report on alternative locations for the NSA-Bahrain. But, the Defense Department reportedly has done such contingency planning; that assessment has not been released. Still, continued U.SW. military construction to enhance the NSA would indicate that the Administration has no plans to relocate the facility in the near future. Should there be a decision to relocate the NSA, potential alternatives could include Qatar's New Doha Port, Kuwait's Shuaiba port, and the UAE's Jebel Ali. All three are close U.S. allies, but none has stated a position on whether it would be willing to host such a facility. The alternatives do not provide large U.S. ships with the ease of docking access that Bahrain does, and many of the alternatives share facilities with commercial operations. <2.1.1. Other Facilities Used by U.S. and Allied Forces> A separate deep water port in Bahrain, Khalifa bin Salman Port, is one of the few facilities in the Gulf that can accommodate U.S. aircraft carriers and amphibious ships. An aircraft carrier group and surface combatants generally operating in and around the Persian Gulf. In December 2014, Bahrain agreed to allow Britain to establish a naval base in part of the Mina Al Salman pier, and facilities there have been improved to allow Britain's Royal Navy to plan, store equipment, and house military personnel at the location. Also in December 2014, the GCC announced it would establish a joint naval force based in Bahrain to cooperate with the United States and other navies. Shaykh Isa Air Base, improved with about $45 million in U.S. funds, hosts a variety of U.S. aircraft, including F-16s, F-18s, and P-3 surveillance aircraft. About $19 million was spent to construct a U.S. Special Operations Forces facility there. <2.2. Defense Cooperation Agreement (DCA) and Major Non-NATO Ally Designation> Bahrain was part of the U.S.-led allied coalition that ousted Iraq from Kuwait in 1991, hosting 17,500 U.S. troops and 250 U.S. combat aircraft that participated in the 1991 "Desert Storm" offensive against Iraqi forces. Bahraini pilots flew strikes during the war, and Iraq fired nine Scud missiles at Bahrain, of which three hit facilities there. After that war, Bahrain and the United States institutionalized the defense relationship by signing a Defense Cooperation Agreement (DCA) on October 28, 1991, for an initial period of 10 years. It remains in effect. The pact reportedly gives the United States access to Bahrain's air bases, enables the United States to preposition strategic materiel (mostly U.S. Air Force munitions), requires consultations with Bahrain if its security is threatened, and provides for joint exercises and U.S. training of Bahraini forces. It reportedly includes a "Status of Forces Agreement" (SOFA) under which U.S. military personnel serving in Bahrain operate under U.S. law. The DCA was the framework for Bahrain's participation in efforts to contain Iraq during the 1990s. Bahrain hosted the U.S.-led Multinational Interdiction Force (MIF) that enforced a U.N. embargo on Iraq during 1991-2003. Bahrain also hosted the U.N. Special Commission (UNSCOM) inspection mission that worked to dismantle Iraq's weapons of mass destruction. U.S. pilots flew combat missions from Bahrain in both Operation Enduring Freedom (OEF) in Afghanistan (after the September 11, 2001, attacks) and Operation Iraqi Freedom (OIF) to oust Saddam Hussein (March 2003). During both operations, Bahrain also deployed its U.S.-supplied frigate warship (the Subha ) to help protect U.S. ships, and it sent ground and air assets to Kuwait in support of OIF. Bahrain and UAE have been the only GCC states to deploy forces to Afghanistan; Bahrain deployed 100 police officers to Afghanistan during 2009-2014. <2.2.1. Major Non-NATO Ally Designation> In March 2002, President George W. Bush designated Bahrain a "major non-NATO ally" (MNNA) in Presidential Determination 2002-10. The designation qualifies Bahrain to purchase certain U.S. arms, receive excess defense articles (EDA), and engage in defense research cooperation with the United States for which it would not otherwise be eligible. <2.3. U.S. Security Assistance and Arms Transfers> Bahrain's small annual government budget allows for only modest amounts of national funds to be used for purchases of major combat systems. The United States provides a small amount of military assistance that goes toward Bahrain's arms buys from the United States, in order to enhance Bahrain's ability to participate in regional security missions. The government's response to the political unrest caused the Obama Administration to put on hold sales to Bahrain of arms that could easily be used against protesters, primarily those used by the Interior Ministry, as well as to hold up or condition the sale of combat systems such as combat aircraft. The Trump Administration has maintained restrictions on sales of equipment that could be used against protesters, while dropping conditions or holds on sales of most major combat systems. <2.3.1. Assistance to the Bahrain Defense Forces/Ministry of Defense> The main recipient of U.S. military assistance is the Bahrain Defense Force (BDF) Bahrain's regular military force which totals about 8,000 active duty personnel, of which 2,000 are Bahraini Air Force and Navy personnel. There are another 2,000 personnel in Bahrain's National Guard a unit that is separate from both the BDF and the Ministry of Interior. The BDF, as well as Bahrain's police forces, are run by Sunni Bahrainis, but supplement their ranks with unknown percentages of paid recruits from Sunni Muslim neighboring countries, including Pakistan, Yemen, Jordan, and elsewhere. Some human rights groups say that BDF equipment, such as Cobra helicopters, has been used against protesters. Most U.S. military assistance to Bahrain is in the form of Foreign Military Financing (FMF), used to help Bahrain buy and maintain U.S.-origin weapons, to enhance interoperability with U.S. forces as well as with other GCC forces, to augment Bahrain's air defenses, and to improve counterterrorism capabilities. In recent years, some FMF funds have been used to build up Bahrain's Special Operations forces and to help the BDF use its U.S.-made Blackhawk helicopters. The Defense Department estimates that about 50% of Bahrain's forces are fully capable of integrating into a U.S.-led coalition. The United States has reduced FMF to Bahrain since the unrest began, in part to try to compel the government to undertake political reforms. The Obama Administration's FY2012 aid request, made at the start of the unrest, included $25 million in FMF for Bahrain, but only $10 million was provided. FMF amounts provided or requested since are depicted in the table below. FY2017 funds were used to support Bahrain's maritime security capacity by assisting the Bahrain Coast Guard and upgrading the Coast Surveillance System that reportedly provides Bahrain and the U.S. Navy a 360-degree field of vision. Some funds are provided under "Section 1206" of the National Defense Authorization Act of 2006, P.L. 109-163 . Five Section 1206 programs spanning 2006-2015 totaling almost $65 million were used to provide coast patrol boats, equip and train Bahrain's special forces and coastal surveillance sites, and fund biometric equipment to help Bahrain detect movement of international terrorists through its territory. <2.3.1.1. Excess Defense Articles (EDA)> The BDF is eligible to receive grant "excess defense articles" (EDA), and it has received over $400 million worth of EDA since the program began for Bahrain in 1993. In June 1995, the United States provided 50 M-60A3 tanks to Bahrain as a "no cost" five-year lease. Bahrain later received title to the equipment. In July 1997, the United States transferred the FFG-7 "Perry class" frigate Subha (see above) as EDA. The Obama Administration supported providing another frigate (an "extended deck frigate") as EDA because the Subha is approaching the end of its service life, but Bahrain decided instead to devote U.S. military aid to maintaining the Subha . The transfer of frigate-sized ships as EDA requires legislative enactment. <2.3.1.2. International Military Education and Training Funds (IMET)> As noted in Table 4 , small amounts of International Military Education and Training funds (IMET) are provided to Bahrain to inculcate principles of civilian control of the military, democracy, and interoperability with U.S. forces. Approximately 100 BDF students attend U.S. military schools each year through the IMET program. A roughly equal number train in the United States under the U.S. Foreign Military Sales program (using FMF). Amounts provided are shown in the table below. <2.3.1.3. Major Foreign Military Sales (FMS)> About 85% of Bahrain's defense equipment is of U.S.-origin, as discussed below. F-16s and other U.S.-made Aircraft . Since 1998, Bahrain has purchased 22 U.S.-made F-16 Block 40 aircraft. In 2016, Bahrain requested up to 19 new production F-16Vs, with an estimated value of nearly $4 billion. The Obama Administration notified the sale to Congress with the condition that it would not finalize approval until Bahrain improves its human rights record. The Trump Administration dropped that condition, asserting that maintaining the conditionality is not the optimum way to influence Bahrain's policy on its domestic unrest. On September 8, 2017, the Administration notified Congress of a potential sale of 19 F-16Vs at an estimated value of $2.785 billion, and of an upgrade of Bahrain's existing F-16 Block 40s to the F-16V configuration, at an estimated cost of $1.082 billion. The sale process was far along enough to avoid then-Senate Foreign Relations Committee Chairman Bob Corker's July 2017 restriction on providing informal concurrence to arms sales to the GCC states a restriction dropped by then-Chairman Corker on February 8, 2018. Air-to-Air Missiles. In 1999 and 2009, the United States sold Bahrain Advanced Medium-Range Air-to-Air Missiles (AMRAAMs) to arm the F-16s. In 2012, the Obama Administration approved a sale of additional AMRAAMs. On May 3, 2019, the State Department approved a possible sale of a large variety of munitions, including AMRAAMs and large bombs (GBUs), for its F-16 fleet, at an estimate dvalue of $750 million. A resolution of disapproval for the sale, S.J.Res. 20, was introduced on May 13. Anti-Armor Missiles/Rockets . An August 2000 sale of 30 Army Tactical Missile Systems (ATACMs, a system of short-range ballistic missiles fired from a multiple rocket launcher), valued at about $70 million, included an agreement for joint U.S.-Bahraini control of the weapon. That arrangement sought to allay U.S. congressional concerns about possible U.S. promotion of regional missile proliferation. On September 28, 2018, the State Department approved a potential sales to Bahrain of 110 ATACM missiles and 720 Guided Multiple Launch Rocket System rockets, with a total estimated value of $300 million. A joint resolution, S.J.Res. 65 , was introduced to block the proposed sale, on the grounds that arms sales contributes to Bahrain's participation in the Arab coalition in Yemen (see below). The Senate voted on November 15, 2018 not to advance the resolution (by a vote of 77-21). Stingers. Section 581 of the FY1990 foreign operations appropriation act ( P.L. 101-167 ) made Bahrain the only Gulf state eligible to receive the Stinger shoulder-fired anti-aircraft missile, and the United States has sold Bahrain about 70 Stingers since 1990. (This authorization has been repeated subsequently.) Humvees and TOWs. In September 2011, the Obama Administration announced a sale to the BDF and National Guard of 44 "Humvee" (M115A1B2) armored vehicles and several hundred TOW missiles of various models, including 50 "bunker busters," with an estimated total value of $53 million. State Department officials said the sale would not violate the intent of the "Leahy amendment," a provision of U.S. law that forbids U.S. sales of equipment to security units that have committed human rights abuses. Two joint resolutions introduced in the 112 th Congress ( S.J.Res. 28 and H.J.Res. 80 ) would have prohibited the sale unless the Administration certified that Bahrain is rectifying alleged abuses. In January 2012, the Obama Administration put the sale on hold, but in June 2015, the State Department announced that the sale would proceed because the government had "made some meaningful progress on human rights reforms and reconciliation." Separately, on September 8, 2017, the Trump Administration notified Congress of a potential sale of 221 TOW missiles of various types, with an estimated valued of $27 million. Maritime Defense Equipment and Spare Parts . In May 2012, in conjunction with a visit to Washington, DC, by Bahrain's Crown Prince, the Administration announced the release of additional U.S. arms for the BDF, Bahrain's Coast Guard (a Ministry of Interior-controlled force), and the National Guard, stating that the weaponry was not suited for use against protesters and supported Bahrain's maritime defense. The Administration gave examples of weapons approved for sale to Bahrain: (1) the Perry-class frigate, as EDA, discussed above, but later mooted; and (2) harbor security boats for the Bahrain Coast Guard, as EDA. No legislation to block the sale was enacted. Separately, on September 8, 2017, the Trump Administration notified Congress of a potential sale of two 35-Meter Fast Patrol Boats, at an estimated cost of $60 million. Bahrain is also upgrading six naval vessels under a $70 million contract with Italy's Leonardo firm. Attack Helicopters . On April 27, 2018, the Defense Department notified Congress that the State Department had approved a potential sale to Bahrain of up to 12 AH-1Z ("Cobra") attack helicopters and associated munitions to the Royal Bahrain Air Force. The estimated value of the sale is $911 million. Missile Defense . U.S.-made Patriot missile defense batteries are deployed in Bahrain. However, Bahrain's limited budget largely precludes it from any major role in the U.S. effort to forge a coordinated missile defense for the Gulf. Still, on May 3, 2019, the State Dept. approved a potential sale to Bahrain of the Patriot Advanced Capability-3 (PAC-3) missile defense system with an estimated value of $2.5 billion. S.J.Res. 20, referenced above, would also disapprove that sale. <2.3.2. Russia Purchases> Bahrain has sought to diversify its arms supplies somewhat, particularly from Russia, probably in recognition of Russia's role in Syria and the broader region. In 2016, Bahrain took delivery of about 250 Kornet anti-tank systems. In 2017, Bahrain military officials stated they were in discussions to possibly purchase the Russian S-400 missile defense system. Purchases from Russia, particularly the S-400, could trigger U.S. consideration of sanctioning Bahrain's cooperation with Russia's defense sector under authorities in the Countering America's Adversaries through Terrorism Act (CAATSA, P.L. 115-44 ). <2.4. Counterterrorism Cooperation/Ministry of Interior70> Bahrain is assessed by U.S. reports and officials as facing a terrorist threat from Iran-backed groups, discussed above, as well as Sunni jihadist groups such as the Islamic State. Bahrain has convicted and stripped the citizenship of some Bahrainis accused of supporting the Islamic State. On June 23, 2016, Bahraini courts sentenced 24 supporters of the Islamic State for plots in Bahrain, including attacks on Shias. No Islamic State terrorist attacks have been reported in Bahrain. Critics assert that the security services use antiterrorism laws and operations to suppress Shia dissidents, even those who do not use violence. The United States cooperates with Bahrain's Interior Ministry on counterterrorism issues, although U.S. cooperation with the ministry has been limited since 2011 because of the ministry's role in internal security. The ministry has retained a reputation among the Shia population for brutality, despite the departure in the late 1990s of security services chief Ian Henderson, a former British colonial-era commander known for favoring brutal tactics. The February 2014 expulsion of Malinowski led the Obama Administration to suspend most cooperation with the Ministry, but some U.S. cooperation with it resumed later in 2014 after Bahrain joined the anti-Islamic State coalition. The Trump Administration has retained restrictions on working with the Ministry and on selling it arms, according to September 12, 2017, testimony by Ambassador Justin Siberell during his confirmation hearing. <2.4.1. Arms Sales to the MOI/Bahrain Coast Guard> Sales of U.S.-made small arms such as those sold to the Interior Ministry are generally commercial sales, licensed by State Department, with Defense Department concurrence. In May 2012, the State Department put "on hold" license requests for sales to Bahrain of small arms, light weapons, and ammunition all of which could potentially be used against protesters. Apparently referencing Bahrain, the FY2014 Consolidated Appropriation Act ( P.L. 113-76 ) prohibited use of U.S. funds for "tear gas, small arms, light weapons, ammunition, or other items for crowd control purposes for foreign security forces that use excessive force to repress peaceful expression, association, or assembly in countries undergoing democratic transition." The Trump Administration has maintained the hold on new sales of U.S. arms and equipment to MOI forces. Bahrain's Coast Guard. This force, which is under the Ministry of Interior, polices Bahrain's waterways and contributes to the multilateral mission to monitor and interdict the seaborne movement of terrorists and weapons. U.S. restrictions on support for the Ministry of Interior forces have generally not applied to the Bahrain Coast Guard. <2.4.2. U.S. Training/NADR Funding> The United States provides assistance to the MOI primarily through programs funded by Nonproliferation, Antiterrorism, Demining and Related Programs (NADR) funds, to help the MOI confront violent extremists and terrorist groups. U.S. officials assert that a general lack of training and antiquated investigative methods had slowed the MOI Police Force's progress on counterterrorism and criminal investigations. The ministry's role in putting down unrest prompted an Obama Administration "review" of the use of NADR-ATA (Antiterrorism Assistance) funding for the ministry to ensure that none of the funding was used against protestors. The State Department report on international terrorism for 2014 stated that the "Leahy Law" requirement to vet Bahrain personnel participating in ATA programs prompted the cancellation of planned ATA courses for Bahrain in 2015. However, that report for 2015 stated that one ATA-related course took place that year; the report for 2016 and 2017 did not mention any courses in those years. The Trump Administration provided about $400,000 in NADR funds for FY2018 and requested an equivalent amount for FY2019 to train MOI personnel in investigative techniques, with a human rights focus, and to help MOI personnel respond to terrorist's use of explosives. Some NADR-ATA funds have previously been used to augment Bahrain's ability to protect U.S. diplomatic and military facilities in Bahrain. <2.4.3. Countering Terrorism Financing and Violent Extremism> Bahrain has been a regional leader in countering terrorism financing since well before the Islamic State organization emerged as a threat. Bahrain has hosted the Middle East and North Africa Financial Action Task Force (MENA/FATF) secretariat. Bahrain's financial intelligence unit is a member of the Egmont Group. Bahrain's banks cooperate with U.S. efforts against terrorism financing and money laundering. In 2013, the government amended the Charity Fundraising Law of 1956 to increase terrorism financing monitoring and penalties. In October 2017, King Hamad issued a series of decreases mandating extensive prison sentences and financial penalties on persons found guilty of raising funds for groups engaged in terrorist activities in Bahrain or internationally. In April 2015, Bahrain hosted the 8 th European Union-GCC Workshop on Combating Terrorist Financing, and Bahrain is a member of the U.S.-led anti-Islamic State coalition's Counter-ISIS Finance Group. In 2015, Bahrain hosted a workshop focused on preventing the abuse of the charitable sector to fund terrorism, and a U.S.-GCC anti-Hezbollah workshop in 2016. In 2017, Bahrain jointed the U.S.-GCC Terrorist Financial Targeting Center, which coordinates GCC counterterrorism financing efforts. In October 2017, in concert with that Center, Bahrain imposed sanctions on persons and entities linked to the Islamic State and Al Qaeda in the Arabian Peninsula (AQAO). However, in part due to the intra-GCC dispute discussed below, Bahrain did not allow a Qatari representative to participate in a MENA/FATF meeting in Manama. Countering Violent Extremism . Bahrain's Ministry of Justice and Islamic Affairs heads the country's efforts to counter radicalization. It has organized regular workshops for clerics and speakers from both the Sunni and Shia sects. The ministry also reviews schools' Islamic studies curricula to evaluate interpretations of religious texts. In 2016, the country drafted a National Countering Violent Extremism strategy. <3. Foreign Policy Issues> Bahrain's foreign policy is similar to several other GCC states, particularly on Iran. <3.1. Relations with other GCC States> Bahrain is politically closest to Saudi Arabia, as demonstrated by the Saudi-led GCC intervention to help the government suppress the uprising in 2011, and Bahrain's joining of the June 2017 Saudi-led move to isolate Qatar. That dispute remains unresolved, and it threatens to undermine the Trump Administration's reported plan to forge a "Middle East Strategic Alliance" (MESA) consisting of the GCC and other Sunni Arab states against Iran. Secretary of State Pompeo's January 2019 visit to the GCC states, including Bahrain, was intended in part to forge GCC unity against Iran, as well as reassure the Gulf states of the U.S. commitment to Gulf security. The MESA reportedly is to be formally launched at a planned U.S.-GCC summit, but that meeting has been repeatedly postponed due to the lack of resolution of the intra-GCC rift. On May 6, 2019, Bahrain's Prime Minister spoke with Qatar's Amir to convey Ramadan greetings, while denying that the call was intended as a gesture suggesting imminent resolution of the intra-GCC dispute. Many Saudis visit Bahrain to enjoy the relatively more liberal social atmosphere there, using a causeway constructed in 1986 that links Bahrain to the eastern provinces of Saudi Arabia, where most of the kingdom's Shias (about 10% of the population) live. King Hamad's fifth son, Khalid bin Hamad, married a daughter of the late Saudi King Abdullah in 2011. In May 2012, Saudi Arabia and Bahrain announced a proposal to form a political and military union among the GCC states ("Riyadh Declaration"), but opposition by the other four GCC states caused it to languish. Bahrain is also politically close to Kuwait, in part because of historic ties between their two royal families. Both royal families hail from the Anizah tribe that settled in Bahrain and Kuwait. Kuwait has sometimes sought to mediate the Bahrain political crisis, but Shias in Kuwait have expressed resentment at what they say is the Kuwait ruling family's alignment with the Al Khalifa regime. Kuwait, as noted, joined the GCC intervention in Bahrain in 2011 and has financially aided Bahrain. In October 2018, Kuwait, Saudi Arabia, and UAE announced a $10 billion aid package to stabilize Bahrain's budget and finances. Perhaps in part explaining why Bahrain joined the June 2017 Saudi-led move against Qatar, Bahrain's relations with Qatar have frequently been fraught with disputes. The two had a long-standing territorial dispute over the Hawar Islands and other lands, which had roots in the 18 th century, when the ruling families of both countries controlled parts of the Arabian peninsula. In 1991, five years after clashes in which Qatar landed military personnel on a Bahrain-constructed man-made reef (Fasht al-Dibal) and took some Bahrainis prisoner, Bahrain and Qatar agreed to abandon fruitless Saudi mediation efforts and refer the issue to the International Court of Justice (ICJ). The ICJ ruled on March 16, 2001, in favor of Bahrain on the central dispute over the Hawar Islands but awarded to Qatar the Fasht al-Dibal reef and the town of Zubara on the Qatari mainland, where some members of the Al Khalifa family were long buried. Two smaller islands, Janan and Hadd Janan, were ruled not part of the Hawar Islands group and were also awarded to Qatar. Qatar expressed disappointment over the ruling but accepted it as binding. Not only has Bahrain backed the 2017 Saudi-led isolation of Qatar, but Bahrain joined the earlier Saudi Arabia and UAE withdrawal of their ambassadors from Qatar in 2014. That disagreement centered on Qatar's support for Muslim Brotherhood-affiliated opposition movements in several Middle Eastern countries, which Qatar views as a constructive Islamist movement but which Saudi Arabia and the UAE consider a terrorist organization. The earlier dispute eased in November 2014 with the return of GCC ambassadors to Doha. <3.2. Iran> Bahrain has long blamed Iran for encouraging Bahrain's Shia opposition to rebel and for supplying the violent Shia opposition with arms and explosives. In December 1981, and then again in June 1996, Bahrain publicly accused Iran of trying to organize a coup by pro-Iranian Bahraini Shias. In September 2018, Bahrain's government came close to reviving such accusations against Iran with the charging of 169 persons for allegedly forming "Bahrain Hezbollah" with the backing of the IRGC-QF. Bahrain's leaders cite Iranian statements as evidence that Iran seeks to promote the overthrow of the government. In June 2016, Supreme Leader Ayatollah Ali Khamene'i called the revocation "blatant foolishness and insanity" that would mean "removing a barrier between fiery Bahrain youths and the state." As noted above, the Trump Administration has firmly backed the government view that Iran is arming Shia militants in Bahrain. Bahrain backed Saudi Arabia in its January 2016 dispute with Iran in which Iranian protesters attacked two Saudi diplomatic facilities in Iran in response to the Saudi execution of dissident Shia cleric Nimr al-Baqr Al Nimr. As did Saudi Arabia, Bahrain broke diplomatic relations with Iran, going beyond a 2011-2012 cycle of tensions in which Iran and Bahrain withdrew their ambassadors. In March 2016, the GCC states declared Lebanese Hezbollah, a key Iran ally, a terrorist organization and discouraged or banned their citizens from visiting Lebanon. Bahrain simultaneously closed Future Bank, a Bahrain bank formed and owned by two major Iranian banks (Bank Saderat and Bank Melli). Earlier, in 2013, Bahrain declared Hezbollah a terrorist organization, accusing it of helping a Shia-led "insurgency" in Bahrain. Bahrain's arrests of Shias it accuses of linkages to the IRGC-QF and Hezbollah are noted above. On Iran nuclear issues, Bahrain has expressed support for Iran's right to civilian nuclear power, but it said that "when it comes to taking that [nuclear] power, to developing it into a cycle for weapon grade, that is something that we can never accept, and we can never live with in this region." It publicly supported the 2010-2016 global economic pressure on Iran to compel it to limit its nuclear program. Bahrain abandoned a 2007 agreement - reached after a visit to Bahrain by then-President of Iran Mahmoud Ahmadinejaded - to buy, for 25 years, 1.2 billion cubic feet per day of Iranian gas via a planned undersea pipeline and for Bahrain to invest $4 billion to develop the source of the gas - Phases 15 and 16 of Iran's South Pars gas field. At the same time, Bahrain maintains relatively normal trade with Iran. Bahrain did not take immediate action to close Iran-linked Future Bank or the Iran Insurance Company until 2016, long after Future Bank was sanctioned by the United States in 2008 under Executive Order 13382 (anti-proliferation). By the time Bahrain closed that Bank in February 2016, the United States had already lifted sanctions on it in accordance with the nuclear agreement (Joint Comprehensive Plan of Action, JCPOA). As did the other GCC states, Bahrain expressed initial concern that the JCPOA represented a U.S. acceptance of an enhanced regional role for Iran. King Hamad scuttled plans to attend the U.S.-GCC summit at Camp David during May 13-14, 2015 a meeting intended to soothe GCC concerns about an Iran nuclear deal and sent the Crown Prince instead. Bahrain joined the GCC in eventually supporting the JCPOA while calling for increased vigilance against Iran's "destabilizing regional activities." Yet, Bahrain's leaders publicly supported the May 2018 Trump Administration withdrawal from the JCPOA. Bahrain's animosity toward Iran also stems from issues that predate the formation of the Islamic Republic in 1979. In 2009, an advisor to Iran's Supreme Leader, referred to Bahrain as Iran's 14 th province, reviving Bahrain's long-standing concerns that Iran would again challenge its sovereignty. Persian officials contested Bahrain's sovereignty repeatedly during the 19 th and 20 th centuries, including in 1957, when a bill was submitted to the Iranian Majlis (legislature) to make Bahrain a province of Iran. Bahrain considers the independence issue closed: when Iran reasserted its claim to Bahrain in 1970, prior to the end of British rule in Bahrain, the U.N. Secretary-General dispatched a representative to determine the views of Bahrainis, who found that the island's residents overwhelmingly favored independence from all outside powers, including Iran. The findings were endorsed by U.N. Security Council Resolution 278 and Iran's Majlis ratified them. <3.3. Iraq/Syria/Islamic State Organization> Bahrain backed the U.S.-led 2003 overthrow of Iraq's Saddam Hussein, but Bahrain's relations with the post-Saddam Iraq deteriorated after 2005 as the Shia-dominated Iraqi government marginalized Sunni leaders. Some Shia Iraqi leaders expressed support for the 2011 Bahrain uprising. Bahrain did not contribute financially to Iraq reconstruction, but it participated in the "Expanded Neighbors of Iraq" regional dialogue on Iraq that ended in 2008, and it posted its first post-Saddam ambassador to Iraq in October 2008. Bahrain sent a low-level delegation to the March 27-29, 2012, Arab League summit in Baghdad. Similarly, Bahrain and the other GCC states blamed Syrian President Bashar Al Assad for authoritarian policies that alienated Syria's Sunni Arab majority and fueled support for the Islamic State. In 2011, Bahrain and most of the other GCC states (except Oman) closed their embassies in Damascus and voted to suspend Syria's membership in the Arab League. Bahrain's government did not, by any account, provide funding or weaponry to any Syrian rebel groups. Apparently recognizing that Assad is prevailing in the civil war, in late December 2018, Bahrain re-opened its embassy in Damascus, as did the UAE. Asserting that the Islamic State poses a regional threat, on September 22, 2014, Bahrain and the other GCC states joined the U.S.-led anti-Islamic State coalition. Bahrain conducted air strikes against Islamic State positions in Syria, as did several other GCC states, but the State Department's report on terrorism for 2016 stated that Bahrain "has not contributed substantively to coalition [anti-ISIS] military efforts since 2014." None of the GCC states engaged in anti-Islamic State air operations in Iraq, on the grounds that the Shia-dominated Iraqi government is aligned with Iran. <3.4. Yemen> Bahrain joined the GCC diplomatic efforts to persuade Yemen's President Ali Abdullah Saleh to cede power to a transition process in 2012. In 2015, Zaidi Shia "Houthi" militia rebels, backed to some degree by Iran, took control of the capital, Sanaa, and forced President Abdu Rabbu Mansur Al Hadi into exile. In March 2015, Saudi Arabia assembled a coalition of Arab states, including Bahrain and all the other GCC countries except Oman, to combat the Houthis in an effort to achieve a restoration of the Hadi government. Bahrain has conducted air strikes and contributed some ground forces to the effort. At least eight members of the BDF have been killed in the engagement, to date, and a Bahraini Air Force F-16 crashed in Yemen-related operations on December 30, 2015. The pilot survived. Air Vice Marshall Hamad bin Abdullah al Khalifah, head of the Royal Bahrain Air Force (RBAF), stated in February 2019 that RBAF F-16s had conducted over 3,500 sorties since the beginning of the campaign in March 2015. <3.5. Israeli-Palestinian Dispute> On the Israeli-Palestinian dispute, Bahraini leaders have long tended toward engagement with Israel while also supporting Palestinian aspirations. In a July 2009 op-ed, Crown Prince Salman called on the Arab states to do more to communicate to the Israeli people ideas for peaceful resolution of the dispute. In October 2009, Bahrain's then-foreign minister called for direct talks with Israel and in September 2017, King Hamad called for the Arab states to forge direct ties to Israel and an end to the Arab boycott of Israel. Following the October 2018 visit of Israeli Prime Minister Benjamin Netanyahu to Oman, Israel's Minister of Economy, Eli Cohen, received an invitation to visit Bahrain. Subsequently, in December 2017 a cross-sectarian Bahraini group visited Israel, and low profile Israeli delegations have attended conferences in Manama. Still, many Bahrainis, including in the National Assembly, oppose engaging Israel and it was this public pressure that caused the cancellation of a large Israeli delegation to a business conference in April 2019. The commitment of the Bahrain government to engagement undoubtedly contributed to a Trump Administration to promote the economic component of its Israeli-Palestinian peace plan in Bahrain in June 2019. Still, Bahrain supports the efforts of Palestinian Authority President Mahmoud Abbas to obtain U.N. recognition for a State of Palestine. Bahraini leaders publicly criticized the announcement by President Trump on December 6, 2017, recognizing Jerusalem as Israel's capital as an obstacle to forging an Israeli-Palestinian peace. Earlier, Bahrain participated in the 1990-1996 multilateral Arab-Israeli talks, and it hosted a session on the environment (October 1994). In September 1994, all GCC states ceased enforcing secondary and tertiary boycotts of Israel, but Bahrain did not join Oman and Qatar in exchanging trade offices with Israel. In conjunction with the U.S.-Bahrain FTA, Bahrain dropped the primary boycott and closed boycott-related offices in Bahrain. <4. Economic Issues> Bahrain's economy has been affected by the domestic unrest and by the decline in oil prices during 2014-2018. Hydrocarbons still account for about 80% of government revenues, mostly from oil exports from a field that Saudi Arabia shares equally with Bahrain, the Abu Safa field, which produces 300,000 barrels per day. Bahrain's oil and gas reserves are the lowest of the GCC states, estimated respectively at 210 million barrels of oil and 5.3 trillion cubic feet of gas. However, Bahrain's energy export potential might be revived if Bahrain's 2018 discovery of a shale oil field containing an estimated 80 billion barrels of shale oil proves commercially viable. The decline in oil prices from 2014 levels has caused Bahrain to cut subsidies of some fuels and some foodstuffs. The financial difficulties have also contributed to a lack of implementation of government promises to provide more low-income housing (presumably for Shias, who tend to be among the poorer Bahrainis). To try to diversify, Bahrain is investing in its banking and financial services sectors (about 25.5% of GDP combined). To help Bahrain cope with its budgetary difficulties, Saudi Arabia, Kuwait, and the UAE announced in early October 2018 a $10 billion aid package. A comprehensive assessment of Bahrain's economy is provided in Economist Intelligence Unit country reports. <4.1. U.S.-Bahrain Economic Relations> U.S.-Bahrain economic relations have expanded, even though the United States buys virtually no oil from Bahrain. The major U.S. import from the country is aluminum: that product and other manufacturing account for the existence in Bahrain of a vibrant middle and working class, which consists mostly of Shia Bahrainis. About 180 U.S. companies do business in Bahrain. In concert with Crown Prince Salman's visit to Washington, DC, in November 2017, Bahrain-based companies in several sectors signed trade deals with U.S. based firms, including a memorandum of understanding between Aluminum Bahrain (Alba) and General Electric. More than 200 American companies operate in Bahrain, and Amazon Web Services is slated to open its first regional headquarters in Bahrain. To encourage reform and signal U.S. appreciation, the United States and Bahrain signed an FTA on September 14, 2004. Implementing legislation was signed January 11, 2006 ( P.L. 109-169 ). However, in light of the unrest, the AFL-CIO has urged the United States to void the FTA on the grounds that Bahrain is preventing free association of workers and abridging their rights. In 2005, total bilateral trade was about $780 million, and, as depicted in the table below, U.S.-Bahrain trade has more than doubled since the U.S.-Bahrain FTA to about $2 billion in 2017. Some U.S. funds have been used to provide assistance to Bahrain for purposes that are not purely security related. In 2010, MEPI supported the signing of a Memorandum of Understanding between the Small Business Administration and Bahrain's Ministry of Industry and Commerce to support small and medium enterprises in Bahrain. MEPI funds have also been used to fund U.S. Department of Commerce programs ("Commercial Law Development Program") to provide Bahrain with technical assistance in support of trade liberalization and economic diversification, including modernization of the country's commercial laws and regulations.

An uprising against Bahrain's Al Khalifa ruling family that began on February 14, 2011, has subsided, but punishments of oppositionists and periodic demonstrations continue. The mostly Shia opposition to the Sunni-minority-led regime has not achieved its goal of establishing a constitutional monarchy, but the unrest has compelled the ruling family to undertake some modest reforms. Elections for a legislative body, held most recently in 2018, were marred by the banning of opposition political societies and allegations of gerrymandering to prevent opposition victories, but observers praised the newly elected lower house of the Assembly for naming a woman as its speaker. The mainstream opposition uses peaceful forms of dissent, but small factions, reportedly backed by Iran, have conducted some attacks on security officials. The Bahrain government's repression has presented a policy dilemma for the United States because Bahrain is a longtime ally that is pivotal to maintaining Persian Gulf security. The country has hosted a U.S. naval command headquarters for the Gulf region since 1948; the United States and Bahrain have had a formal Defense Cooperation Agreement (DCA) since 1991; and Bahrain was designated by the United States as a "major non-NATO ally" in 2002. There are over 7,000 U.S. forces, mostly Navy, in Bahrain. Bahrain relies on U.S.-made arms, but, because of the government's use of force against protesters, the Obama Administration held up some new weapons sales to Bahrain and curtailed U.S. assistance to Bahrain's internal security organizations. In 2014, Bahrain joined the U.S.-led coalition against the Islamic State and flew strikes against the group's fighters in Syria that year. Bahrain supports a U.S.-backed concept for a broad Arab coalition to counter Iran, the "Middle East Strategic Alliance." The Trump Administration has prioritized countering Iran and addressing other regional security issues, aligning the Administration closely with Bahrain's leadership on that issue. In keeping with that approach, the Administration lifted the previous administration's conditionality on major arms sales to Bahrain's military and has corroborated Bahrain leadership assertions that Iran is providing material support to violent opposition factions in Bahrain. Critics of the policy assert that the Administration is downplaying human rights concerns in the interests of countering Iran. Within the Gulf Cooperation Council alliance (GCC: Saudi Arabia, Kuwait, UAE, Bahrain, Qatar, and Oman), Bahrain generally supports Saudi policies. In March 2015, it joined Saudi Arabia-led military action to try to restore the government of Yemen that was ousted by Iran-backed Houthi rebels. In June 2017, it joined a Saudi and UAE move to isolate Qatar for its purported support for Muslim Brotherhood-linked Islamist movements, accusing Qatar of hosting Bahraini dissidents and of allying with Iran. Bahrain has fewer financial resources than do most of the other GCC states and has not succeeded in significantly improving the living standards of the Shia majority. The unrest has, in turn, strained Bahrain's economy by driving away foreign investment. In October 2018, three GCC states assembled an aid package of $10 billion to reduce the strain on Bahrain's budget. Bahrain's small oil exports emanate primarily from an oil field in Saudi Arabia that the Saudi government has set aside for Bahrain's use, although a major new oil and gas discovery off Bahrain's coast was reported in early 2018. In 2004, the United States and Bahrain signed a free trade agreement (FTA); legislation implementing it was signed January 11, 2006 (P.L. 109-169). Some U.S. labor organizations assert that Bahrain's arrests of dissenting workers should void the FTA.

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<1. Introduction> In the past, Congress has regularly acted to extend expired or expiring temporary tax provisions. Collectively, these temporary tax provisions are often referred to as "tax extenders." This report briefly summarizes and discusses the economic impact of the 17 business-related tax provisions that are scheduled to expire before 2025. There are 13 business-related temporary tax provisions scheduled to expire at the end of 2020. Most of these business-related provisions were included in past extenders legislation. The business tax extenders are diverse in purpose, providing various types of tax relief to businesses in different industries. Most recently, Congress extended expiring provisions in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as Division Q of the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). This law retroactively extended, through 2020, eight temporary tax provisions that had expired at the end of 2017; it also extended five provisions scheduled to expire in 2019. The estimated cost of the 13 temporary business tax provision extensions enacted in the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ) is provided in Table 1 . The most costly of these provisions are the employer credit for paid family and medical leave ($2.2 billion), the work opportunity tax credit ($2.0 billion), and the New Markets Tax Credit ($1.5 billion). Note that all three of these provisions were scheduled to expire at the end of 2019, and thus were extended for one year. In contrast, the eight other provisions that had expired at the end of 2017 and were extended through 2020 were effectively extended for three years. Four other business-related provisions are scheduled to expire in 2021 or 2022: (1) the 12.5% increase in the annual low-income housing tax credit (LIHTC) authority for four years (2018-2021), enacted as part of the 2018 Consolidated Appropriations Act, with a cost of $2.7 billion; (2) the computation of adjusted taxable income without regard to any deduction allowable for depreciation, amortization, or depletion for purposes of the interest deduction limit, set to expire by the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ), with no separate cost estimate for this feature; (3) the five-year extension of the rum cover over, last extended retroactively for 2017 and forward through 2021 as part of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), with a cost of $0.6 billion; and (4) the credit for certain expenditures for maintaining railroad tracks, extended through 2022 in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, with a cost of $1.1 billion. There are several options for Congress to consider regarding temporary provisions. Provisions that are scheduled to expire or have expired could be extended, and the extension could be short term, long term, or permanent. Alternatively, Congress could allow the provisions to expire and remain expired. <2. Provisions Expiring in 2020> There are 13 business-related provisions scheduled to expire in 2020. All 13 of these provisions were extended in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as Division Q of the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). <2.1. Special Business Investment (Cost Recovery) Provisions> The cost of assets that provide services over a period of time, such as machines or buildings, is deducted over a period of years as depreciation. The schedule of depreciation deductions depends on the asset's life and the distribution of deductions over that life. Straight-line depreciation is used for structures, where equal amounts are deducted in each year. For equipment, deductions are accelerated, with larger amounts deducted in earlier years. Equipment is most commonly depreciated over 5 years or 7 years, but some short-lived assets are depreciated over 3 years and some longer-lived assets are depreciated over 10, 15, or 20 years. Nonresidential structures are depreciated over 39 years. Aside from the desire for economic stimulus, traditional economic theories suggest that tax depreciation should match economic (physical) depreciation of assets as closely as possible. The depreciation provisions discussed below all allow earlier deductions for depreciation, which are valuable because of the time value of money. A fixed reduction in tax liability today is worth more than that same fixed reduction in tax liability in the future. Expensing provisions allow a firm to deduct the cost of an asset the year it is placed in service. Through 2022, bonus depreciation of 100% allows for full expensing of investments in qualifying equipment and property. It is scheduled to decrease to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% for property acquired and placed in service in 2027 and thereafter. The presence of bonus depreciation or expensing would make some temporary provisions more important (such as the benefits for motorsports complexes, which would otherwise become ineligible) and some less important (such as shortening lives for racehorses or Indian reservation property, or expensing for films and television, which would have received the benefit regardless). <2.1.1. Special Expensing Rules for Certain Film, Television, and Live Theatrical Productions7> Investments in film and television productions are generally recovered using the income forecast method. Under this method, depreciation deductions are based on the pattern of expected earnings. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) included special rules to allow expensing for certain film and television production costs. The provision's main purpose was to discourage "runaway" productions, or the production of films and television shows in other countries, where tax and other incentives are often offered. Initially, the provision was set to expire at the end of 2008. However, since 2008, the provision has regularly been extended as part of tax extender legislation most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Under the special expensing rules for film, television, and live theatrical productions, taxpayers may elect to deduct immediately up to $15 million of production costs ($20 million for productions produced in certain low-income and distressed communities) in the tax year incurred. Eligible productions are limited to those in which at least 75% of the compensation paid is for services performed in the United States. For productions that started before 2008, the expensing deduction is not allowed if the aggregate production cost exceeds $15 million ($20 million for productions in designated low-income and distressed communities). Qualifying live theatrical productions are those generally performed in venues with an audience capacity of not more than 3,000 (or 6,500 for seasonal productions performed no more than 10 weeks annually). The provisions would cover most theatrical productions (the largest of the Broadway theatres, for example, has a seating capacity of less than 2,000). The ability to expense (deduct immediately) certain film, television, and live theatrical production costs provides a benefit by allowing deductions to be taken earlier, thus deferring tax liability. The magnitude of the benefit depends on the average lag time from production to earning income. For many films, production costs would be deductible in the year the film is released. If the film is released one year after the production costs are incurred, which may be the case for independent and smaller productions, the provision accelerates cost recovery by one year. The benefit conferred by accelerating cost recovery deductions by one year is limited. Taxpayers with limited or no tax liability may derive little or no benefit from the expensing allowance. The primary policy objective of providing special tax incentives for film and television producers is to deter productions from moving overseas, lured by lower production costs as well as tax and other subsidies offered by foreign governments. Because live theatre is tied to audience location, runaway productions are not a concern. However, providing expensing for live theatrical production costs could encourage investment in such productions and provide parity with film and television. In evaluating this incentive, one consideration is the economic value of domestic film, television, and theatre production relative to the cost of the targeted tax benefits. <2.1.2. Seven-Year Recovery Period for Motorsports Entertainment Complexes10> An exception from the 39-year depreciation life for nonresidential structures exists for the theme and amusement park industry. Assets in this industry are assigned a recovery period of seven years. Historically, motorsports racing facilities have been included in this industry and also allowed a seven-year recovery period. However, ambiguities in the law led to questions about whether motorsports racing facilities were correctly categorized. When the Treasury reconsidered the appropriateness of this classification in 2004, Congress made the seven-year treatment mandatory through 2007 with the American Jobs Creation Act ( P.L. 108-357 ). Since 2004, the provision has been extended as part of tax extenders legislation most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ), which extended the provision through December 31, 2020. Without this provision, motorsports racing facilities would be depreciated over the standard 39-year life. The tax authorities presumably estimated motorsports racing facilities to have slower depreciation rates than the seven-year life that applies to amusement park facilities. If so, the seven-year-life provision for motorsports racing facilities constitutes a subsidy to the auto racing industry that does not appear to have an obvious justification. Supporters argued that the provision preserves historical treatment and provides a stimulus to business. They also argued that the benefit helps make motorsports facilities more competitive with sports facilities that are often subsidized by state and local governments. <2.1.3. Three-Year Depreciation for Racehorses Two Years or Younger11> Racehorses are tangible property, and taxpayers using racehorses in a trade or business must capitalize the cost of purchasing racehorses. The cost can then be recovered through annual depreciation deductions over time. The cost recovery period for racehorses is seven years, although racehorses that begin training after age two have a three-year recovery period. Under the temporary provision, this three-year recovery period is extended to all racehorses. In particular, all racehorses placed in service after December 31, 2008, have a three-year recovery period as a result of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ), with provisions subsequently extended. This provision was extended through December 31, 2020, by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The industry claims that reducing the recovery period to three years more closely aligns the recovery period with the racing life of a horse. The IRS cost recovery period suggests a longer view. Some racehorses continue in productive activity after their racing career through breeding, as well as having a residual value for resale. Taking those uses into account, a Treasury study estimated an overall economic life of nine years. This provision does not affect breeders who race their own horses, because they deduct the cost of breeding and thus have no basis (capital investment) in the horses. The provision generally benefits investors who purchase horses. <2.1.4. Accelerated Depreciation for Business Property on an Indian Reservation13> The Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) contained a provision allowing businesses on Indian reservations to be eligible for accelerated depreciation (through a reduction in the applicable recovery periods) as part of an effort to increase investment in Indian reservations. Since its initial temporary enactment, this provision has regularly been extended as part of tax extenders legislation most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ), which extended the provision through December 31, 2020. Extending the provision might encourage additional investment on Indian reservations. However, if these provisions' main objective is to improve the economic status of individuals currently living on Indian reservations, it is not clear to what extent this tax subsidy will succeed, because it is not given directly to workers but instead is received by businesses. Capital subsidies may not ultimately benefit workers. It is possible that capital equipment subsidies may encourage more capital-intensive businesses and make workers relatively worse off. In addition, workers would not benefit from higher wages resulting from an employer subsidy if the wage is determined by regulation (the minimum wage) that is set higher than the prevailing market wage. <2.2. Economic Development Provisions> <2.2.1. Empowerment Zone Tax Incentives14> Empowerment Zones (EZs) are federally designated geographic areas characterized by high levels of poverty and economic distress, where businesses and local governments may be eligible to receive federal grants and tax incentives. Since 1993, Congress has authorized three rounds of EZs (1993, 1997, and 1999) with the objective of revitalizing selected economically distressed communities. EZs are similar to Enterprise Communities (ECs) and Renewal Communities (RCs), which are also federally designated areas for the purposes of tax benefits and grants. A number of studies have evaluated the effectiveness of the EZ, EC, and RC programs. Government Accountability Office and Department of Housing and Urban Development studies have not found links between EZ and EC designation and improvement in community outcomes. Other research has found modest, if any, effects and called into question these programs' cost-effectiveness. This inability to link these programs to improvements in community-level outcomes should not be interpreted as meaning that the EZ, EC, and RC programs did not aid economic development. The main conclusion from these studies is that the EZ, EC, and RC programs have not been shown to have caused a general improvement in the examined localities' economic conditions. One possible cause for this inability to empirically show the program effects on a large geographic area is that the EZ tax incentives are relatively small. Another possibility is that the EZ tax incentives are targeted at business owners and do not provide direct benefits to workers in EZs. Six tax incentives are typically related to EZs: (1) local designation of an EZ; (2) increased exclusion of gain; (3) issuance of qualified, tax-exempt zone academy bonds (QZABs) in EZs; (4) EZ employment credits under the Work Opportunity Tax Credit (WOTC); (5) increased expensing under Internal Revenue Code (IRC) Section 179 for businesses located in EZs; and (6) nonrecognition of gain on rollover of EZ investments. EZs were created by legislation enacted in 1993, and most zones expired at the end of 2009. The provisions were extended in the Protecting Americans from Tax Hikes (PATH) Act of 2015 ( P.L. 114-113 ), which also amended the requirements for tax-exempt enterprise zone facility bonds to treat an employee as a resident of a particular EZ if the employee is a resident of a different EZ, EC, or qualified low-income community. Provisions were extended after 2015, and were last extended through 2020 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). For more analysis of EZs, see CRS Report R41639, Empowerment Zones, Enterprise Communities, and Renewal Communities: Comparative Overview and Analysis , by Donald J. Marples. <2.2.2. American Samoa Economic Development Credit24> The American Samoa economy is largely dependent on three sectors: public works and government, tuna canning, and the residual private sector (e.g., tourism and other services). The American Samoa economic development credit (EDC) is a credit against U.S. corporate income tax in an amount equal to the sum of certain percentages of a domestic corporation's employee wages, employee fringe benefit expenses, and tangible property depreciation allowances for the taxable year with respect to the active conduct of a trade or business within American Samoa. The credit is available to U.S. corporations that, among other requirements, (1) claimed the now-expired possession tax credit (predecessor to the EDC) with respect to American Samoa for their last taxable year beginning before January 1, 2006; or (2) have qualified production activities income after December 31, 2011, in American Samoa (akin to production activities income eligible for Section 199 tax treatment in the United States). The credit's proponents claim it encourages eligible companies to locate, retain, or expand manufacturing operations in the territory. Media reports suggest the EDC's main beneficiary, thus far, has been StarKist, which has retained its cannery operations in American Samoa. The EDC was first enacted in the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). This version of the EDC was only available to corporations that had previously claimed the possession tax credit, and it originally expired at the end of 2007. It has been extended numerous times. The American Tax Relief Act of 2012 ( P.L. 112-240 ) also expanded the EDC's criteria to include corporations that had not previously claimed the possession tax credit. The provision was most recently extended through 2020 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). <2.2.3. New Markets Tax Credit27> The New Markets Tax Credit (NMTC) was enacted by the Community Renewal Tax Relief Act of 2000 ( P.L. 106-554 ) to encourage investors to invest in low-income communities (LICs) that traditionally lack access to capital. The NMTC is a competitively awarded tax credit overseen by the Community Development Financial Institutions (CDFI) Fund, organized within the Department of the Treasury. For each NMTC round authorized by Congress, the CDFI Fund ranks all requests for NMTC allocation authority and grants awards to those CDEs that score highest. A CDE is a domestic corporation or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in LICs. All taxable investors, such as banks, venture capital firms, and other private investors, are eligible to receive the NMTC. The NMTC's structure creates incentives for CDEs and private investors to participate in the program. CDEs benefit from the NMTC because they charge fees to their investors for organizing the NMTC application and for structuring the financing for a portfolio of community development projects. The private investors benefit because they receive, each year over seven years, an annual tax credit equal to 5% to 6% of the total amount paid for the stock or capital interest in the CDE that they purchase. Overall, the tax credit amounts to 39% of the cost of the qualified equity investment (less the CDE's fees) as long as the interest in the investment is retained for the entire seven-year period. Thus, even if the community development project funded by the CDE incurs some losses, the value of the tax credit could generate a positive return for the private financers. Opposition to the NMTC is partly based on the belief that corporations and higher-income investors primarily benefit from the provision or that the NMTC leads to an economically inefficient allocation of resources. For instance, while banks and other investors might benefit directly from the credit, a 2009 study found that the NMTC's benefits to selected low-income communities were modest. The study concluded that poverty and unemployment rates fall by statistically significant amounts in tracts that receive NMTC-subsidized investment relative to similar tracts that do not. From a national economic perspective, the NMTC's impact would be greatest in the case where the investment represents net investment in the U.S. economy rather than a shift in investment from one location to another. Another 2009 study found that corporate NMTC investment represented a shift in investment location, but a portion of individual NMTC investment (roughly $641 million in the first four years of the program from 2001 to 2004) represented new investment. The NMTC has been extended as a temporary tax provision since 2008, after its initial authorization expired at the end of 2007. In more recent years, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) extended NMTC authorization through 2011 and permitted a maximum annual amount of qualified equity investments of $3.5 billion. Following several other extensions, the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ) extended the provision through 2020 with a maximum allocation authority of $5 billion. For more information on the NMTC, see CRS Report RL34402, New Markets Tax Credit: An Introduction , by Donald J. Marples and Sean Lowry; and CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues , by Sean Lowry. <2.3. Other Business Provisions> <2.3.1. Indian Employment Tax Credit33> The Indian employment tax credit is an incremental credit claimed by employers for qualified wages and health insurance costs. The credit is designed to encourage hiring of certain individuals enrolled members of an Indian tribe and their spouses. There are restrictions limiting the benefit to services performed within an Indian reservation for individuals living on or near the reservation. The Indian employment credit is 20% of the excess of qualified wages and health insurance costs paid by an employer over base-year expenses. The credit is allowed for the first $20,000 in qualified wages and health insurance costs. The base year is 1993, such that the incentive is incremental to 1993 wages and health insurance costs (the base year has not been changed since the credit was enacted). The credit is not available for wages paid to an employee whose total wages exceed $30,000, as adjusted for inflation ($50,000 in 2019). The employer must reduce the deduction for wages by the amount of the credit. The Indian employment credit was first enacted in 1993, as part of the Omnibus Reconciliation Act of 1993 ( P.L. 103-66 ). It was initially scheduled to expire at the end of 2003, but has been regularly extended, often retroactively. Past extensions of the Indian employment credit have extended the termination date without updating the base year. Some have proposed updating the base year, in an effort to (1) eliminate the need for taxpayers to maintain tax records dating back to 1993 and (2) restore the credit's incremental design. The most recent extension was through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Extending the Indian employment credit might encourage additional hiring of Indian tribe members and their spouses. Although the Indian employment credit may not increase overall employment on or near Indian reservations, it might increase employment among tribe members. <2.3.2. Mine Rescue Team Training Credit35> Taxpayers that employ miners in underground mines located in the United States may be able to claim a tax credit for mine rescue team training expenses. The credit amount is limited to the lesser of (1) 20% of training program costs per employee (including wages paid to the employee while in training) or (2) $10,000. For a taxpayer to claim the credit for training provided to an employee, the employee must be a full-time miner who is eligible to serve as a mine rescue team member. The mine rescue team training credit was enacted in the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). It was initially scheduled to be effective for 2006, 2007, and 2008. It has subsequently been extended as part of tax extenders legislation, most recently through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The mine rescue team training credit was enacted at the end of 2006, following the high-profile mining accident at Sago Mine. There was an uptick in coal mining fatalities in 2006 47 fatalities were reported (12 were a result of the Sago Mine disaster). From 2007 through 2019, coal mining fatalities averaged 20 per year. During this period, fatalities were highest in 2010, reflecting the Upper Big Branch Mine disaster, where there were 29 fatalities. In the year with the lowest number of fatalities, 2016, there were 8. In 2019, there were 11 coal mining fatalities. Coal mining fatalities have generally been trending downward over time. In recent years, some of this might be explained by a decline in coal production and the decline in the number of coal miners. The fatality rate, however, has also tended to decline over time. A credit for mine rescue team training can encourage mine operators and employers to invest in additional training. The credit can also reduce the cost of complying with federal regulations regarding mine rescue team training. Federal regulations are the government's primary policy instrument governing coal mine safety, with tax incentives playing a small role. <2.3.3. Employer Tax Credit for Paid Family and Medical Leave39> The employer credit for paid family and medical leave (PFML) can be claimed by employers providing paid leave (wages) to employees under the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3 ). The credit can be claimed for wages paid during tax years that begin in 2018, 2019, and 2020. The credit amount is equal to up to 25% of PFML wages paid to qualifying employees. The credit can only be claimed for PFML provided to certain employees with incomes below a fixed threshold. For credits claimed in 2019, employee compensation in 2018 cannot have exceeded $72,000. The amount of PFML wages for which the credit is claimed cannot exceed 12 weeks per employee per year. Further, all qualifying employees must be provided at least two weeks of PFML for an employer to be able to claim the credit. Tax credits cannot be claimed for leave paid by state or local governments, or for leave that is required by state or local law. To claim the credit, an employer must have a written family and medical leave policy in effect. The policy cannot exclude certain classifications of employees, such as unionized employees. The employer credit for paid family and medical leave was added to the IRC in the 2017 tax revision ( P.L. 115-97 ; commonly referred to as the Tax Cuts and Jobs Act). Initially, the credit was effective for wages paid in 2018 and 2019. The credit was extended for one year, through 2020, by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Providing a tax credit for employers that provide PFML should, on the face of it, tend to increase access to this benefit. How effective the credit will be at achieving this goal remains an open question. Employers may provide PFML to qualified employees for a number of reasons; attracting high-quality talent might be one. If most of the credit's beneficiaries are employers that would have provided PFML without the credit, then the credit is not a particularly efficient mechanism for increasing PFML. There is also the possibility that employers choose to substitute credit-eligible PFML for other forms of leave. An employer could reduce the amount of paid sick, personal, or vacation time off, knowing that employees use this time for paid family and medical leave purposes. If other benefits are scaled back in favor of tax-preferred FMLA leave, employees may not be better off. For more information, see CRS In Focus IF11141, Employer Tax Credit for Paid Family and Medical Leave , by Molly F. Sherlock. <2.3.4. Work Opportunity Tax Credit42> The work opportunity tax credit (WOTC) is a nonrefundable wage credit intended to increase job opportunities for certain categories of disadvantaged individuals. The WOTC reduces the cost of hiring specified groups of disadvantaged individuals. WOTC-eligible hires include members of families receiving Temporary Assistance to Needy Families (TANF) benefits, certain members of families receiving food stamp benefits, ex-felons, and certain veterans. For most eligible hires that remain on a firm's payroll at least 400 hours, an employer can claim an income tax credit equal to 40% of wages paid during the worker's first year of employment, up to a statutory maximum. For most WOTC-eligible hires, the wage maximum is $6,000, for a maximum credit of $2,400. For eligible veterans, the maximum eligible wage varies between $6,000 and $24,000, depending on the veteran's characteristics and work history. Eligible summer youth hires' maximum wage to which the credit can be applied is $3,000. A credit equal to 25% of a qualified worker's wages is available for eligible hires that remain employed for at least 120 hours, but fewer than 400 hours. The WOTC was created as part of the Small Business Job Protection Act of 1996 ( P.L. 104-188 ). The WOTC evolved from an earlier tax credit designed to increase employment among targeted groups, the Targeted Jobs Tax Credit (TJTC), which was available from 1978 through 1994. When first enacted, the WOTC was scheduled to expire on October 1, 1997. Since 1997, the WOTC has been expanded, modified, and regularly extended. In several instances, the WOTC was allowed to lapse before being retroactively reinstated. It was most recently extended through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The WOTC is designed to encourage employers to hire more disadvantaged individuals by compensating for potential higher training costs and possible lower productivity. Because the credit is focused on hiring from targeted groups, and not net job creation, it is not necessarily intended to create new jobs or promote recovery in labor markets. Studies evaluating the credit have examined whether it increases job opportunities for targeted disadvantaged individuals, and whether the WOTC is a cost-effective policy measure for achieving this objective. Early evidence on the WOTC suggested that although the credit did offset part of the cost of recruiting, hiring, and training WOTC-eligible employees, it had a limited effect on companies' hiring decisions. More recent studies have found that the WOTC provided benefits to certain groups: increasing the wage income of disabled veterans and increasing employment among long-term welfare recipients, for example. Researchers have also explored whether the credit causes employers to "churn" their workforce to take advantage of the credit, replacing currently credit-ineligible workers with credit-certified workers. Evidence of this behavior has not been found. For more information on the WOTC, see CRS Report R43729, The Work Opportunity Tax Credit , by Benjamin Collins and Sarah A. Donovan. <2.3.5. Look-Through Treatment of Payments Between Related Controlled Foreign Corporations45> The temporary look-through rules were originally enacted in the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ), for 2006 through 2008, and subsequently extended. These rules effectively allow U.S. corporations to reduce tax paid by allowing them to shift the income of certain foreign subsidiaries in high-tax countries into a lower-taxed foreign subsidiary. Depending on its source, income earned abroad by foreign-incorporated subsidiaries of U.S. parents is taxed at full rates, not taxed at full rates, or not taxed at all. Tax rules require passive income (such as interest income) and certain types of payments that can be easily manipulated to reduce foreign taxes to be taxed at the full rate (21% for a corporate shareholder) if earned by controlled foreign corporations (CFCs). This income is referred to as Subpart F income, reflecting the part of the tax code where treatment is specified. Credits against the U.S. tax imposed are allowed for any foreign taxes paid on this income, and are applied on an overall basis (so that unused foreign taxes in one country can offset taxes paid on income in another country). Other income earned abroad by CFCs is subject to the global intangible low-taxed income (GILTI) provision, which taxes this foreign-source income at half the corporate tax rate (10.5%), after allowing a deduction for a deemed return of 10% on tangible assets. Credits are allowed for 80% of foreign taxes paid. This GILTI rate is scheduled to rise to 13.125% after 2025. Thus, some income (Subpart F) is taxed at the full rate, some income (GILTI) is taxed at partial rates, and some income (the deemed return from tangible assets) is not taxed. (For a more extensive discussion of international tax rules, see CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) , by Jane G. Gravelle and Donald J. Marples.) Unless an exception applies, Subpart F income includes dividends, interest, rent, and royalty payments between related firms. These items of income are subject to Subpart F because affiliated firms can use them to shift income and avoid taxation. For example, without Subpart F a U.S. parent's subsidiary (first-tier subsidiary) in a country without taxes (e.g., the Cayman Islands) could lend money to its own subsidiary (second-tier subsidiary) in a high-tax country. The interest payments would be deductible in the high-tax country, but no tax would be due in the no-tax country. Thus, an essentially paper transaction would shift income out of the high-tax country. A similar effect might occur if an intangible asset were transferred to the no-tax subsidiary, and then licensed in exchange for a royalty payment by the high-tax subsidiary. Subpart F taxes this income at full rates. Methods of avoiding Subpart F taxation were made easier in 1997, when U.S. entity classification rules (to be a corporate or noncorporate entity) were simplified to allow checking a box on a form. These "check-the-box" regulations provided a way to avoid treatment of payments as Subpart F income under certain circumstances by allowing firms to elect treatment as an unincorporated entity. They were originally intended to simplify classification issues for domestic firms and the IRS, but their usefulness in international tax planning quickly became evident. The Treasury issued regulations in 1998 to disallow their use to avoid Subpart F, but withdrew them after protests from firms and some Members of Congress. In the example above, if the high-tax subsidiary is not a direct subsidiary of the U.S. parent but is a subsidiary of the Cayman Islands subsidiary (i.e., a second-tier subsidiary), the Cayman Islands (first-tier) subsidiary can elect to treat the high-tax subsidiary as if it were a pass-through entity. This treatment would effectively combine the two subsidiaries into a single firm. This outcome can be achieved simply by checking a box, making the high-tax subsidiary a disregarded entity under U.S. law. Because there are no separate firms, no income is recognized by the Cayman Islands firm, although the high-tax subsidiary (second tier) is still a corporation from the point of view of the foreign jurisdiction in which it operates and can deduct interest in the high-tax jurisdiction. The look-through rules expand the scope of check-the-box. The rules were originally enacted in the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ), for 2006 through 2008, and subsequently extended, most recently through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The check-the-box rules do not work in every circumstance. For example, if the related firms do not have the same first-tier parent, check-the-box does not apply. In some cases, because of foreign countries' rules about corporate and noncorporate forms, the check-the-box regulations' classification of some entities as per se corporations make this planning unavailable. In addition, other undesirable tax consequences (from the firm's point of view) could occur as a side effect of check-the-box. The look-through rule effectively puts this check-the-box type of planning into the tax code, rather than implementing it as a regulation (which could be altered without legislation), but disconnects it from the check-the-box regulations' creation of a disregarded entity. Related firms do not have to have the parent-child relationship; they can be otherwise related as long as they are under common control. The main argument against the look-through rules (and check-the-box as well) is that they undermine Subpart F's purpose, which is to prevent firms from using passive and easily shifted income to avoid taxation. The main argument for the provision is to allow firms the flexibility to redeploy earnings from one location to another without having U.S. tax consequences (foreign tax rules are unchanged). Firms could, for example, accomplish much of the treatment of look-through rules (even in the absence of check-the-box), but that may involve complex planning and inconvenience. An argument can also be made that in some cases (for example, with the payment of interest), the profit shifting is not harming the U.S. Treasury, but rather reducing taxes collected by foreign governments, as income is shifted out of high-tax countries into low-tax ones. Some might view this last argument as a "beggar-thy-neighbor" argument because it facilitates U.S. firms in using tax planning to reduce taxes paid to other countries. <2.3.6. Provisions Modifying the Excise Taxes on Wine, Beer, and Distilled Spirits47> The temporary provisions modifying excise taxes on alcoholic beverages were originally enacted through 2019 in the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ). The first provision applies to beer, wine, and distilled spirits broadly. The provisions that apply only to beer, wine, or distilled spirits are discussed separately below. In general, the uniform capitalization (UNICAP) rules require some costs that would otherwise be immediately deductible (such as interest and overhead) to be added to inventory or to the cost of property and deducted in the future when goods are sold or assets depreciated. In the case of interest costs, the rules apply only if the asset is long-lived or has a production period over two years or a production period over one year and a cost of more than $1 million. The production period includes any customary aging period. A temporary modification to the UNICAP rules exempts the aging periods for beer, wine, and distilled spirits from the production period for the UNICAP interest capitalization rules, thus leading to shorter production periods. <2.3.6.1. Beer> Absent the temporary excise tax modification provisions, the excise tax rate on beer producers is $18 per barrel (31 gallons), and small brewers that domestically produce no more than 2 million barrels annually are subject to a rate of $7 per barrel on the first 60,000 barrels. The temporary provision reduces the rate for small brewers (producing no more than 2 million barrels) to $3.50 per barrel on the first 60,000 barrels and $16 per barrel on the remaining production. Beer importers and large producers meeting certain requirements may also be eligible for the reduced rate of taxation. For all other producers or importers, the excise tax rates are $16 per barrel on the first 6 million barrels. The tax on beer is due when the beer is removed from the brewery for sale. Beer can be transferred between breweries that are commonly owned (and released from customs) without paying the tax (although tax would be paid on the eventual sale). The temporary provision also allows transfer without payment of tax to an unrelated brewer if the transferee accepts responsibility for paying the tax. <2.3.6.2. Wine> Excise taxes are imposed at different rates on wine, depending on the wine's alcohol content and carbonation levels. Still wines are taxed at $1.07 per wine gallon (w.g.) if they are 14% alcohol or less, $1.57/w.g. if they are 14% to 21% alcohol, and $3.15 per w.g. if they are 21% to 24% alcohol. Naturally sparkling wines are taxed at $3.40 per w.g. and artificially carbonated wines are taxed at $3.30 per w.g. Absent the temporary provisions, up to a $0.90 credit against excise tax liability ($0.056 per w.g. for hard cider) may be available for the first 100,000 w.g. removed by a small domestic winery producing not more than 150,000 w.g. per year. The per wine gallon tax credit rate is phased out on production in excess of 150,000 w.g. for wineries producing not more than 250,000 w.g. per year. This small winery credit does not apply to sparkling wine. The temporary provisions modify the credit for small domestic wineries to allow it to be claimed by domestic and foreign producers, regardless of the gallons of wine produced. The credit is also made available to sparkling wine producers. Also, a $1.00 credit against excise tax liability may be available for the first 30,000 w.g. removed annually by any eligible wine producer or importer. The credit is reduced to $0.90 on the next 100,000 w.g., and $0.535 on the next 620,000 w.g. In contrast to permanent law, this credit is not phased out based on production. For hard cider, the credit rates, above, are adjusted to $0.062 per gallon, $0.056 per gallon, and $0.033 per gallon, respectively. Mead is taxed according to wine excise tax rates depending on its alcohol and carbonation content. Naturally sparkling wines are taxed at $3.40 per w.g. and artificially carbonated wines taxed at $3.30 per w.g. Under the temporary provision, mead and certain sparkling wines are to be taxed at the lowest rate applicable to still wine of $1.07 per wine gallon. Mead contains not more than 0.64 grams of carbon dioxide per hundred milliliters of wine, which is derived solely from honey and water, contains no fruit product or fruit flavoring, and contains less than 8.5% alcohol. The sparkling wines eligible to be taxed at the lowest rate contain no more than 0.64 grams of carbon dioxide per hundred milliliters of wine, which are derived primarily from grapes or grape juice concentrate and water, which contain no fruit flavoring other than grape, and which contain less than 8.5% alcohol. <2.3.6.3. Distilled Sprits> Producers and importers of distilled spirits are taxed at a rate of $13.50 per proof gallon (ppg) of production. Under the temporary provision, the tax rate is lowered to $2.70 ppg on the first 100,000 proof gallons, $13.34 ppg for proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 ppg for amounts thereafter. The provision contains rules to prevent members of the same controlled group from receiving the lower rate on more than 100,000 proof gallons of distilled spirits. Distilled spirits are taxed when removed from the distillery, or, in the case of an imported product, from customs custody or bonded premises. Bulk distilled spirits may be transferred in bond between bonded premises without being taxed, but may not be transferred in containers smaller than one gallon. The temporary provision allows transfer of spirits in approved containers other than bulk containers without payment of tax. <3. Provisions Expiring in 2021, 2022, or 2023> <3.1. 12.5% Increase in Annual LIHTC Authority48> The low-income housing tax credit (LIHTC) program, which was created by the Tax Reform Act of 1986 ( P.L. 99-514 ), is the federal government's primary policy tool for the development of affordable rental housing. LIHTCs are awarded to developers to offset the cost of constructing rental housing in exchange for agreeing to reserve a fraction of rent-restricted units for lower-income households. Although it is a federal tax incentive, the program is primarily administered by state housing finance agencies (HFAs) that award tax credits to developers. Authority for states to award tax credit is determined according to each state's population. In 2020, the amount of tax credits a state can award is equal to $2.8125 per person, with a minimum small population state authority of $3,217,500. These figures reflect a temporary increase in the amount of credits each state received for 2018-2021 as a result of the 2018 Consolidated Appropriations Act ( P.L. 115-141 ). The increase is equal to 12.5% above what states would have received absent P.L. 115-141 , and is in effect through 2021. For more information on the LIHTC, see CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit , by Mark P. Keightley. <3.2. Computation of Adjusted Taxable Income Without Regard to Any Deduction Allowable for Depreciation, Amortization, or Depletion49> Prior to the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ), the deduction for net interest was limited to 50% of adjusted taxable income (income before taxes; interest deductions; and depreciation, amortization, or depletion deductions) for firms with a debt-equity ratio above 1.5. Interest above the limitation could be carried forward indefinitely. The revision limited deductible interest to 30% of adjusted taxable income for businesses with gross receipts greater than $25 million. The provision also has an exception for floor plan financing for motor vehicles. Businesses providing services as an employee and certain regulated utilities are excepted from this new limit. Also, certain real property and farming businesses can elect out of this limit but must adopt a slower depreciation method for real property or farming assets. The restrictions on interest, called thin capitalization rules , were partially enacted to address concerns about large multinational businesses locating borrowing in the United States to shift profits out of the United States and to foreign, lower-tax, jurisdictions. Under prior law and the temporary provisions of the 2017 tax revision, this interest limit applies to earnings (income) before interest, taxes, depreciation, amortization, or depletion (referred to as EBITDA). After 2021, the 2017 tax revision changes the measure of income to earnings (income) before interest and taxes (referred to as EBIT). Because EBIT is after the deduction of depreciation, amortization, and depletion, it results in a smaller base and thus a smaller amount of eligible interest deductions. The temporary broader base (EBITDA), which expires in 2021, allows more interest deductions. The current, more generous rules for measuring the adjusted taxable income base are more beneficial to businesses with depreciable assets, although affected businesses might be able to avoid some of the change in the deduction rules by leasing assets from financial institutions, such as banks, that generally have interest income. This change in base is projected to have a significant revenue consequence: the Joint Committee on Taxation estimated the revenue gain from the provision to increase from $19.2 billion in FY2021 to $30.2 billion in FY2023, when the change is fully in effect, an increase of more than $10 billion. This revenue change suggests the cost of allowing the broader measure of income (EBITDA) through 2021 is around $10 billion annually. For additional discussion of the interest limitation, see CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) , by Jane G. Gravelle and Donald J. Marples. <3.3. The Rum Cover Over51> Under permanent law, the excise tax on rum is $13.50 per proof gallon and is collected on rum produced in or imported into the United States. Under permanent law, $10.50 per proof gallon of imported rum is transferred or "covered over" to the Treasuries of Puerto Rico (PR) and the United States Virgin Islands (USVI). Temporary provisions have increased the transfer amount to $13.25. The law does not impose any restrictions on how PR and USVI can use the transferred revenues. Both territories use some portion of the revenue to promote and assist the rum industry. The cover-over provisions for rum extend as far back as 1917 for PR and 1954 for USVI. Originally, the full amount of the tax was covered over; however, the Deficit Reduction Act of 1984 ( P.L. 98-369 ) limited the cover over to $10.50 when the federal tax rates were increased to $12.50. The cap was intended to address the question of whether the rebates were proper given the lack of rebates to the states. The Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66 ) temporarily increased the cap to $11.30 for five years, in a law that also reduced another benefit to the possessions (the possessions tax credit). When this increase expired, the cap was increased to $13.25, and it has subsequently been extended, most recently through 2021 by the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). For additional information on the rum cover over see CRS Report R41028, The Rum Excise Tax Cover-Over: Legislative History and Current Issues , by Steven Maguire. <3.4. Credit for Certain Expenditures for Maintaining Railroad Tracks52> Qualified railroad track maintenance expenditures paid or incurred in a taxable year by eligible taxpayers qualify for a 50% business tax credit. The credit is limited to $3,500 multiplied by the number of miles of railroad track owned or leased by an eligible taxpayer. Qualified railroad track maintenance expenditures are amounts, which may be either repairs or capitalized costs, spent to maintain railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, by a Class II or Class III (regional or local) railroad. Eligible taxpayers are smaller (Class II or Class III) railroads and any person who transports property using these rail facilities or furnishes property or services to such a person. The taxpayer's basis in railroad track is reduced by the amount of the credit allowed (so that any deduction of cost or depreciation is only on the cost net of the credit). The credit cannot be carried back to years before 2005. The credit is allowed against the alternative minimum tax. The amount eligible is the gross expenditures, not accounting for reductions such as discounts or loan forgiveness. The provision was enacted in the American Jobs Creation Act of 2004 ( P.L. 108-357 ) and extended numerous times. The provision relating to discounts was added by the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). The credit was allowed against the alternative minimum tax by the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ). It was most recently extended through 2022 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). This provision substantially lowers the cost of track maintenance for the qualifying short-line (regional and local) railroads, with tax credits covering half the costs for those firms and individuals with sufficient tax liability. Class II and III railroads account for 32% of the nation's freight rail miles. These regional railroads are particularly important in providing transportation of agricultural products. Although no rationale was provided when the credit was introduced, sponsors of earlier freestanding legislation and industry advocates indicated that the purpose was to encourage the rehabilitation, rather than the abandonment, of short-line railroads. These railroads were spun off in the deregulation of railroads in the early 1980s. Advocates also indicated that this service is threatened by heavier 286,000-pound cars that must be used to connect with longer rail lines. They also suggested that preserving these local lines would reduce local truck traffic. There was also some indication that a tax credit was thought to be more likely to be achieved than grants. The arguments stated by industry advocates and sponsors of the legislation are also echoed in assessments by the Federal Railroad Administration (FRA), which indicated the need for rehabilitation and improvement, especially to deal with heavier cars. The FRA also suggested that these firms have limited access to bank loans.

Thirteen temporary business tax provisions are scheduled to expire at the end of 2020. Four other temporary business tax provisions are scheduled to expire in 2021 or 2022. In the past, Congress has regularly acted to extend expired or expiring temporary tax provisions. Collectively, these temporary tax provisions are often referred to as "tax extenders." This report briefly summarizes and discusses the economic impact of the 17 business-related tax provisions that are scheduled to expire in 2020, 2021, or 2022. The provisions discussed in this report are listed below, grouped by type and scheduled year of expiration. The following special business investment (cost recovery) provisions are scheduled to expire in 2020: special expensing rules for certain film, television, and live theatrical productions; seven-year recovery period for motorsports entertainment complexes; three-year depreciation for race horses two years or younger; and accelerated depreciation for business property on an Indian reservation. The following economic development provisions are scheduled to expire in 2020: e mpowerment zone tax incentives; American Samoa economic development credit; and new markets tax credit. The following other business-related provisions are scheduled to expire in 2020: Indian employment tax credit; mine rescue team training credit; employer tax credit for paid family and medical leave; work opportunity tax credit; look-through treatment of payments between related controlled foreign corporations; and p rovisions modifying excise taxes on wine, beer, and distilled spirits. The following provisions are scheduled to expire in 2021 or 2022: 12.5% increase in low-income housing tax credit (LIHTC) authority; computation of adjusted taxable income without regard to any deduction allowable for depreciation, amortization, or depletion; the rum cover over; and c redit for certain expenditures for maintaining railroad tracks. The 13 temporary business-related tax provisions scheduled to expire at the end of 2020 were most recently extended by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Of these 13 provisions, 8 had expired in 2017 and were extended retroactively and 5 were scheduled to expire in 2019. Past tax extenders legislation had extended 11 of these 13 provisions. The other two provisions, both of which were scheduled to expire in 2019, were added to the tax code as part of the 2017 tax revision ( P.L. 115-97 ). Four other business-related provisions will expire in 2021 or 2022. This report does not include provisions that in the past have been classified as individual or energy-related. See CRS Report R46243, Individual Tax Provisions ("Tax Extenders") Expiring in 2020: In Brief , 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. For a general overview of tax extenders, see CRS Report R45347, Tax Provisions That Expired in 2017 ("Tax Extenders") , by Molly F. Sherlock.

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<1. Introduction> Around the world, people use websites on their computers and apps on their mobile devices to access information and services. Creators of these websites and apps are known as "edge providers." The Federal Communications Commission (FCC) first used the term in 2010 to refer to individuals and entities "providing content, applications, services, and devices accessed over or connected to broadband Internet access service." Such activities, conducted on the "edge" of the internet hence the name can range from an individual creating a personal blog to a billion-dollar company creating a website. At that time, the FCC determined that it would not regulate edge provider activities. Instead, similar to other businesses, edge providers may be examined by the Department of Justice (DOJ) and Federal Trade Commission (FTC) on a case-by-case basis for potential violations of consumer protection or antitrust statutes. Federal agencies and Congress are investigating competition among edge providers, particularly companies with large amounts of revenue. The FTC, DOJ, and at least 47 attorneys general are reportedly looking into whether select edge providers reportedly including Google, Apple, Facebook, and Amazon have violated antitrust laws. A House Judiciary Committee investigation into competition in digital markets has raised the question of whether existing antitrust laws, competition policies, and current enforcement levels are adequate to address competition issues among edge providers. Competition is generally viewed as a means to ensure low prices for consumers and to spur innovation. Some have raised concern that competition is being harmed by a few dominant edge providers and that regulations may be needed. This report examines the potential effects of edge providers' expansion on competition. Due to acquisitions or growth, some edge providers now operate in multiple industries. Some companies have integrated vertically, both generating content as edge providers and delivering it to consumers as internet service providers (ISPs). Other companies have integrated horizontally by acquiring other edge providers, which could increase their customer base and expand the content or services offered, but also eliminate potential competitors. This report focuses on how horizontal and vertical integration may affect edge providers' relationships with ISPs and competition among edge providers. <2. What Are Edge Providers?> In its 2010 Open Internet Order, the FCC first referred to individuals and entities "providing content, applications, services, and devices" over the internet as "edge providers." These can be search engine providers, streaming video or music services, social media platforms, retailers, or other types of businesses. An edge provider can be a blog or personal website maintained by an individual, making it difficult to distinguish between edge providers and end users. It can also be a website maintained by a company that generates billions of dollars in revenue. An edge provider can serve as a conduit for content created by others instead of or in addition to content created by the company itself. Some of the content may be subject to licenses granted by copyright holders, while other content might not face any copyright restrictions. This report focuses on companies that operate at least one edge provider. Some edge providers generate revenue by selling products or subscriptions to their content. Others offer their content for free and generate their revenue by using information provided by their users to sell advertising spaces or by selling the information itself. In the third quarter of 2019, Facebook, one of the largest edge providers as measured by market capitalization, reported $17.4 billion in revenue from advertising, which made up 98% of its total quarterly revenue. Google, another large edge provider, reported $33.9 billion in advertising revenue for the same quarter, which made up 84% of its total quarterly revenue. ISPs and mobile carriers connect edge providers with those who use their content. On mobile devices, edge providers generally provide their content over apps. Consumers typically obtain apps from online app stores such as Google Play and the Apple App Store. Browser apps such as Chrome, Safari, and Firefox allow users to access other edge providers' websites, similar to a browser on a computer. To access the content on apps, users need a data plan from their mobile carrier or a wireless connection to an ISP. Figure 1 presents a simplified example of how edge providers interact with ISPs and users. In this example, Content Provider (CP) A relies on digital advertising for its revenue: advertisers pay CP A to place an ad, and in turn receive revenue from users who pay for the advertised product. CP B receives a direct payment for its content from users. Both edge providers pay the ISP a termination fee to bring the content to the terminal point, the user. Users pay the ISP a subscription fee to access the data provided by CP A and CP B. In reality, the process can be more complicated. An edge provider may rely on a different ISP than its users' ISPs, in which case the content would travel through the internet backbone. The internet backbone consists of various networks linking servers and multiple ISPs together. An edge provider may also have direct connections to multiple ISPs or upload its content directly onto the internet backbone. While details on how the internet operates are beyond the scope of this report, a key factor in competition among edge providers is the role ISPs have in the relationship between edge providers and their users. <3. Vertical Integration of Edge Providers> Edge providers depend entirely on ISPs and mobile carriers to deliver their content to users. A growing number of companies operate both as edge providers and as ISPs, becoming vertically integrated (i.e., operating at multiple stages along a supply chain). Thus, companies that both generate content and deliver it to users are competing with others that either solely generate content or solely deliver it to users. Companies that started in the telecommunications and media industries are now among the most popular edge providers. Of the 16 edge providers that attracted the largest number of users in the United States in July 2019 ( Figure 2 ), six Google, Facebook, Amazon, PayPal, Twitter, and the Weather Company started as edge providers. <3.1. Examples of ISPs Becoming Edge Providers> AT&T. AT&T owns part of the internet backbone and is considered a Tier 1 ISP, meaning it has free access to the entire U.S. internet region. It is also a mobile carrier and provides voice services and video programming. In 2018, AT&T acquired Time Warner, a content creator that owns HBO and its affiliated edge provider HBO NOW, as well as other cable channels. The DOJ unsuccessfully attempted to block the merger. AT&T has announced plans to introduce a new edge provider HBO Max to stream video programming for no extra charge to AT&T customers who are also HBO subscribers; other customers will reportedly be charged a subscription fee. Comcast. Comcast is an ISP, a cable television service, and a voice service provider. In 2011, Comcast became the majority owner of NBCUniversal, which owns television networks and broadcast stations, and thus obtained minority ownership of Hulu, an edge provider that streams video programming to subscribers. In 2019, Walt Disney Company obtained "full operational control" of Hulu, but Comcast retained its 33% financial stake. Comcast also announced plans to launch its own video streaming service, Peacock. Comcast reportedly plans to offer three subscription options for Peacock: a free option supported by ads, a premium version with more programming for a fee, and the premium version with no ads for a higher fee. The premium version is to be offered for free to subscribers of Comcast and Cox Communications. Verizon. Verizon owns part of the internet backbone and is considered a Tier 1 ISP. It is also a mobile carrier, and offers video, voice, and ISP services. In 2015, Verizon acquired AOL, an ISP and edge provider, and in 2016, it acquired the core business of Yahoo, an edge provider. It combined the edge provider products from these acquisitions such as Yahoo Finance, Huffington Post, TechCrunch, and Engadget in 2017 to create Oath. <3.2. Examples of Edge Providers Becoming ISPs> Google. Google is the largest subsidiary of the company Alphabet. It offers multiple products, including a search engine, email server, word processing, video streaming, and mapping/navigation system. Google generally relies on other ISPs to deliver its content, but entered the ISP market in 2010 when it announced Google Fiber. Google Fiber provides broadband internet service and video programming. Beginning in 2016, it suspended or ended some of its projects; as of October 2019, it had installed fiber optic cables in 18 cities. Facebook. As it attracted more users, Facebook expanded from providing an online platform that connects users to an online platform suitable for various activities, including fundraising, messaging, and commerce. In 2018, a spokesman confirmed that Facebook was pursuing another project, dubbed Athena. Athena is an experimental satellite that would beam internet access through radio signals. If successful, Athena would enable Facebook to become an ISP. Amazon. In addition to being a major online retailer, Amazon offers information technology infrastructure services through Amazon Web Services. In 2019, Amazon confirmed plans dubbed Project Kuiper to launch 3,236 satellites into low-Earth orbit to provide broadband internet across the world. If successful, Project Kuiper would enable Amazon to become an ISP. <4. Competition Among Edge Providers> Edge providers can compete in various ways. A few examples include offering new content or services, advertising their content, or acquiring potential competitors. Subscription-based edge providers can lower their fees, offer discounts for referrals, or use price promotions to attract new users. This report focuses on the potential effects of vertical integration (e.g., where a company operates as both an edge provider and an ISP) as well as horizontal integration (e.g., where an edge provider acquires another edge provider). Common indicators used to determine the level of competition in a market include measuring its concentration and changes in the number of establishments. Market concentration is determined by examining whether most sales are concentrated among a few firms or dispersed among a large number of firms. Changes in the number of establishments can be used as an indicator as well, particularly when firm-level sales are unavailable. For example, if the total number of stores in a market is decreasing, it can suggest, but does not demonstrate, that competition is decreasing. To use these indicators to measure competition in a market, one must first define its scope. A common method of defining a market's scope is to use the North American Industry Classification System (NAICS). Two industries that consist of only edge providers are "Data Processing, Hosting, and Related Services" (NAICS 519130) and "Internet Publishing and Broadcasting and Web Search Portals" (NAICS 518210). Figure 3 shows that the number of establishments in both industries has increased over the past decade. However, most users seeking specific types of content obtain it from only a few edge providers. For example, data from August 2019 show that among social network websites, 95% of the visits from the users in the United States went to three websites: Facebook, Pinterest, and Twitter ( Figure 4 ). Similarly, data from June 2019 show that among mobile social networking apps, the three most popular among users in the United States were Facebook, Instagram (owned by Facebook), and Facebook Messenger ( Figure 5 ). Edge providers compete for users based on content and quality of services offered. To increase the number of users, edge providers attempt to provide content that is in high demand and to ensure that the content is delivered as seamlessly as possible. In response to network congestion, most content used to be delivered on a "best effort" basis because most of the content was not time-sensitive (e.g., email). The "best effort" basis does not guarantee that content will be delivered by a certain time or at a certain speed. This meant that some content was held at a congestion point until a future time, while other content was dispatched in real time. While this practice was suitable for some content, it became problematic for edge providers sending time-sensitive content. Interruptions, latency, or delays in transferring data lower the value of time-sensitive content (e.g., video programming). As a result, some edge providers have been given the option to pay network managers, including ISPs, to ensure their content would be given priority, an industry practice known as paid prioritization. Another practice to ensure a more consistent quality of service is to avoid potential congestion points by bypassing parts of the network. For example, edge providers can pay ISPs for a direct connection to their networks, or edge providers can build their own content delivery network (CDN) or pay to use another company's CDN. Examples of CDNs include Microsoft's Azure or Amazon's CloudFront, which is available through Amazon Web Services. A CDN distributes online content and network services from servers located as close as possible to users' ISPs to avoid potential congestion points and reduce the bandwidth needed to send the content; a CDN may also have a direct connection to users' ISPs. As a result, CDNs can serve as a digital intermediary between users' ISPs and other edge providers. Congress and the FCC have considered edge providers' access to end users over the internet under the rubric of "net neutrality," a term associated with the concept that ISPs should treat data in a nondiscriminatory manner, regardless of the size or type of content. Policy discussions on net neutrality have focused on the role of the ISP in delivering content to end users. Concerns over practices ISPs might use to manage the flow of content, such as blocking, throttling, and paid prioritization, have become major discussion points. Although the FCC placed a ban on such practices when it issued the 2015 Open Internet Order, the restrictions were subsequently removed by the FCC with the issuance of the 2017 Restoring Internet Freedom Order. Congress has considered bills both banning or removing bans on such practices. The ability to pay ISPs for direction connections or prioritization of content could affect competition among edge providers. Although some see paid prioritization as a management tool that ensures time-sensitive content receives priority, others view it as a means to discriminate among content. A nascent edge provider may not have the financial resources to pay for prioritization or for a direct connection, meaning its content could be delivered more slowly than content from competing edge providers that can afford these payments. The potential competitive imbalance between nascent edge providers and more established ones may be further exacerbated by the growing number of vertical mergers. <4.1. Effect of Vertical Integration on Competition> Some of the companies edge providers rely on for distribution are also their competitors because of vertical integration among edge providers and ISPs. For example, while Netflix works with Comcast to deliver its content, Comcast is also its competitor as the operator of cable systems, a partial owner of Hulu, and the owner of the planned video streaming service Peacock. Vertical integration could affect competition among edge providers. Companies that operate as both an ISP and edge provider may have a competitive advantage with the quality of content delivery over edge providers that have not paid for a direct connection to the ISP's network. Companies that pay for a direct connection to the network may also be at a competitive disadvantage because they incur an additional cost to obtain a connection that vertically integrated edge providers do not. Edge providers that also operate as CDNs may similarly benefit from better connections to ISPs without incurring a cost borne by edge providers that are not integrated with CDNs or ISPs. For example, Netflix pays Amazon to house its content on Amazon Web Services, although it competes with Amazon Prime Video, which also offers video streaming services. Vertically integrated companies associated with an ISP or CDN could also potentially prioritize their own edge providers' content over rivals' content. Similar concerns affect companies that operate as both edge providers and mobile carriers. Edge providers that are also mobile carriers can include their own apps on their customers' mobile devices for free and retain all of the profits from those apps. In contrast, competing edge providers may be charged a fee such as an initial payment or a percentage of sales for including their apps in the app store. In this case, nonaffiliated edge providers would face a cost that edge providers affiliated with mobile carriers do not. Edge providers associated with mobile devices in general may also have similar advantages. For example, in 2005, Google acquired Android an operating system for mobile devices and further developed the software thereafter. Google was fined 4.34 billion ($5.05 billion) by the European Union (EU) for anticompetitive practices related to Android. Specifically, the European Commission determined that Google violated EU antitrust law by "bundling" its Play app store with its Search and Chrome apps (i.e., by requiring smartphone manufacturers that preinstalled the Google Play store to preinstall Google Search and Google Chrome). The ruling stated that by doing so, Google reduced the ability of rival search engines and web browsers to compete effectively, as consumers with Google Search and Google Chrome preinstalled on their devices were less likely to download competing search engines and web browsers. Some ISPs, particularly mobile carriers, have introduced "zero rating" or sponsored data plans. These plans allow subscribers to consume specific content or services without incurring charges against the subscriber's usage limits. For example, Facebook's Free Basics is a mobile phone app available through various mobile carriers in 65 countries. It provides free access to a limited selection of services and websites, including Facebook. It was banned by the Telecom Regulatory Authority of India for being anticompetitive by offering free access only to online services owned or controlled by Facebook. Similarly, critics claim that these plans favor edge providers affiliated with ISPs and those that are entrenched and well financed. However, supporters claim that these plans encourage consumers to try new services, particularly those that require large amounts of data. By combining consumer data collected by its ISP and edge provider components, a vertically integrated company may also have a competitive advantage through its ability to send targeted advertisements. In proposing to acquire Time Warner in 2018, AT&T chief executive Randall Stephenson stated that the merger would expand AT&T's access to customer and viewer data, allowing it to run targeted advertisements, which tend to be more profitable. Some state legislatures have passed or introduced legislation restricting how ISPs may collect or share consumer data; Congress has not passed similar legislation at the federal level. California has enacted data protection legislation, the California Consumer Privacy Act, which went into effect on January 1, 2020. It provides California residents the right to access, delete, and share personal information collected by businesses, including edge providers and ISPs. Consumers could benefit from the economic efficiencies obtained from edge providers' vertical integration with ISPs or mobile carriers by receiving content at faster speeds and lower prices. Vertically integrated edge providers could pass on to consumers the cost savings of not paying for a direct connection to the ISP network. For example, subscribers to a streaming service owned by an ISP may be able to receive its content more smoothly and at lower cost than subscribers to a streaming service not affiliated with an ISP. Free apps could benefit consumers as well. Vertical integration may also benefit consumers by increasing competition among ISPs. Currently, individual users in many areas have access to a limited number of internet providers because of the high costs associated with broadband deployment. If edge providers enter the ISP market, consumers may benefit from an increase in provider options, potentially resulting in lower prices and/or faster speeds. For example, one study credits Google Fiber for encouraging faster speeds, lower prices, and/or network upgrades among competing ISPs. However, the competitive benefit of edge providers entering the ISP market may be undermined by reduced competition among edge providers. <4.2. Effect of Horizontal Integration on Competition> Through mergers and acquisitions among themselves, edge providers have integrated horizontally. Facebook has made at least 79 acquisitions, including Instagram, WhatsApp, Oculus VR, and Chai labs. Google has made over 200 acquisitions, including DoubleClick, Waze, Nest, and YouTube. In some cases, edge providers have acquired companies with unique technologies in the early stages of development, foreclosing potential competition. Whether such acquisitions should be reviewed in the context of antitrust enforcement is controversial. Some commentators advocate limiting mergers among edge providers or breaking up large edge providers to increase competition, while others view mergers as a natural result of a competitive market in which more successful firms acquire smaller ones. Edge providers can benefit from acquiring other edge providers that offer different content or services. They can participate in a diverse set of online markets, expand or improve their content, or eliminate potential competitors. Google's acquisition of YouTube enabled it to gain a stronger footing in the online video market. Facebook acquired Divvyshot to improve its photo-sharing platform, particularly for mobile devices. These acquisitions can be viewed as integrating media platforms to improve end users' experience, a positive byproduct of competition, or as reducing competition by preventing the growth of other edge providers. Some have criticized Facebook's acquisition of Instagram a photo and video-sharing social media app and advocate for breaking up Facebook and Instagram; critics include some Members of Congress. Horizontal integration may increase an edge provider's customer base, which may give it greater bargaining power with ISPs. Because edge providers rely on ISPs to deliver their content, ISPs generally have leverage over edge providers that seek access to their networks. However, edge providers with large numbers of end users may have much greater bargaining power than smaller local or regional ISPs, as they may in some cases account for a large share of an ISP's internet traffic. By increasing their customer base through horizontal integration, edge providers can improve their market position. Edge providers that rely on digital advertising can target more individuals with digital advertisements and potentially increase the number of spaces to sell to advertisers. Edge providers can create more detailed profiles of individual users and improve their methods of targeting advertisements by combining consumer data from multiple sources. Some edge providers have acquired firms that control tools used to buy and sell digital advertising, such as advertisement servers that place spaces in auctions to determine which advertisement should be selected. By controlling such tools, an edge provider could have a competitive advantage against other edge providers that need to pay to use these tools. Concern about control of digital advertising tools has focused on Alphabet, which has acquired and incorporated into Google several digital advertising tools, including DoubleClick, AdMob, and Admeld. These acquisitions helped Google become the largest seller of digital advertising. Google has reportedly waived fees for using multiple components of its advertising services, bundling them together. This could make it difficult for rivals to offer competing services. Google reportedly required advertisers to use its advertising services to purchase advertisement spaces on YouTube, and used data collected from its edge provider services (e.g., Gmail and Google maps) in its advertising server. The DOJ and state attorneys general are reportedly investigating Google's use of its advertising products. <5. Oversight of Edge Providers> The vertical integration of edge providers and ISPs creates a situation in which certain activities of a company may be regulated by the FCC while closely connected activities are not. On June 15, 2015, Consumer Watchdog, a nonprofit organization that advocates for taxpayer and consumer interests, filed a petition requesting the FCC to regulate edge providers and prevent them from "tracking personal information and web activity without consumers' knowledge and permission." The FCC dismissed the petition on November 6, 2015, citing its 2015 Open Internet Order, which stated that the FCC would not regulate any internet content. The 2017 Restore Internet Freedom Order reversed the 2015 Open Internet Order by reclassifying ISPs under Title I, but it also did not address the regulation of edge providers. Thus, pursuant to the 2015 Open Internet Order, the FCC has left oversight of edge providers to other agencies, principally the FTC and DOJ. The FTC deals with consumer privacy issues under its broad authority to prohibit unfair and deceptive trade practices, and the FTC and DOJ deal with unfair methods of competition that may violate antitrust laws. The FTC has expanded its examination of consumer data privacy concerns from its initial edge provider focus to include vertical integration by ISPs. On March 26, 2019, the FTC issued orders to seven ISPs to obtain information on how they collect, retain, use, and disclose information about consumers and their devices. The order specifically addressed the need to better understand ISPs' privacy practices because their vertical integration allows them to provide advertising-supported content produced by related entities within the companies. The FTC and DOJ opened antitrust investigations of possible anticompetitive behavior by "Big Tech" firms, reportedly including Google, Apple, Facebook, and Amazon. On September 6, 2019, the attorneys general of eight states and the District of Columbia announced an investigation of Facebook and Google for possible antitrust violations. By October 22, 2019, the number of participating attorneys general had reportedly grown to 47. A key question in these antitrust investigations could be determining the market for edge providers. Generally, a market is established based on specific goods or services, and their substitutability with other goods and services. However, because some edge providers offer multiple goods and services that could be classified in multiple industries, it has become difficult to determine which market(s) these edge providers belong in. For example, should each product sold on Amazon (e.g., clothes, children's toys, books) be placed in a separate market? If so, should products that are sold by another company on Amazon's website be considered Amazon's products or the selling company's products? Are physical books sold on Amazon in the same market as its Kindle e-books or its Audible audiobooks? Competition analysis generally involves defining the market of a product, which can be particularly complex in the analysis of edge providers. Determining the market share for edge providers that rely on digital advertising rather than selling tangible products may be even more complicated. In addition to the complexity of defining which market some of these edge providers fall in, it can be difficult to determine their "sales," as they generally do not obtain revenue from offering their content to users. These edge providers obtain revenue from selling advertisement spaces using users' data or from selling users' data directly. Should the market share for these edge providers be determined by the total advertising revenue obtained from each website or by the amount of user data collected? In the latter case, how should user data be "priced"? Should all edge providers that rely on digital advertising be compared to each other in one market, or should these edge providers be separated based on content? <6. Considerations for Congress> On June 3, 2019, the House Judiciary Committee announced that it would begin an investigation into competition in digital markets. It has held five hearings, which have raised questions and discussions including or related to the topics covered in this report. Among the major questions related to edge providers that Congress may wish to consider are the following: How does vertical integration among ISPs and edge providers affect competition? One of the difficulties in answering this question is the inability to evaluate how the market would have developed absent vertical integration. For example, vertical integration may lead to greater innovation in some cases, but to less innovation in others. It is also unclear how the effect of vertical integration on competition should be measured. As many users of edge providers' services do not pay for those services in a monetary sense, price effects, which are traditionally used to evaluate the extent of competition, may not be a sufficient measure. How could inequities in the amount of consumer data obtained by edge providers affect competition in the future? Consumer data may become increasingly important as machine learning and artificial intelligence technologies are further refined. It could be used to predict behavior among consumers or provide other competitive advantages for edge providers with large amounts of consumer data. Should competition among edge providers be regulated, and if so, to what extent? While the DOJ and FTC examine specific companies on a case-by-case basis for consumer protection or antitrust violations, the establishment of a regulatory framework could help prohibit anticompetitive practices. However, regulations may also disadvantage potential entrants while strengthening incumbents, and may impede innovation. Edge providers offer a wide variety of products and services, which could complicate the establishment of a single regulatory framework. However, other aspects of competition among edge providers, such as their relations with ISPs, are a matter relevant to all edge providers.

Edge providers are individuals and entities that provide content, applications, services, and devices accessed over the internet. An edge provider can be a personal blog created by an individual or a website created by a billion-dollar company. Some edge providers sell products or subscriptions, while others sell consumer data or use it for digital advertising. Edge provider activities, conducted on the "edge" of the internet—hence the name—are not regulated by the Federal Communications Commission (FCC). Edge providers rely on internet service providers (ISPs) and mobile carriers to deliver content to users. Some companies that operate as ISPs have become edge providers, and a few edge providers with substantial financial resources have become or intend to become ISPs. This has the potential to affect competition among edge providers, as an ISP may have incentives to prioritize content from affiliated edge providers. To deliver content at speeds similar to edge providers associated with ISPs, unaffiliated edge providers may choose to incur the costs of direct connections to users' ISPs. Other unaffiliated edge providers may build or pay to use another company's content delivery networks, which use geographically dispersed servers to deliver online content and services more quickly. Mobile carriers that also serve as edge providers can also have a competitive advantage. For example, they can include their own apps on mobile devices for free, while charging other edge providers a fee. Mobile carriers can also allow users to access content from affiliated edge providers without incurring charges on the users' data plans. These actions could affect net neutrality, a term associated with the concept that all data traveling through the internet should be treated in a nondiscriminatory manner. Some edge providers are acquiring other edge providers for a variety of reasons, including to increase their customer base, to improve the content or services offered, or to eliminate potential competitors. By increasing its customer base, an edge provider could enhance its market position, increasing its leverage in bargaining with ISPs over the speed and quality with which its content is delivered. An edge provider that relies on digital advertising could also benefit from enlarging its customer base, as this would allow it to send advertisements to more individuals and sell more advertisement spaces to advertisers. It may be difficult to distinguish between acquisitions intended to improve the content or services offered and those seeking to eliminate potential competitors. While consumers generally benefit in the former case, the latter case could have negative effects, such as hindering innovation. While the FCC does not regulate edge provider activities, the Federal Trade Commission (FTC) and Department of Justice (DOJ) may examine edge providers on a case-by-case basis for potential consumer privacy or antitrust violations. The FTC, DOJ, and at least 47 attorneys general have reportedly opened antitrust investigations of possible anticompetitive behavior, reportedly including Google, Apple, Facebook, and Amazon. The House Judiciary Committee also opened an investigation into competition in digital markets. A key question in these investigations is how to define the markets within which edge providers compete. Oftentimes, edge providers offer products and services that can be classified under multiple industries. For example, do video streaming services compete only with each other, with cable networks and movie theaters, or with the entertainment industry as a whole? Should a diversified company be examined as a unified entity, or should its edge provider component be evaluated separately? Estimating the market shares of edge providers that rely on revenue from digital advertising is further complicated by the difficulty of determining "sales" for these companies, as they may not obtain revenue from offering their content to users. Some edge providers now operate in multiple industries. Some companies have integrated vertically, both generating content as edge providers and delivering it to consumers as internet service providers (ISPs). Other companies have integrated horizontally by acquiring other edge providers, which could increase their customer base and expand the content or services offered, but also eliminate potential competitors. This report focuses on how horizontal and vertical integration may affect edge providers' relationships with ISPs and competition among edge providers.

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<1. Introduction> The retransmission of television signals to subscribers of cable, telephone company (telco), and satellite services has been governed in part by the Satellite Television Extension and Localism Act Reauthorization Act of 2014 (STELA Reauthorization Act; P.L. 113-200 ). Some provisions of this law, which amended the Copyright Act of 1976 and the Communications Act of 1934, were set to expire at the end of 2019. As described in " Legislation ," with the enactment of the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020 P.L. 116-94 ), Congress permanently extended certain Copyright Act and Communications Act provisions that affect direct broadcast satellite service to viewers in rural areas; limited the ability of separately owned broadcast stations to jointly negotiate with cable and satellite operators over the retransmission of television signals; and affirmed the role of the Federal Communications Commission (FCC) in resolving disputes that could potentially interrupt television service to subscribers of cable, telephone, and satellite services. In addition, Congress amended the Copyright Act to restrict the number of households eligible to receive non-local broadcast television signals via satellite distributors, and encouraged DIRECTV, a satellite operator, to retransmit local broadcast television signals, where available, in all local television markets. Congress amended the Communications Act to permit small video programming service distributors to negotiate collectively with large broadcast station groups, and increase transparency in bills for new customers of video distribution services. To provide context for the current debate, this report provides background information about how households receive television programming, how the television industry operates, and how the Copyright and Communications Acts determine what programs viewers receive. After describing the now-repealed provisions of the copyright act, the report summarizes the provisions of the Copyright and Communications Act enacted by Congress in 2019. Finally, it addresses the relationship between the new provisions and FCC media ownership rules, which the FCC amended in December 2019. <2. Background> A household may receive broadcast television programming through one or more of three methods: 1. by using an individual antenna that receives broadcast signals directly over the air from television stations; 2. by subscribing to a multichannel video programming distributor (MVPD), such as a cable or satellite provider or a telco, which brings the retransmitted signals of broadcast stations to a home through a copper wire, a fiber-optic cable, or a satellite dish installed on the premises; or 3. by using a high-speed internet (broadband) connection. A household may subscribe to a streaming service either that includes broadcast television programming on an on-demand basis, or as a package of prescheduled programming, that is, a "virtual MVPD" (vMVPD). As Figure 1 indicates, the total number of U.S. households subscribing to an MVPD has declined over the past 10 years. In 2010, about 104.2 million households subscribed to an MVPD, compared with about 87.4 million households in 2019. In place of MVPDs, an increasing number of households rely on video provided over broadband connections (including vMVPDs) or via over-the-air broadcast transmission. Currently, two direct broadcast satellite providers DIRECTV and DISH offer video service to most of the land area and population of the United States. As of June 2019, DIRECTV had approximately 17.4 million U.S. subscribers, while DISH had approximately 9.5 million U.S. subscribers. Both have lost subscribers since September 2014, when DIRECTV had approximately 20.2 million U.S. subscribers and DISH had approximately 14.0 million U.S. subscribers. <3. Broadcast Television Markets> <3.1. Federal Communications Commission Licensing and Localism> The FCC licenses broadcast television station owners for eight-year terms to use the public airwaves, or spectrum, in exchange for operating stations in "the public interest, convenience and necessity," pursuant to Section 310(d) of the Communications Act. In 1952, the FCC formally allocated television broadcast frequencies among local communities. The basic purpose of the allocation plan was to provide as many communities as possible with sufficient spectrum to permit one or more local television stations "to serve as media for local self-expression." <3.2. Television Communities vs. Local Television Markets> Until the mid-1960s, the television audience research firm the Nielsen Company restricted its measurement of television station viewership to the major metropolitan areas that were the first to have broadcast television stations. Among other factors, the station considers the estimated number of viewers it attracts with programs when determining the prices that it can charge advertisers. Thus, station viewership plays a significant role in a station's ability to generate revenue. After hearings in the House of Representatives produced accusations that stations licensed to large cities were pressuring the rating services not to measure audiences of stations licensed to smaller cities, Nielsen began to assign each U.S. county to a unique geographic television market in which Nielsen could measure viewing habits. Nielsen's construct, known as Designated Market Areas (DMAs), has been widely used to define local television markets since the late 1960s. The definitions of DMAs are important in determining which television broadcast signals an MVPD subscriber may watch. Nielsen generally assigns each county to one of 210 DMAs based on the predominance of viewing of broadcast television stations in that county. In addition, Nielsen assigns each broadcast television station to a DMA. Nielsen bases each station's DMA on the home county of its FCC community of license. Stations seek to have their signals reach as many people as possible living within their DMAs. They generally have little incentive to reach viewers living outside their DMAs, as they are typically unable to charge advertisers for access to those viewers. Broadcast stations' contractual agreements with television networks and other suppliers of programming generally give them the exclusive rights to air that programming within their DMAs. Advertisers use DMAs to measure television audiences and to plan and purchase advertising from stations to target viewers within those geographic regions. <4. Retransmission of Broadcast Signals via MVPDs> Figure 2 illustrates the relationships among viewers; broadcast television stations; cable, telco, and satellite operators; cable and broadcast networks; and owners of television programming content. <4.1. Related Communications Laws> Generally, subscribers to cable, telco, and satellite services may receive television stations located within their DMAs as part of their video packages. Whether or not subscribers do so, however, depends in part on the decisions of broadcast stations to require these services to retransmit their signals or to opt instead to negotiate for compensation. In addition, satellite operators may choose not to provide any local broadcast service in a particular DMA. The Communications Act gives broadcast stations and satellite operators the rights to make these choices. <4.1.1. Must Carry; Carry One, Carry All> Every three years, commercial broadcast television stations may choose to require cable, telco, and satellite operators to retransmit their signals. By statute, a cable operator or telco must carry the signals of all television stations seeking "must carry" status and assigned to the DMA in which the cable operator is located. Satellite operators are required to carry the signals of all stations assigned to a DMA that seek must carry status to viewers in that DMA, if they choose to carry the signal of at least one local television station in the market. Policymakers often call this provision "carry one, carry all." The applicability of these provisions to telcos is uncertain. Due in part to the carry one, carry all provision, DIRECTV has opted not to retransmit any local broadcast television stations in 12 DMAs. They are Alpena, MI; Bowling Green, KY; Caspar-Riverton, WY; Cheyenne, WY/Scottsbluff, NE; Grand Junction, CO; Glendive, MT; Helena, MT; North Platte, NE; Ottumwa, IA; Presque Isle, ME; San Angelo, TX; and Victoria, TX. <4.1.2. Retransmission Consent> In lieu of choosing must carry status, commercial broadcasting stations may opt to seek compensation from cable, telco, and satellite operators for carriage of their signals in exchange for granting retransmission consent. In contrast to the must carry laws, which differ for cable and satellite operators, the retransmission consent laws apply to all MVPDs. If a broadcast station opts for retransmission consent negotiations, MVPDs must negotiate with it for the right to retransmit its signal within the station's DMA. In addition, cable operators may negotiate with the station for consent to retransmit the station's signals outside of the station's DMA. However, the contracts that broadcast stations have with program suppliers, such as television networks, may limit the stations' ability to consent to the retransmission of their signals outside of their markets. Most television broadcast stations are part of a portfolio owned by broadcast station groups. Most cable systems are part of multiple-system operations owned by corporations. Negotiations over retransmission consent generally occur at the corporate level, rather than between an individual station and a local cable system. Greater competition among MVPDs has increased the negotiating advantage of broadcast television stations since 1993, when they first had the right to engage in retransmission consent negotiations. At that time, large MVPDs refused to pay broadcast stations directly for retransmission rights. Instead, several broadcast networks negotiated on behalf of their affiliates for alternative forms of compensation. The networks sought carriage of new cable networks owned by their parent companies, and split the proceeds they received from the cable networks with the affiliates. As satellite operators and telcos entered the market in competition with cable operators, broadcast stations could encourage the cable subscribers to switch, and vice versa. Broadcast stations began to demand cash in exchange for carriage. As Figure 3 indicates, the total amount of retransmission fees paid by MVPDs has increased from $0.21 billion in 2006 to $12.38 billion in 2019. The 2019 totals include fees paid by vMVPDs, which did not exist in 2006. <4.2. Related Copyright Laws> Generally, copyright owners have the exclusive legal right to "perform" publicly their works, and, as is the case with online distribution of their programs, to license their works to distributors in marketplace negotiations. The Copyright Act limits these rights for owners of programming contained in retransmitted broadcast television signals. The Copyright Act guarantees MVPDs the right to perform publicly the copyrighted broadcast television programming, as long as they abide by FCC regulations and pay royalties to content owners at rates set and administered by the government. In some instances, MVPDs need not pay content owners at all, because Congress set a rate of $0. The Copyright Act contains three statutory copyright licenses governing the retransmission of local and distant television broadcast station signals. Local signals are broadcast signals retransmitted by MVPDs within the local market of the subscriber ("local-into-local service"). Distant signals are broadcast signals imported by MVPDs from outside a subscriber's local area. 1. The cable statutory license, codified in Section 111, permits cable operators to retransmit both local and distant television station signals. This license relies in part on former and current FCC rules and regulations as the basis upon which a cable operator may transmit distant broadcast signals. 2. The local satellite statutory license, codified in Section 122, permits satellite operators to retransmit local signals on a royalty-free basis. To use this license, satellite operators must comply with the rules, regulations, and authorizations established by the FCC governing the carriage of local television signals. 3. The distant satellite statutory license, codified in Section 119, permits satellite operators to retransmit distant broadcast television signals. Congress has renewed this provision in five-year intervals. In 2004, Congress inserted a "no distant if local" provision, which prohibits satellite operators from importing distant signals into television markets where viewers can receive the signals of broadcast network affiliates over the air. Under the statutory license, cable, telco, and satellite operators make royalty payments every six months to the U.S. Copyright Office, an agency of the Library of Congress. The head of this office, the Register of Copyrights, places the money in an escrow account and maintains the "Statement of Account" that each operator files. Congress has charged the Copyright Royalty Board (CRB), which is composed of three administrative judges appointed by the Librarian of Congress, with distributing the royalties to copyright claimants. It also has the task of adjusting the rates at five-year intervals, and annually in response to inflation. For additional information about these licenses, see CRS Report R44473, What's on Television? The Intersection of Communications and Copyright Policies , by Dana A. Scherer. Through a series of laws ( Table 1 ) enacted over the last 30 years, Congress created new sections or modified existing sections of the Copyright Act and the Communications Act to regulate the satellite retransmission of broadcast television and to encourage competition between satellite and cable operators. Congress began the process with the enactment of the Satellite Home Viewer Act of 1988 (SHVA; P.L. 100-667 ), revised it further in several laws leading to the Satellite Television Extension and Localism Act (STELA) of 2010 ( P.L. 111-175 ), and amended the process again with the enactment of the STELA Reauthorization Act of 2014. Most recently, the enactment the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019, (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ) permanently extended some legal provisions governing retransmission of distant network broadcast signals, while repealing others. <4.3. Expiring Provision of Copyright Act> Certain provisions in the STELA Reauthorization Act were set to expire on December 31, 2019. The copyright provision set to expire was Section 119 of the Copyright Act (17 U.S.C. 119). This section enables satellite operators to obtain rights to copyrighted programming carried by distant broadcast network affiliates, superstations, and other independent stations. Under this regime, the satellite operators submit a statement of account and pay a statutorily determined royalty fee to the U.S. Copyright Office on a semiannual basis, avoiding the transactions costs of negotiating with each individual copyright holder. A satellite operator is allowed to retransmit the signals of up to two distant stations affiliated with a network (ABC, CBS, FOX, NBC, or PBS) to a subset of subscribing households that are deemed "unserved" with respect to that network. The "unserved household" limitation does not apply to the retransmission of superstations (see Table 1 , note a). Pursuant to Section 119, satellite operators may retransmit superstations to commercial establishments as well as households. Section 119 specified five different categories of unserved households: 1. a household located too far from a broadcast station's transmitter to receive signals using an antenna; [Section 119(d)(10)(A)] 2. a household that received written consent from a local network affiliate to receive a distant signal; [Section 119(d)(10)(B)] 3. a household that even if it could receive a local broadcast signal over the air nevertheless received a satellite retransmission of a distant signal on October 31, 1999, or whose satellite provider terminated the distant signal retransmission after July 11, 1998, and before October 31, 1999, pursuant to court injunction; [Section 119(d)(10)(C)] 4. operators of recreational vehicles and commercial trucks who complied with certain documentation requirements; [Section 119(d)(10)(D)] 5. a household that received delivery of distant network signals via C-band before October 31, 1999. [Section 119(d)(10)(E)] In 2010, Congress provided an incentive for DISH to offer local-into-local service in all 210 markets with the enactment of STELA. <4.3.1. Revenues Collected by Copyright Office> As Table 2 indicates, between 2014 and 2019 the amount of Section 119 royalties collected by the Copyright Office declined by 89%. According to the Register of Copyrights, the decline is due in part to the drop in the number of distant network stations carried and the conversion of non-network superstations, such as WGN, to cable networks. In addition, as Figure 1 indicates, the total number of households subscribing to satellite television declined from about 34.4 million in 2014 to 27.3 million in 2019. <4.4. Expiring Provisions of Communications Act> Several provisions of the Communications Act were also set to expire at the end of 2019. Some of those provisions cross-reference Section 119 of the Copyright Act. <4.4.1. Cross-References to Section 119 of Copyright Act> Section 325(b)(2)(B) and (C) of the Communications Act [47 U.S.C. 325(b)(2)(B)-(C)] permit a satellite operator to retransmit distant broadcast signals of stations without first seeking retransmission consent from those stations, if the satellite operator is retransmitting the signals pursuant to Section 119 of the Copyright Act. Section 338(a)(3) of the Communications Act [47 U.S.C. 338(a)(3)] states that a low-power station whose signals are retransmitted by a satellite operator pursuant to Section 119 of the Copyright Act [17 U.S.C. 119(a)(14)] is not entitled to must carry rights. Section 339(a)(1)(A) of the Communications Act (47 U.S.C. 339) permits satellite operators to retransmit the signals of a maximum of two affiliates of the same network in single day to households located outside of those stations' DMAs, subject to Section 119 of the Copyright Act. Section 339(a)(1)(B) states that satellite operators may retransmit local broadcast signals under 17 U.S.C. 122 in addition to any distant signals they may retransmit under Section 119 of the Copyright Act. Section 339(a)(2)(A) discusses rules for retransmitting broadcast station signals to satellite subscribers meeting the "unserved household" definition under Section 119 of the Copyright Act [17 U.S.C. 119(d)(10)(C)]. Section 339(a)(2)(D) and (c)(4)(A), in describing households eligible to receive distant signals, cross-reference the "unserved household" definition under 17 U.S.C. 119(d)(10)(A). Section 339(a)(2)(G) states that "this paragraph shall not affect the ability to receive secondary transmissions ... as an unserved household under section 119(a)(12) of title 17, United States Code." Section 339(c)(2) describes the process under which a household may seek a local affiliate's permission to receive a distant signal, and therefore qualify as an "unserved household" under Section 119 of the Copyright Act [17 U.S.C. 119(d)(10)(B)]. Section 340(3)(2) of the Communications Act [47 U.S.C. 340] states that a satellite operator that retransmits a distant broadcast signal pursuant to 17 U.S.C. 119 need not comply with FCC regulations that would otherwise require the satellite operator to black out certain programs of that station. Section 342 of the Communications Act [47 U.S.C. 342] cross-references Section 119 of the Copyright Act [17 U.S.C. 119(g)(3)(A)(iii)], and describes the process through which DISH may obtain a certification from that FCC demonstrating that it is providing local-into-local service in all 210 DMAs. Under 17 U.S.C. 119(g)(3), upon presenting this certification, among other documents, to the Florida district court that had enjoined DISH from using the Section 119 license, DISH would be eligible to use it. (See " Expiring Provision of Copyright Act .") <4.4.2. Good Faith Requirements for Retransmission Consent Negotiations> Section 325(b)(3)(C) of the Communications Act (47 U.S.C. 325(b)(3)(C)) prohibits broadcast stations from engaging in exclusive contracts for carriage. This section also requires both broadcast stations and MVPDs to negotiate retransmission in "good faith," subject to marketplace conditions. Moreover, according to this section, the coordination of negotiations among separately owned television broadcast stations within the same DMA is a per se violation of the good faith standards. The FCC implements the good faith negotiation statutory provisions through a two-part framework. First, the FCC has a list of nine good faith negotiation standards. The FCC considers a violation of any of these standards to be a per se breach of the good faith negotiation obligation. Second, the FCC may determine that based on the "totality of circumstances," a party has failed to negotiate retransmission consent in good faith. Under this standard, a party may present facts to the FCC that, given the totality of circumstances, reflect an absence of a sincere desire to reach an agreement that is acceptable to both parties and thus constitute a failure to negotiate in good faith. <4.4.2.1. Complaints Regarding Good Faith Standard Violations> Over the last 13 years, both broadcast television station owners and MVPDs have filed complaints with the FCC that their counterparty has failed to negotiate in good faith. In some instances, the FCC has found that the complaint lacked validity. In 2016, the FCC reached a consent decree with Sinclair Broadcast Group after completing an investigation. In other instances, the FCC has monitored retransmission consent negotiations even when a party has not filed a complaint. In some cases, stations and/or MVPDs withdraw complaints from the FCC after reaching retransmission consent agreements. In November 2019, the FCC found that seven different station group owners had violated the per se good faith negotiation standards with respect to AT&T, and directed the parties to commence good faith negotiation. <4.4.3. Good Faith Provisions and FCC Media Ownership Rules> Section 325(b)(3)(C)(iv) directs the FCC to adopt rules that prohibit the coordination of negotiations among separately owned television broadcast stations within the same DMA. Unlike the good faith provisions of the Communications Act, the prohibition on coordination is permanent. Additionally, the FCC has adopted a rule declaring such behavior a per se violation of its good faith negotiation standards. In a related matter, the FCC's rules regarding both the number of stations one entity may own within a DMA and the attribution of that ownership have been in flux. The FCC's ownership rules generally prohibit one company from owning two of the top four ranked stations (usually, stations affiliated with the ABC, CBS, FOX, and NBC networks) within the same DMA. In 2016, the FCC adopted rules specifying that if one television station sells more than 15% of the weekly advertising time on a competing local broadcast television station, it would consider the stations to be under common ownership or control, for the purposes of enforcing its local media ownership rule. In 2017, however, the FCC eliminated this rule as part of a reconsideration of its 2016 decision. In September 2019, the U.S. Court of Appeals for the Third Circuit vacated and remanded the FCC's 2017 reconsideration. On November 29, 2019, the court vacated, as of that date, the rule changes adopted by the FCC in 2017. The FCC issued an order in December 2019 that amended its rules to reflect the court's mandate and clarify which rules remain in effect. The FCC has not publicly stated whether it will seek review of the Third Circuit's decision by the U.S. Supreme Court. Likewise, the FCC has not publicly stated how it will proceed with media ownership rulemaking it initiated in 2018, in light of the court's ruling. <5. Legislation in 2019> On December 20, 2019, President Donald J. Trump signed the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ). These laws amended both the Copyright and Communications Acts. <5.1. Copyright Act Revisions> Title XI of P.L. 116-94 permanently extends Section 119 of the Copyright Act, but limits the scope of "unserved households" eligible to receive the distant signals to two categories of households. The first category includes operators of recreational vehicles and commercial trucks who have complied with certain documentation requirements. The second category, added by the act, includes households in "short markets" in the definition of "unserved household." The act defines a short market as a local market in which programming of one or more of the four most widely viewed television networks nationwide is not offered on either the primary stream or multicast stream transmitted by any network station in that market, or is temporarily or permanently unavailable as a result of an act of god or other force majeure event beyond the control of the carrier. The act also amends the Copyright Act to condition the eligibility of satellite operators to retransmit distant signals via a compulsory copyright license to unserved households on whether or not they retransmit local television signals in all 210 DMAs. After May 31, 2020, satellite subscribers who fall within the two categories of unserved households described above are no longer eligible to receive distant signals pursuant to the compulsory copyright license unless their satellite operator provides local-into-local service. Likewise, the other four categories of households described in " Expiring Provision of Copyright Act " are no longer able to receive distant signals pursuant to the compulsory license after May 31, 2020, or until their satellite operator provides local service in all 210 markets, whichever is earlier. The act also specifies that satellite operators will not lose access to the distant compulsory license if their failure to deliver local signals in all 210 markets is due to a retransmission consent impasse. As described in " Must Carry; Carry One, Carry All ," DISH currently does so, but DIRECTV does not. <5.2. Communications Act Revisions> Title X of the act permanently extends portions of the Communications Act set to expire at the end of 2019, while amending others. The following provisions that had been set to expire at the end of 2019 are now permanent: A satellite operator may retransmit broadcast station signals outside of the station's local markets without retransmission consent from those stations, if the operator is retransmitting the signals pursuant to Section 119 of the Copyright Act. Broadcast stations may not enter into exclusive contracts with MVPDs. Broadcast stations and MVPDs must negotiate retransmission consent in "good faith." In the event any party accuses another of failing to negotiate in good faith, the accusing party may petition the FCC to mediate. Joint retransmission consent negotiations by separately owned broadcast stations within the same market constitutes failure to negotiate in good faith. In addition, Title X amended the Communications Act to state that a qualified "MVPD buying group" representing smaller cable, telco, and/or satellite operators may negotiate retransmission consent with large broadcast station group owners without violating the good faith requirement. The buying group may represent only cable, telco, or satellite operators with 500,000 or fewer subscribers nationally. The broadcast station owner with whom the qualified MVPD group negotiates retransmission consent must reach more than 20% of the "national audience." This amendment takes effect no later than March 19, 2020, that is, 90 days after the enactment of P.L. 116-94 . <5.2.1. Relationship to FCC Media Ownership Rules> <5.2.1.1. Local Ownership Rules> As described in " Good Faith Provisions and FCC Media Ownership Rules ," on December 20, 2019, the FCC reinstated the media and ownership rules it had adopted in 2016. Under the reinstated rules, a single company may not own more than one station in a DMA unless eight independently owned stations remain (eight voices test). In addition, stations that jointly sell 15% or more of one another's advertising time count as "owned" for the purposes of the FCC's ownership rules. This means that non-top-four stations may not jointly negotiate with a separately owned top-four affiliate that sells its advertising time, if common ownership would violate the FCC's eight voices test. Likewise, two non-top four stations may not jointly negotiate retransmission consent in the same market if common ownership would violate the FCC's eight voices test. <5.2.1.2. National Ownership Rules> The FCC, in measuring the national reach of a broadcast station owner, discounts the number of television households reached within a DMA by a station operating in the Ultra High Frequency (UHF) band by half. In some instances, a station group may reach 20% or fewer households nationally with the "UHF discount," but more than 20% of U.S. households absent the discount. According to estimates from the research firm BIA Advisory Services, as of May 2019, the two companies falling in this category were NBC Universal and Gray Television. Thus, a qualified MVPD buying group could not negotiate with NBC Universal or Gray Television unless the FCC repeals the UHF discount. In some markets, a television company may effectively operate stations under joint sales agreements or shared services agreements without having them count toward the national ownership limit. Thus, depending on how the FCC interprets the good faith provisions, an MVPD with fewer than 500,000 subscribers nationwide might not be able to use a qualified buying group to negotiate for retransmission of stations operated by a company that reaches 20% or more of U.S. households nationwide. It is far less common for a company to operate third-party stations in a market in which it does not own a station than in a market in which it does own a station. There are 93 DMAs in which a third party operates at least one station and owns at least one station. In contrast, there are five DMAs in which a third party operates at least one station but does not own any stations. Nonetheless, as Congress advises the FCC on the implementation of this good faith provision, the role of third-party owners in retransmission consent negotiations remains an issue that may be considered.

On December 20, 2019, President Donald J. Trump signed the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ). The act permanently extends some legal provisions governing the retransmission of distant network broadcast signals, while repealing others. In addition, the act permanently extends and changes rules for retransmission consent negotiations between television station owners and operators of satellite and cable systems. Congress enacted the new laws to prevent the expiration at the end of 2019 of provisions of communications and copyright laws related to the retransmission of broadcast television signals by cable operators, telephone companies (telcos), and satellite operators, pursuant to the STELA Reauthorization Act of 2014 ( P.L. 113-200 ). (STELA stands for the Satellite Television Extension and Localism Act.) Congress had repeatedly reenacted several of these temporary provisions over several decades. Copyright Act Provisions Generally, copyright owners have exclusive legal rights to license their works. The Copyright Act limits these rights for owners of copyrights to programming carried by retransmitted broadcast television signals. The act provides for statutory licenses that allow cable, telco, and satellite operators to retransmit television broadcast station signals under certain circumstances, even if one or more owners of the copyrights to the programs carried by those signals do not agree. Section 119 of the Copyright Act, which was due to expire at the end of 2019, allows satellite operators to avoid negotiating with copyright holders of programming that they transmit from outside a subscriber's local area and instead pay a royalty fee to the U.S. Copyright Office. The Copyright Office in turn pays the rights holders. The Satellite Television Community Protection and Promotion Act of 2019 permanently extends Section 119 of the Copyright Act, but limits the types of "unserved households" eligible to receive the distant signals. It also requires DIRECTV, a satellite operator, to retransmit local broadcast signals in all 210 U.S. television markets in order to continue using the compulsory copyright license described in this section. Communications Act Provisions Generally, commercial broadcast television stations may either require cable, telco, and satellite operators to carry their signals within the stations' local markets for no fee or demand that the operators negotiate for the right to retransmit the stations' signals within those markets in exchange for a fee. The Television Viewer Protection Act of 2019 made permanent three provisions of the Communications Act. One of the newly permanent provisions permits a satellite operator to retransmit broadcast station signals outside of the stations' local markets without the consent of those stations, if the satellite operator is retransmitting the signals pursuant to Section 119 of the Copyright Act. A second prohibits broadcast stations from entering into exclusive contracts with cable, satellite, or telco operators. The third newly permanent provision of the Communications Act requires all parties to negotiate retransmission consent in "good faith" and assigns the Federal Communications Commission (FCC) a mediation role in the event any party accuses another of failing to negotiate in good faith. However, the act specifies that collective negotiation by smaller cable, telco, and/or satellite operators with large station group owners is not a violation of good faith. On the other hand, the Communications Act specifies that joint retransmission consent negotiations by separately owned (as defined by the FCC) broadcasters within the same market is a violation of good faith. In December 2019, the FCC reinstated rules related to the enforcement of its local ownership limits. If a television company that owns a station in a market sells advertising for another station in the same market under an agreement with that station's owner, the FCC attributes ownership of both stations to that company.

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<1. Introduction> Historic preservation is the practice of protecting and preserving sites, structures, objects, landscapes, and other cultural resources of historical significance. Various federal, state, and local government programs, as well as privately funded activities, support historic preservation in the United States. This report provides an overview of the federal role in historic preservation, including background and funding information for some of the major preservation programs authorized by Congress. In addition to establishing national policies governing historic preservation, Congress considers the federal government's role in financing many of these programs through the annual appropriations process. Some programs also periodically come before Congress for reauthorization. As a result, issues related to historic preservation are of perennial interest to Congress. Some Members of Congress support proposals to eliminate the federal role in historic preservation, leaving such programs to be sustained by other levels of government or by private support. Other Members feel federal support for historic preservation should be maintained or increased. The heavy toll of recent natural disasters such as Hurricanes Harvey and Irma on historic resources has contributed to increased support for incorporating preservation needs in federal disaster relief planning and aid. This report includes a summary of the federal government's role in historic preservation activities, from its early efforts in the late 1890s to today. The report contains a list of many of the federal grant programs funded through the annual appropriations process (see Appendix ). It also includes overviews of historic preservation grants for tribal historic preservation, African American civil rights, historically black colleges and universities (HBCUs), Japanese American confinement sites (JACS), Native American Graves Protection and Repatriation Act (NAGPRA) programs, the Save America's Treasures grant program, and the American Battlefield Protection Program (ABPP). The appendix includes eligibility requirements, matching fund guidelines, and statutory authorization for each program. It also includes an overview of federal funding for historic preservation activities from FY2016 to FY2020, along with requested totals for FY2021. Finally, the report outlines some potential issues facing the 116 th Congress in determining whether and how to address historic preservation needs at the federal level. <2. Background on Federal Historic Preservation Legislation> The federal role in historic preservation was limited for much of the country's early history, with no formal federal policy in place. The two most significant early efforts at federal historic preservation came in the 1890s. First, Congress passed laws intended to protect ancient Puebloan sites in the American Southwest. Soon thereafter, Congress acquired thousands of acres of private land to establish five Civil War national battlefield parks to be administered by the Department of War. These two distinct federal efforts commemorating very different moments in American history are often marked as the genesis of the United States' federal preservation program. In the 20 th century, a legislative campaign for a comprehensive historic preservation policy bolstered these efforts. <2.1. Antiquities Act of 19065> The Antiquities Act of 1906 provided the executive branch with authority to identify and protect cultural resources on federal lands in an expeditious manner. Prior to its passage, federal law provided no means to preserve national cultural and historic resources that had not received specific legislative authorization from Congress. The Antiquities Act authorized the President to proclaim national monuments on federal lands that contain "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest." The law also established guidelines around the future excavation of objects of antiquity found on land owned or controlled by the federal government. Since its passage in 1906, the Antiquities Act has been used to create more than 150 national monuments. <2.2. Historic Sites Act of 1935> With the passage of the Historic Sites Act of 1935, Congress established a national policy on historic preservation. The act outlined a policy to "preserve for public use historic sites, buildings, and objects of national significance for the inspiration and benefit of the people of the United States" while also providing the Secretary of the Interior the authority to develop a program aimed at identifying and evaluating cultural resources. It placed the primary responsibility for administering federal historic preservation activities with the National Park Service (NPS). Efforts to survey and evaluate cultural resources of national historical significance eventually led to the designation of national historic landmarks (NHLs) a federal recognition for historic properties that exists today. (See " National Historic Landmarks Program " section for more information on NHL designation.) <2.3. National Historic Preservation Act of 1966> In the aftermath of World War II, the United States saw an unprecedented transformation of the natural and built environment, thanks in part to a rapid growth in federal infrastructure projects. The construction of interstate highways, urban renewal projects, and large-scale development led to the destruction of numerous historic buildings, archaeological sites, and cultural resources not previously protected under the Historic Sites Act of 1935. In response, President Lyndon B. Johnson convened a special committee on historic preservation in 1965. The following year, the committee released its report, With Heritage So Rich , which called for a comprehensive national historic preservation program. The same year, Congress passed the National Historic Preservation Act of 1966 (NHPA), which incorporated nearly every major recommendation included in the report. Broader than its two predecessors, NHPA is the most comprehensive piece of legislation addressing federal historic preservation. Among its many provisions, the law established the National Register of Historic Places and the procedures by which historic properties are placed on the register, funded the National Trust for Historic Preservation, created a grant program for state and tribal historic preservation, required federal agencies to manage and preserve their historic properties, and created a process for federal agencies to follow when their projects may affect a historic property. Congress has amended and expanded NHPA multiple times since its passage, most recently in 2016. <3. Selected Historic Preservation Programs and Entities> Various federal programs and federally established entities support historic preservation across the United States. Many of these programs and entities were established in NHPA and its subsequent amendments; however, Congress has authorized through separate legislation several other programs that also support activities related to historic preservation. Although it is beyond the scope of this report to discuss all federal programs and entities that support historic preservation, selected major programs and entities are highlighted. <3.1. Advisory Council on Historic Preservation> Created by NHPA, the Advisory Council on Historic Preservation (ACHP) is an independent agency consisting of federal, state, and tribal government members, as well as experts in historic preservation and members of the public. ACHP oversees the Section 106 review process, a process federal agencies must follow when their projects may affect a historic property. Federal agencies are required to review the potential impacts of their actions on historic sites, a process that is to be concluded before federal funding is provided or a federal license is issued. Section 106 applies only to federal or "federally assisted" undertakings, such as those receiving federal funding or a federal permit. As an independent agency, ACHP receives funding as part of the "Related Agencies" portion of the annual Department of the Interior, Environment, and Related Agencies appropriations bill. <3.2. Historic Preservation Fund> The Historic Preservation Fund (HPF) is the primary source of funding for federal preservation awards to states, tribes, local governments, and nonprofit organizations. Although federal funding for historic preservation was available under the 1966 NHPA and subsequent amendments in 1970 and 1973, Congress did not officially establish the HPF to carry out the activities specified in NHPA until 1976. The HPF is funded through revenue generated by outer continental shelf mineral receipts, and it has been periodically reauthorized by Congress. Most recently, in 2016, Congress authorized the HPF to receive deposits of $150 million annually through FY2023. The funding is available only to the extent appropriated by Congress in discretionary appropriations laws. Since the HPF's establishment, Congress has never appropriated the full $150 million for the fund in a single fiscal year. The HPF funds historic preservation activities in two ways: (1) formula-based apportionment grants and (2) competitive grant programs. Most HPF appropriated funds are used to provide formula-based matching grants-in-aid to state historic preservation offices (SHPOs) and tribal historic preservation offices (THPOs) and sub-grants to certified local governments (CLGs). Congress also has provided appropriations for additional competitive grant programs that fund specific historic preservation activities. The Appendix to this report provides an overview of the various grant programs that have been funded through the HPF, eligibility requirements, and program goals. <3.2.1. State Historic Preservation Office Program> HPF grants are awarded annually to SHPOs of the 50 states plus the District of Columbia and the territories. SHPOs are appointed officials responsible for administering and managing federal funds to conduct historic preservation activities. These activities may include surveys and inventories, nominations to the National Register of Historic Places, preservation education, architectural planning, historic structure reports, community preservation planning, and physical preservation of historic buildings, among others. States conducting these activities are statutorily required to provide a 40% match to the funds provided by the HPF. Guidelines allow each state the flexibility to design and shape its historic preservation program as long as the program meets the overall responsibilities outlined by NHPA. Typically, SHPOs do not use these funds to issue sub-grants to other entities for individual historic preservation projects; rather, SHPOs generally use these funds for their own operational and administrative costs, as well as programmatic activities (listed above) carried out directly by the SHPO. Under federal regulations, at least 10% of the allocations to SHPOs are sub-granted to assist CLGs with local preservation needs (see " Certified Local Government Program " below). Congress appropriated $49.7 million in FY2019 and $52.7 million in FY2020 for SHPO grants-in-aid. <3.2.2. Tribal Historic Preservation Office Program> Since 1996, NPS has awarded annual formula-based grants to Tribal Historic Preservation Offices (THPOs). Eligibility for grants under the THPO grant program is limited to federally recognized tribes that have signed agreements with NPS designating them as having an approved THPO. To become an approved THPO, a tribe submits a request to assume responsibilities from the SHPO and provides a program plan demonstrating how SHPO duties will be conducted. Once a program plan is completed and approved, an agreement between the tribe and the Secretary of the Interior is executed and the THPO becomes eligible for HPF grant support. Similar to SHPO grants, the THPO grant program requires at least a 40% nonfederal match. Activities funded through the program include staff salaries, archeological and architectural surveys, review and compliance activities, comprehensive preservation studies, National Register nominations, educational programs, and other preservation-related activities. Grants are not awarded competitively but instead are determined according to a formula in consultation with tribes. Congress appropriated $11.7 million in FY2019 and $13.7 million in FY2020 for THPO grants-in-aid. <3.2.3. Certified Local Government Program> NHPA requires that at least 10% of the annual HPF funding provided to each SHPO be sub-granted to local government entities known as certified local governments (CLGs). A CLG is a unit of local (town, city, or county) government that has undergone a certification process administered by NPS and the respective state SHPO, involving demonstration of a commitment to historic preservation. Under this certification process, local governments must meet NPS guidelines that include the establishment of a "qualified" historic preservation commission, inventory maintenance and surveys of local historic resources, and enforcement of state or local historic preservation laws, as well as additional requirements that may be established at the state level. Although CLGs receive at least 10% of the total annual apportionment from their respective SHPOs, states may provide more than the required minimum 10% pass-through should they choose to do so. States typically award grants to individual CLGs through a competitive application process established by the SHPO. <3.3. National Register of Historic Places> The National Register of Historic Places (or National Register) stands as the United States' "official list" of properties significant in "American history, architecture, archeology, engineering and culture." The National Register is maintained by the Department of the Interior (DOI) and in particular by NPS under the authority of NHPA, as amended. NHPA requires the Secretary of the Interior to maintain the register, develop guidelines and regulations for nominations, consider appeals, make determinations of eligibility of properties, and make the National Register accessible to the public. NPS has developed standards and guidelines to help federal, state, and local governments prepare nominations for the register. SHPOs, THPOs, or federal historic preservation offices typically coordinate nominations for the National Register. Property owners, historical societies, preservation organizations, government agencies, and other interested parties work through these offices to determine whether a given property meets the requisite criteria for listing, at which point a completed nomination and recommendation are submitted to NPS for review. NPS is to decide whether a property should be listed within 45 days after receiving a completed nomination. Benefits of listing on the National Register include honorary designation, access to federal preservation grant funds for planning and rehabilitation activities, possible tax benefits, and required application of Section 106 review should a federal or federally assisted action affect the property. Listing of a property places no restrictions on what nonfederal owners may do with their property, up to and including destruction of the property. Under federal regulations, should a property no longer meet the criteria for listing, the property shall be removed from the National Register. Currently, more than 94,000 properties are listed on the National Register. <3.4. National Historic Landmarks Program> The National Historic Landmarks (NHL) program like the National Register is a federal recognition program administered by NPS. The agency is responsible for overseeing the nomination process for new NHLs and providing technical assistance to existing landmarks. NHLs are places of national significance to the history of the United States (as opposed to National Register properties, which, according to NPS, "are primarily of state and local significance"). The Historic Sites Act of 1935 created the NHL program, and the National Historic Preservation Act Amendments of 1980 clarified the role of NPS as the entity responsible for overseeing the designation of NHLs. All NHLs are also listed in the National Register. Funding for the NHL program falls under the National Register program, and NHLs are eligible for federal investment tax credits, technical assistance, and consideration in federal undertakings, similar to other properties on the National Register. With regard to federal undertakings, however, NHLs have a higher standard for protection than properties listed on the National Register. Whereas Section 106 of NHPA, applicable to properties on the National Register, requires only that agencies "take into account" the effects of an undertaking on historic properties, Section 110(f) of the law, applicable to NHLs, requires that agencies "to the maximum extent possible undertake such planning and actions as may be necessary to minimize harm to the landmark." <3.5. National Trust for Historic Preservation> Congress chartered the National Trust for Historic Preservation (or National Trust) in 1949. It is a private nonprofit corporation, responsible for encouraging the protection and preservation of historic American sites, buildings, and objects that are significant to the cultural heritage of the United States. The trust provides technical and educational services, promotes historic preservation activities, and administers several historic preservation grant programs. Congress authorized federal funding for the National Trust in the NHPA of 1966. Federal funding for the trust largely continued until FY1996, at which point the Interior Appropriations bill conference report stated that the managers agreed "to a 3-year period of transition for the National Trust for Historic Preservation to replace federal funds with private funding." From FY1998 through FY2001, there was no federal funding for the National Trust. In FY2002, Congress appropriated from the HPF $2.5 million to use as an endowment to maintain and preserve National Trust historic properties. In FY2003, Congress appropriated an additional $2.0 million from the HPF for the endowment, and added $0.5 million more in FY2004. In FY2005, Congress stopped funding the National Trust, and currently the organization's funding comes largely from private donations. <3.6. Federal Historic Preservation Tax Incentives Program> In 1976, Congress passed the Tax Reform Act, which provided tax incentives for owners of historic structures to consider rehabilitation and preservation over demolition. Some argued that the law prior to 1976 encouraged the demolition and redevelopment of historic properties over their preservation. Since then, tax law has continued to evolve into what is now the Federal Historic Preservation Tax Incentives program, which includes historic tax credits (HTCs) administered by the Internal Revenue Service (IRS) and NPS in partnership with SHPOs. The HTC program encourages private investment in historic preservation and rehabilitation initiatives by providing a 20% federal tax credit to property owners who undertake substantial rehabilitation of a certified historic structure, while maintaining its historic character. Eligible buildings include those listed on the National Register of Historic Places, or architecturally contributing to a National Register district, that are rehabilitated for income-producing purposes. The program previously included a separate 10% rehabilitation credit for the rehabilitation of nonhistoric, nonresidential buildings built before 1936; however, the 2017 tax revision repealed this credit. Since 1976, over 44,000 projects have been completed under the program, with more than $96 billion leveraged in private investment for the rehabilitation of historic properties. <3.7. National Heritage Areas Program50> Since 1984, Congress has designated 55 national heritage areas (NHAs) to recognize and assist efforts to protect, commemorate, and promote natural, cultural, historic, and recreational resources that form distinctive landscapes. NHAs are partnerships among NPS, states, and local communities, in which NPS supports state and local conservation through federal recognition, seed money, and technical assistance. Congress has established heritage areas for lands that are regarded as distinctive because of their resources, their built environment, and the culture and history associated with the land and its residents. In a majority of cases, NHAs have had a fundamental economic activity as their foundation, such as agriculture, water transportation, or industrial development. No comprehensive statute establishes criteria for designating NHAs or provides standards for their funding and management. Rather, particulars for each area are provided in the area's enabling legislation. Congress designates a management entity, usually nonfederal, to coordinate the work of the partners. NHAs are not part of the National Park System, in which lands are primarily federally owned and managed. <3.8. Historic Federal Property Disposal Programs52> Real property disposal is the process by which federal agencies identify and then transfer, donate, or sell real property they no longer need. The federal government has several programs that enable state, county, and local governments, as well as nonprofit organizations, to acquire at no cost properties deemed excess to the needs of a federal agency. Two programs in particular address the disposal of historic properties under federal ownership: the Historic Surplus Property Program and the National Historic Lighthouse Preservation Act Program. <3.8.1. Historic Surplus Property Program> The NPS Historic Surplus Property Program is administered in partnership with the General Services Administration (GSA) and was authorized under the Federal Property and Administrative Services Act of 1949, as amended. When federally owned historic buildings are no longer needed by their respective agencies, the GSA declares the buildings to be surplus. Applicants interested in obtaining these properties which must be listed, or eligible for listing, in the National Register submit an application to the GSA. Eligible applicants include state and public agencies, tribal entities, and nonprofit organizations. NPS then makes a formal recommendation to the GSA (or the Department of Defense, in the case of military properties) to effect the transfer of property. Once conveyed, a property must be managed and maintained in accordance with the terms of the transfer and the Secretary of the Interior's Standards for Rehabilitation. <3.8.2. National Historic Lighthouse Preservation Act Program> The NPS also administers a program to oversee the transfer of surplus historic lighthouses under federal ownership. Federal lighthouses and light stations were previously transferred to eligible entities through the Historic Surplus Property Program. In 2000, however, Congress passed the National Historic Lighthouse Preservation Act (NHLPA), an amendment to NHPA. The NHLPA provides a mechanism for the U.S. Coast Guard (USCG) to dispose of historic lighthouses that are listed, or determined eligible for listing, in the National Register. Similarly to other historic federal properties deemed to be excess, the NHLPA directs the USCG to issue a R eport of E xcess for historic light stations to the GSA, which then releases a notice of availability. At this point, interested parties looking to acquire the light station in question at no cost work with NPS to submit a formal application, which is then reviewed by an internal NPS review committee that makes a recommendation to the Secretary of the Interior and the GSA Administrator. If there are no interested parties or if no applicant meets the requirements set forth by the review committee the property is offered for sale by competitive bid or auction. <3.9. National Historic Networks> Congress occasionally has passed legislation authorizing NPS to establish national networks aimed at coordinating the preservation and education efforts of various places, museums, and interpretive programs associated with specific historical moments or movements in U.S. history. To date, Congress has authorized the establishment of three such networks: the National Underground Railroad Network to Freedom ( P.L. 105-203 ), the African American Civil Rights Network ( P.L. 115-104 ), and the Reconstruction Era National Historic Network ( P.L. 116-9 ). Legislation in the 116 th Congress ( H.R. 1179 and S. 2827 ) would establish a fourth network, the African-American Burial Grounds Network. These laws have provided that network sites can include federal, state, local, and privately owned properties, although inclusion in the network requires consent from property owners. Congress has authorized the Secretary of the Interior to produce and disseminate educational materials and provide technical assistance to network sites, and to develop an official symbol or logo for use across the network. <4. Federal Historic Preservation Grant Programs> The federal government currently supports historic preservation through a variety of grant programs. The largest source of funding for federal historic preservation programs is the HPF, which currently funds state, tribal, and local historic preservation, African American civil rights grant programs, grants to underrepresented communities, tribal heritage grants, the Save America's Treasures program, disaster recovery grants, historic revitalization grants, and grants to historically black colleges and universities (HBCUs). Several other historic preservation grant programs are funded through annual appropriations under other NPS and non-NPS accounts rather than through the HPF. These programs include grants for Japanese American confinement sites, Native American grave protection and repatriation, and preservation and acquisition grants for American battlefields. For a complete list of these programs and their guidelines, refer to the Appendix . <5. National Historic Designations> Table 1 , below, compares selected designations used by Congress and the executive branch for historic properties and sites. The table provides information on the entity that confers each designation (e.g., Congress, the President, the Interior or Agriculture Secretary); statutory authorities for the designation; the agency or agencies that administer each type of area (also noting designations for which the area typically is under nonfederal management); selected characteristics of the areas; and examples of each type of area. Designations for nonfederally owned and managed sites are listed according to the agency with administrative responsibility for the designation (e.g., responsibility for evaluating site qualifications and providing technical and/or financial assistance to designated sites). <6. Federal Funding for Historic Preservation> The federal government supports historic preservation through direct appropriations for federally protected sites and grants to nonfederal entities. Grant funding is typically provided to NPS-administered accounts within the annual Interior, Environment, and Related Agencies Appropriations bill. These accounts provide technical and financial assistance to state, local, and tribal governments, educational institutions, and nonprofit organizations with the goal of protecting cultural resources and promoting historic preservation activities across the United States. The majority of the funding is split between two NPS accounts: the HPF account, the primary source of funding for federal historic preservation programs, and the National Recreation and Preservation (NR&P) account, which provides funding for a variety of other congressionally authorized grant programs. Funding for historic preservation programs is not limited to these two accounts, however, nor does Congress exclusively fund grant programs as part of the Interior appropriations bill. Table 2 and Table 3 provide FY2016-FY2020 appropriations figures and the FY2021 budget request for programs funded as part of the HPF and NR&P accounts. <6.1. HPF Appropriations: FY2016-FY2020 and FY2021 Request> In 2016, Congress reauthorized deposits of $150 million annually into the HPF for FY2017 through FY2023. Congress has never appropriated the full $150 million for the HPF since its establishment; however, regular appropriations to NPS's HPF account increased each year from FY2016 to FY2020. The FY2021 budget justification for NPS requests $40.7 million for HPF a roughly 66% reduction in funding from FY2020 enacted amounts. This request would provide funding only for the core grant-in-aid programs to SHPOs ($26.9 million) and THPOs ($5.7 million), as well as $8 million for grants to HBCUs. It would not provide funding for additional competitive or non-formula-based grant programs. <6.2. National Recreation and Preservation Appropriations: FY2016-FY2020 and FY2021 Request> In addition to grant funds through the HPF account, Congress provides funding to other NPS-administered historic preservation grant programs under the National Recreation and Preservation (NR&P) account. This account provides for a broad range of activities related to historic and cultural preservation, as well as programs for recreational activities, natural resource conservation, environmental compliance, operations of the Office of International Affairs, and national heritage areas. Administration of grants funded through the NR&P account and HPF grant administration are included within the NR&P account under the "Cultural Programs" line item and the sub-activity "Grants Administration." Congress appropriates direct funding for NPS-administered grant programs under the Cultural Programs line item. The Administration requested $33.9 million for NR&P in FY2021 a roughly 52% reduction from FY2020 enacted amounts. <7. Selected Issues for the 116th Congress> Historic preservation programs are of perennial interest to Congress and have been the subject of congressional oversight and legislation in the 116 th Congress. Some Members of Congress support proposals to eliminate a federal government role in both administering and financing historic preservation programs, leaving such programs to be sustained by other levels of government or by private support. Others feel that a federal role in supporting historic preservation should be maintained or expanded. Similarly, some advocates believe there may be an inherent or increased tension between preservationist goals and federally controlled or licensed infrastructure projects. The majority of federal grant programs for historic preservation receive funding through the annual appropriations process. Members of Congress as well as both current and past Administrations have expressed various opinions as to how federal funding for these programs should be allocated and at what levels. Both the FY2020 and the FY2021 budget requests from NPS would have significantly reduced funding for the HPF and would provide no funding for African American civil rights grant programs, grants to underrepresented communities, the Save America's Treasures program, or historic revitalization grants. In response to the FY2020 budget proposal, the House Subcommittee on National Parks, Forests, and Public Lands of the Committee on Natural Resources held oversight hearings in April 2019 on the spending priorities and mission of NPS. During these hearings, some Members expressed concern that the proposed reduction in grant funding would impact the ability of communities to protect and maintain culturally and historically important resources. Others including witnesses from NPS expressed the position that "core" NPS priorities such as infrastructure and the NPS maintenance backlog should take priority over historic preservation when considering the appropriation of federal funds. Other issues Congress may consider are specific to NHPA and current historic preservation laws and regulations. For instance, some have argued that the "stop, look, and listen" approach under Section 106 of NHPA does not provide adequate protection for historic resources, since the law only establishes a procedural requirement for federal agencies. According to a study commissioned by the National Trust for Historic Preservation in 2010, NPS reported to Congress that only 2% of all SHPO reviews for Section 106 compliance included findings of adverse effects to historic properties. For those undertakings that are deemed to have an adverse effect on a given historic property, the agency in question is only required to consider these effects with no explicit legal mandate requiring them to address these potential impacts. In other words, although agencies are compelled to consult with the SHPO/THPO to develop solutions to mitigate effects, agency officials are not required to pursue the solutions, regardless of any adverse effects. As a result, some preservation advocates have charged that NHPA fails in its purported mission to protect cultural and historic sites. Others suggest that Section 106 compliance results in unnecessary and costly delays and have suggested that in some cases, opponents of specific federal projects may invoke Section 106 procedural steps in the hopes of delaying approval for a project sometimes to the point of impacting a project's feasibility. Although federal regulations provide certain ways for agencies to tailor the Section 106 process to their needs, some stakeholders have asserted that these options are time-consuming to implement and not flexible enough for undertakings that involve new or emerging technologies. Multiple bills have been introduced to exempt or limit NHPA reviews for certain projects, such as rail and transit infrastructure projects and Federal Communications Commission construction projects for communications facilities following a major disaster. Many of the programs that directly or indirectly support historic preservation also have received attention in recent years. For example, in 2013, the Federal Railroad Administration published a study that concluded "there is no consistent approach on how to address the National Register eligibility of railroad corridors." Although federal regulations outline the criteria for inclusion of a property on the National Register, the report states that inconsistent standards still abound, due to the multitude of entities conducting National Register evaluations. Another program of congressional interest has been the National Heritage Areas program. Legislation has been introduced in recent Congresses to establish a National Heritage Areas System governing the designation, management, and funding of NHAs, to replace the stand-alone approach currently in place. Additionally, some Members as well as past and current Administrations have expressed interest in ensuring that NHAs eventually become financially self-sufficient and in limiting the federal funding for long-standing areas. In addition, Congress often considers bills to designate specific properties or areas as historically important, under various designations. For example, in the 116 th Congress, P.L. 116-9 included provisions that designated three new historical sites as units of the National Park System and six new national heritage areas, as well as stand-alone provisions that recognized the historical importance of sites across the United States. Although many of the programs described in this report provide for properties to receive historical designation administratively, Congress has at times conferred individual designations in law. Certain programs or designations require congressional action to establish new areas or to designate properties as historically significant. <7.1. Appendix. Selected Federal Grant Programs for Historic Preservation> Table A-1 is an overview of selected federal historic preservation grant programs. This overview focuses on programs with the primary mission of historic preservation and is not a complete representation of all federal grant programs that support historic preservation activities. Most of the programs listed here are subject to annual appropriations and therefore may not be currently funded, despite some programs having congressional authorization to administer grants. Programs authorized or funded in FY2020 for the first time may not be listed below. For example, as part of the FY2020 funding bill ( P.L. 116-94 ), Congress provided funding for a new civil rights grant program that would preserve and highlight the sites and stories associated with women, American Latino, Native American, Alaska Native, Native Hawaiian, and LGBTQ Americans. NPS has not yet published eligibility requirements or program guidelines. P.L. 116-94 also authorized two new grant programs as part of the American Battlefield Protection Program (ABPP): a battlefield interpretation modernization grant program and a battlefield restoration grant program. As these new programs have yet to receive appropriations from Congress, they are not listed below.

During the 20 th century, Congress passed several laws that established a framework for federal historic preservation activities. The most comprehensive of these statutes is the National Historic Preservation Act of 1966 (NHPA; P.L. 89-665). NHPA created a grant program for state historic preservation, established the federal National Register of Historic Places (NRHP) and the procedures by which historic properties are placed on the Register, funded the National Trust for Historic Preservation (NTHP), established the Advisory Council on Historic Preservation (ACHP), and designated a process for federal agencies to follow when their projects may affect a historic property (known as the Section 106 process). Congress also has amended and expanded NHPA multiple times since its passage, most recently in 2016. In addition, Congress often considers bills to designate specific properties or areas as historically important, under various designations. These designations include national monuments, national historical parks, national historic sites, national historic landmarks, and properties listed on the NRHP, to name a few. Such historic designations may bring few management changes to a site or may involve significant changes, depending on the individual designating laws and/or general authorities that may apply to a type of designation. Some historic designations are applied to federally owned lands (including lands already under federal administration and those that the designating law may authorize for federal acquisition), but many federal designations are conferred on lands that remain nonfederally owned and managed. Because of these various legislative and oversight activities, historic preservation is of perennial interest to Congress. For example, some Members of Congress support proposals to eliminate a federal government role in financing historic preservation programs, leaving such programs to be sustained by other levels of government or by private support. Others state that a federal role in supporting historic preservation should be maintained or expanded. In particular, lawmakers and administrations pay significant attention to funding levels for various historic preservation programs that are subject to the annual appropriations process. The Historic Preservation Fund (HPF) is the primary source of funding for federal preservation. Appropriations for the HPF totaled $118.7 million in FY2020 ( P.L. 116-94 ), a nearly 16% increase from the FY2019 appropriation (excluding emergency supplemental funding) and a roughly $86 million increase over the FY2020 Administration request. For FY2021, the Trump Administration requests a roughly 66% reduction in funding for the HPF compared with FY2020 levels. This request includes no fiscal support for many of the federal grant programs available to states, tribes, local governments, and nonprofit organizations for historic preservation.

crs_R46246

crs_R46246_0

<1. Introduction> Taxpayers who elect to itemize their deductions may reduce their federal income tax liability by claiming a deduction for certain state and local taxes paid, often called the "SALT deduction." The 2017 tax revision (commonly referred to as the Tax Cuts and Jobs Act, TCJA; P.L. 115-97 ) established a temporary $10,000 limit, or "SALT cap," on annual SALT deduction claims. By limiting the amount of the SALT deduction, the SALT cap increases the tax liability of certain taxpayers, which increases federal tax revenues relative to what otherwise would have been collected without a limitation in place. The SALT cap's effect on tax liability varies significantly with taxpayer income and with state and local tax rates. A number of bills introduced in the 116 th Congress would modify the SALT cap, and federal regulatory efforts responding to related state and local government activity are ongoing. This report discusses the SALT cap's features, analyzes its potential impact, and summarizes recent legislation and regulatory action to modify the cap. <2. Cap Mechanics and Revenue Effects> Under current law, taxpayers itemizing deductions (in lieu of claiming the standard deduction) may reduce their taxable income by claiming the SALT deduction for certain state and local taxes paid during the tax year. The state and local taxes eligible for the SALT deduction are income taxes, sales taxes (claimed in lieu of income taxes), personal property taxes, and certain real property taxes not paid in the carrying on of a trade or business. For taxpayers who would have itemized deductions without access to the SALT deduction, it generates tax savings equal to the amount deducted multiplied by the taxpayer's marginal income tax rate. For example, a taxpayer with $20,000 of eligible state and local taxes and a top marginal tax rate of 35% would save $7,000 from the SALT deduction (i.e., $20,000*0.35). For taxpayers who would have claimed the standard deduction without access to the SALT deduction, it generates tax savings equal to the difference between their tax liability if they had claimed the standard deduction and their total tax liability with itemized deductions (inclusive of the SALT deduction). (Throughout this report, the tax savings attributable to the SALT deduction is also referred to as the benefit from the deduction.) The TCJA established a temporary SALT cap for tax years 2018 through 2025. The SALT cap is set at $10,000 for single taxpayers or married couples filing jointly and $5,000 for married taxpayers filing separately. By limiting the SALT deduction available to certain taxpayers, the SALT cap decreases the tax savings associated with the deduction relative to prior law, thereby increasing federal revenues. The TCJA also changed a number of tax code features (e.g., standard deduction amounts, marginal tax rates) that indirectly affect SALT deduction eligibility and the value of the tax savings it generates. The TCJA roughly doubled the standard deduction and limited other itemized deductions. The TCJA also prohibited SALT deduction claims on taxes paid on foreign real property for tax years 2018 through 2025. The SALT cap, the increased value of the standard deduction, and other tax changes enacted by the TCJA have reduced the number of taxpayers claiming the SALT deduction and the total tax savings from those claims. Table 1 shows the most recent estimates of reductions in federal revenues attributable to the SALT deduction for FY2017, the last full year before enactment of P.L. 115-97 , and FY2019 through FY2023. Revenue losses from the SALT deduction in FY2017 ($100.9 billion) nearly equaled the total losses projected from FY2019 through FY2023 ($117.2 billion). The Joint Committee on Taxation (JCT) projects that 16.4 million taxpayers will claim a SALT deduction for tax year 2019, compared to 46.6 million taxpayers who the Internal Revenue Service (IRS) reported claiming the deduction in 2017. Recent research has estimated the SALT cap's effect on SALT deduction claims independent of other tax changes enacted through the TCJA. A 2019 Treasury Inspector General report examined the SALT cap's hypothetical effect had it been imposed in tax year 2017, prior to the other TCJA changes taking effect. The report found that the cap would have reduced SALT deduction benefits for 10.9 million taxpayers (about 25% of all households claiming the deduction) and reduced deduction amounts by $323 billion, or just over half of the actual amounts deducted in that year. In June 2019, JCT estimated that holding all other portions of the tax code constant, repealing the SALT cap for tax year 2018 would decrease FY2019 federal revenues by $77.4 billion. <2.1. Effects on State and Local Governments> The SALT deduction provides state and local governments with an increased ability to levy taxes by reducing the after-tax cost of state and local taxes to taxpayers. By limiting the deduction's benefits, the SALT cap increases the cost (or "price") of state and local taxes for affected taxpayers. For example, consider a taxpayer with itemized deductions, a 35% marginal tax rate, and $20,000 in eligible SALT payments. Without a SALT cap in place, the net price of those taxes for the taxpayer would be $13,000 (or $20,000*[1-0.35]), as the taxpayer can use all $20,000 of those tax payments to reduce federal tax liability. When a $10,000 SALT cap is imposed, the final price of those taxes rises to $16,500 (or $10,000 + [$10,000*(1-0.35)]). The basic economic law of demand there is an inverse relationship between the price of a good and the quantity demanded suggests that by increasing the price of state and local taxes, a SALT cap would lead to a decline in demand for state and local government activity. The size of the decrease would be a function of the sensitivity of public desire for state and local services, paid for by taxes, to changes in the price of those services (i.e., the elasticity of demand). Research has found indications that state and local governments respond to federal tax changes with shifts in their own tax and spending practices. Response to the SALT cap could be a function of its salience , that is, the public awareness of its effect on tax liability. SALT cap salience may depend on awareness of the state and local taxes themselves, which can vary significantly across tax system features. Salience for taxpayers who take the standard deduction, but who would be better off itemizing deductions if not for the SALT cap, may be particularly low, as the SALT cap's effects may not be apparent in tax filing software. Taxpayers could also have difficulty differentiating SALT cap-related liability changes from other changes enacted through the TCJA. State and local governments are generally limited in their ability to respond to shifts in demand for government services with changes in fiscal outcomes (i.e., increased deficits or reduced surpluses). Unlike the federal government, which has no enforceable balanced-budget requirement, most state and local governments are statutorily required to balance operating revenues and operating expenses over a one-year or two-year period. Governments with a binding balanced-budget requirement would therefore need to match any reduction in SALT revenue resulting from the cap with a reduction in spending on services provided or increases in other revenue sources. <3. Distributional Effects> This section explores features of localities and households that are likely to influence the distribution and intensity of SALT cap effects on tax liability. The recent enactment and implementation of the SALT cap means that tax return data on its impact by state, locality, and income level are currently unavailable. However, analyzing the SALT deduction's distribution prior to the cap's imposition can provide insight into its likely impact. The data indicate that the SALT cap's effects will vary significantly across state and local jurisdictions and household income. <3.1. Distribution Across States and Congressional Districts> The SALT cap's effect is in part a function of state and local tax policies. For example, greater effective rates levied on taxes that qualify for the deduction (income taxes, general sales taxes, real and personal property taxes) would increase the amount of SALT-eligible tax payments and therefore increase the probability that a taxpayer will have SALT deductions that exceed the cap. State and local tax rates could thus affect both the number of taxpayers with higher tax liability from the SALT cap (sometimes referred to as SALT cap exposure) and the amount of those increases (sometimes referred to as the SALT cap burden). Differences in local incomes and price levels are another determinant of the SALT cap's effect. Wages and prices are the bases against which state and local governments levy SALT-eligible income, sales, and property taxes. Consider two households that are in separate localities and have different incomes but the same tax rates and the same purchasing power. In other words, adjusting for their local price levels, each household is able to purchase the same sets of goods and services. Although each household faces the same set of purchasing options on the public and private markets, the household facing higher price levels is more likely to have SALT payments in excess of the SALT cap. State and local governments raised a combined $1.30 trillion in individual income taxes, general sales taxes, and property taxes in 2017, an average of about $8,500 per federal income taxpayer. Those revenues are divided almost evenly between state governments ($667 billion in revenues), which collected the majority of the income and sales taxes, and local governments ($632 billion), which collected the majority of property taxes. There is considerable geographic variation in the rates at which taxes are levied and in the incomes and prices to which those taxes apply. Figure 1 shows effective state and local tax rates for all SALT-eligible taxes in each state, calculated as the percentage of total adjusted gross income paid in-state and local general sales taxes, individual income taxes, and property taxes. In 2017, New York (17.2% effective tax rate), Washington, DC (16.9%), Hawaii (16.1%), Maine (15.0%), and Nebraska (14.2%) had the highest combined effective state and local tax rates. Delaware (6.8%), Alaska (7.6%), Florida (7.7%), New Hampshire (8.3%) and Tennessee (8.4%) had the lowest combined tax rates. All else equal, states with higher SALT-eligible effective tax rates are likely to experience greater SALT cap effects on tax liability than states with lower rates. Figure 2 plots the average SALT deduction amount for each 2017 congressional district (districts are from the 115 th Congress). The districts with the 20 highest average SALT deductions are located in states with above-average effective tax rates in Figure 1 , including New York, California, Connecticut, and New Jersey. Nineteen of the districts with the 20 lowest average SALT deductions are located in Florida, Texas, Tennessee, Alabama, Nevada, Arizona, and Alaska, all states with below-average effective state and local tax rates. Figure 2 shows the potential significance of local tax and economic activity on the SALT cap's effects. Figure 3 adds a layer of analysis by plotting two variables on each congressional district: (1) average adjusted gross income (AGI) of taxpayers and (2) average effective SALT rates. Each district categorized as having low effective SALT rates in Figure 3 had an average AGI below $75,000, and 13 of these districts had average AGI below $50,000. Nineteen of the 20 districts with the highest effective SALT rates had an average AGI above $100,000, and four of the top five districts had an average AGI above $200,000. The distribution of SALT deductions across household income is discussed further in the next section. Figure 3 demonstrates the importance of considering both tax rates and the tax base when examining potential SALT cap effects. <3.2. Distribution Across Income Levels> As with other tax deductions, SALT deduction benefits accrue more for higher-income taxpayers than lower-income taxpayers. Two factors explain this pattern: (1) higher incomes directly lead to more state and local income taxes and are correlated with higher sales and property tax payments stemming from greater consumption; and (2) taxpayers with higher incomes are subject to higher marginal tax rates, so each dollar deducted from tax liability results in greater tax savings. Table 2 shows the JCT projections of SALT benefits by income class in tax years 2017 (the last year before the TCJA took effect) and 2019. Taxpayers with more than $100,000 of AGI received the vast majority of SALT benefits in both 2017 (93%) and 2019 (89%). Taxpayers with income between $50,000 and $200,000 received a larger share of total benefits in 2019 (44%) than 2017 (29%), whereas the opposite trend occurs for taxpayers with more than $200,000 (declining from 71% to 56%). Taxpayers with less than $50,000 received relatively little benefit from the SALT deduction in both years. Data from Table 2 suggest that the SALT cap increased the federal tax burden of high-income taxpayers. This occurs because the SALT cap (1) reduced the number of taxpayers claiming the SALT deduction, who disproportionately fell in higher income classes; and (2) reduced SALT benefit levels of taxpayers with more than $10,000 in SALT payments, who were particularly likely to have high levels of income. JCT estimated that were the SALT cap eliminated in tax year 2019, more than half of the additional tax benefits would have been claimed by taxpayers with incomes exceeding $1 million. The SALT cap's total effect on the combined federal, state, and local tax burden across income levels will depend on the state and local government response to the SALT cap, which is uncertain. Figure 4 plots the percentage of all tax returns, the percentage of returns claiming SALT deductions, and the percentage of SALT deduction amounts claimed across income levels in tax year 2017, the latest year for which data are available. (The amount of SALT deduction claimed reflects the dollars deducted and not the tax savings associated with the deduction.) Tax returns with AGI exceeding $1 million represented less than 1% of all tax returns, but claimed over 25% of all SALT deduction amounts. Tax returns with over $100,000 in AGI claimed more than 78% of the SALT deduction amounts claimed, while returns with AGI below $50,000 claimed less than 10% of that total. The composition of state and local taxes also affects the SALT cap's ultimate effect on taxpayers within a local jurisdiction. Table 3 illustrates how SALT cap burden distribution can differ when the composition of state and local taxes changes while holding total tax revenue constant. In both jurisdictions, total tax revenues are $44,000. In Jurisdiction I, relatively high income tax rates generate higher income tax payments, and the SALT cap burden falls on Tax Units A and B, the taxpayers with higher incomes. In Jurisdiction II, property tax rates are higher than income tax rates, and the SALT cap burden instead falls on Tax Units A and C, the taxpayers with high property values. More of the state and local tax revenue in Jurisdiction II is above the SALT cap, meaning that taxpayers in Jurisdiction II are able to deduct less in SALT deductions on their federal income tax returns. This analysis highlights the importance of state and local tax structure in determining the SALT cap's effect on taxpayer liability even when holding the average level of taxes constant. <4. State Responses to the SALT Cap> The state and local response to the SALT cap's effect has varied across municipalities. Certain governments in states with relatively high mean SALT deduction values (see Figure 1 ) have either enacted legislation that would appear to make tax changes to reduce the SALT cap's effect on their taxpayers or taken legal action against the federal government. Recent federal and legal responses to some of these actions suggest these efforts will likely be unsuccessful. State and local governments with relatively lower levels of SALT cap exposure have taken little to no action. Following enactment of the TCJA, several state governments made changes to their tax codes with the potential to lower their residents' SALT cap exposure. Certain states enacted laws that provided taxpayers a credit against state taxes for charitable donations to state entities, which would then be eligible for the federal charitable deduction under Section 170 of the Internal Revenue Code. The IRS has since issued a final ruling limiting the availability of Section 170 charitable deductions in such a way that would render the new charitable activity ineligible. A legislative proposal that would overturn IRS regulations, S.J.Res. 50 , was rejected by the Senate in October 2019. Some states have tried to use a "pass-through work around" to reduce the SALT cap's impact on some of their taxpayers with pass-through business income. Many types of businesses that do not pay corporate income taxes (including S corporations and partnerships) pass through income to their owners, who pay taxes on that income at the individual level. The SALT cap does not limit SALT deductions associated with the carrying on of a trade or business. Hence, taxpayers whose SALT tax payments are associated with pass-through business income may not be subject to the SALT cap in the same manner as other individual income tax payments. Certain state governments have adjusted for this activity by enacting laws that levy or raise taxes on the pass-through business entity itself that are offset (holding total tax rates constant) by tax reductions or tax credits applied to individual income liability for pass-through business members subject to the tax increase . The IRS has not issued guidance on the viability of such legislation or its effect on SALT cap exposure. Several states also took legal action related to the SALT cap following enactment of the TCJA, filing suit against the U.S. government in July 2018 and challenging the cap's constitutionality. A September 2019 federal district court ruling upheld the SALT cap's constitutionality, asserting that it did not unconstitutionally penalize certain jurisdictions. <5. Legislation in the 116th Congress> Legislation introduced in the 116 th Congress would modify the SALT cap, including proposals that would (1) repeal the SALT cap entirely; (2) increase the SALT cap's value for all taxpayers; (3) increase the SALT cap's value for some taxpayers; (4) make the SALT cap permanent; and (5) repeal IRS regulations affecting SALT cap liability. Table 4 displays legislation in the 116 th Congress that would directly modify the SALT cap.

Taxpayers who elect to itemize their deductions may reduce their federal income tax liability by claiming a deduction for certain state and local taxes paid, often called the "SALT deduction." The 2017 tax revision (commonly referred to as the Tax Cuts and Jobs Act, TCJA; P.L. 115-97 ) made a number of changes to the SALT deduction. Most notably, the TCJA established a limit, or "SALT cap," on the amounts claimed as SALT deductions for tax years 2018 through 2025. The SALT cap is $10,000 for single taxpayers and married couples filing jointly and $5,000 for married taxpayers filing separately. The changes enacted in the TCJA will considerably affect SALT deduction activity in the next several years. The increased value of the standard deduction (roughly doubling from its pre-TCJA value for tax years 2018 through 2025), along with the reduced availability of SALT and other itemized deductions, are projected to significantly reduce the number of SALT deduction claims made in those years. The Joint Committee on Taxation (JCT) projected that repealing that SALT cap for tax year 2019 would increase federal revenues by $77.4 billion. The SALT deduction reduces the cost of state and local government taxes to taxpayers because a portion of the taxes deducted is effectively paid for by the federal government. By reducing the deduction's value, the SALT cap therefore increases the cost to the taxpayer of state and local taxes. That may affect state and local tax and spending behavior, as any reduction in state and local revenues from increased sensitivity to SALT-eligible tax rates must be offset by reductions in outlays or increases in other revenue to maintain budget outcomes. The SALT cap's effect on the SALT deduction's value is in part a function of state and local tax policies. Nationwide, there is considerable variation in both the combined level of income and sales taxes levied by states and the property taxes and other charges levied by local governments. Differences in incomes and price levels that serve as the base for those taxes are another source of disparity in SALT cap exposure. Internal Revenue Service (IRS) data showed that in 2017, the average SALT deduction claimed in New York ($23,804) was more than four times the average in Alaska ($5,451). The SALT cap predominantly affects taxpayers with higher incomes. State and local tax payments tend to increase with income, both as a direct function of the income tax structure and because higher incomes lead to increased consumption and thus sales and property tax payments. Increased income, therefore, makes higher-income taxpayers more likely to make SALT-eligible tax payments in amounts exceeding the SALT cap value. The benefit of SALT deductions in terms of tax savings is also larger for taxpayers with higher incomes because a federal tax deduction's value is proportional to the taxpayer's marginal income tax rate. JCT projected that more than half of 2019 benefits for the SALT deduction will accrue to taxpayers with incomes exceeding $200,000. Several pieces of legislation introduced in the 116 th Congress would modify the SALT cap, including legislation that would (1) repeal the SALT cap entirely; (2) increase the SALT cap's value for all taxpayers; (3) increase the SALT cap's value for some taxpayers; (4) make the SALT cap permanent; and (5) repeal IRS regulations affecting SALT cap liability. Following enactment of the TCJA, several states proposed or passed legislation that provided possible avenues to reduce the SALT cap's effect on taxpayers without reducing their relevant state or local tax burdens. Subsequent guidance by the IRS, however, makes it unclear or unlikely that those laws will prevent taxpayers from experiencing the SALT cap's effects.

crs_R44606

crs_R44606_0

The Commodity Credit Corporation (CCC) has served as the financial institution for carrying out federal farm commodity price support and production programs since 1933. It is a wholly government-owned entity that exists solely to finance authorized programs that support U.S. agriculture. It is subject to the supervision and direction of the Secretary of Agriculture at the U.S. Department of Agriculture (USDA). The CCC mission was conceived mostly as one of commodity support, but over time it has expanded to include an increasingly broad array of programs, including export and commodity programs, resource conservation, disaster assistance, agricultural research, and bioenergy development. While CCC operates according to a large number of statutory authorities, its broad powers allow it to carry out almost any operation required to meet the objectives of supporting U.S. agriculture. This broad mandate, and its significant borrowing authority, has traditionally drawn little attention. For most of its history, CCC's responsibilities have been expanded through legislative directives such as the farm bill. In past years, Congress took actions to limit the discretional uses of CCC funds through restrictions in appropriations language. These restrictions highlight a tension between authorizers and appropriators when it comes to the use of the CCC (see "Tension Between Authorizers and Appropriators" box). While these restrictions are no longer included, questions remain about what the CCC is, how it operates, what its current uses are, and what it may be used for in the future. This report provides a brief review of CCC's unique history, funding structure, general operation, and recent issues associated with its use. Other CRS reports cover in detail programs and activities authorized through CCC. <1. Origin of the CCC> For over a decade prior to the creation of CCC in 1933, the farm economy struggled with low levels of income from depressed commodity prices and increasing costs for needed supplies and services. The first major federal effort to boost commodity prices was through the Federal Farm Board, established by the Agricultural Marketing Act of 1929. An inadequate and ultimately failed effort to eliminate surpluses was attempted by making loans to cooperative associations for the purpose of carrying out surplus purchase operations. Without the ability to control production, it was impossible to eliminate surplus stocks. This led to proposals to regulate the harvested acreage of farm commodities and quantities sold. The concept of acreage and marketing controls was incorporated in to the Agricultural Adjustment Act of 1933 (AAA). The AAA sought to reduce production by paying producers to participate in acreage control programs. Funding came from a tax on companies that processed farm products. Additional provisions of the law dealt with fair marketing practices and voluntary agreements between producers and handlers of commodities to regulate marketing. A financial institution was needed to carry out the newly authorized farm legislation, and this was accomplished with the creation of the Commodity Credit Corporation. Executive Order 6340 of October 17, 1933, directed the incorporation of CCC in the state of Delaware. The Delaware charter authorized CCC, among other things, to buy and sell farm commodities; lend; undertake activities for the purpose of increasing production, stabilizing prices, and insuring adequate supplies; and facilitate the efficient distribution of agricultural commodities. It was originally capitalized with $3 million appropriated by Congress. In 1936, sufficient stock was acquired to raise the capitalization to $100 million. Its capital stock remains at this level today. In 1939, Executive Order 8219 ordered that all rights of the United States arising out of the ownership of CCC be transferred to the Secretary of Agriculture. At that time, low prices became so critical for cotton and corn producers that waiting for another season for supply controls to impact the market was judged to be untenable. With the establishment of CCC, it became possible to make nonrecourse loans so that farmers would have funds to hold their products off the market until prices improve. The first loans were made to cotton farmers at the rate of 10 cents per pound, while the average market price was between eight and nine cents per pound. Since loans were higher than the market price and were nonrecourse, they could be satisfied by forfeiting the cotton pledged as collateral against the loan, they served as a form of price support and set the floor for the domestic market. Funding for these first loan operations came from a tax on commodity processing and from CCC's $3 million capital account, which was appropriated under authority of the National Industrial Recovery Act and the Fourth Deficiency Act. Constitutional difficulties with some provisions of the AAA, and practical shortcomings with elements of the law, led to additional legislation in the 1930s that continues today as permanent authority for many USDA activities. Subsequent omnibus "farm bills" now set most of the policy goals and program constraints for farm price and income support operations that are funded through CCC . <2. CCC Charter Act> The Government Corporation Control Act of 1945 (GCCA) required all wholly owned government corporations to be reincorporated as agencies or instrumentalities of the United States. Accordingly, Congress passed the Commodity Credit Corporation Charter Act of 1948 (Charter Act). All CCC rights, duties, assets, and liabilities were assumed by the federal corporation, and the Delaware corporation was dissolved. According to the Charter Act, the purpose of CCC is to stabilize, support, and protect farm income and prices; assist in maintaining balanced and adequate supplies of agricultural commodities; and facilitate the orderly distribution of commodities. A list of some of CCC's authorities (paraphrased from Section 5 of the Charter Act, 15 U.S.C. 714(c)) conveys a sense of its broadly stated powers: Support agricultural commodity prices through loans, purchases, payments, and other operations. Make available materials and facilities in connection with the production and marketing of agricultural products. Procure commodities for sale to other government agencies; foreign governments; and domestic, foreign, or international relief or rehabilitation agencies and for domestic requirements. Remove and dispose of surplus agricultural commodities. Increase the domestic consumption of commodities by expanding markets or developing new and additional markets, marketing facilities, and uses for commodities. Export, or cause to be exported, or aid in the development of foreign markets for commodities. Carry out authorized conservation or environmental programs. Over time, Congress has authorized CCC to fund an increasing number of diverse programs and activities related to its charter (see text box below). In carrying out operations, CCC is directed, to the maximum extent practicable, to use the usual and customary channels, facilities, and arrangements of trade and commerce. <3. Management of CCC> The Charter Act makes CCC an agency and instrumentality of the United States within USDA, subject to the supervision and direction of the Secretary of Agriculture. A board of directors appointed by the President, consisting of the Secretary and seven other USDA officials, is responsible for the management of CCC. CCC officers and advisors also USDA officials are charged with maintaining liaisons with other governmental and private trade operations on the CCC's behalf. The CCC has no personnel of its own. Rather, USDA employees and facilities carry out all of its activities. Administrative functions generally fall to the USDA agencies directed to administer the various CCC programs. The majority of its functions are administered by the Farm Service Agency (FSA), which operates most of the commodity and income support programs. Other agencies that administer CCC programs include the Natural Resources Conservation Service, the Agricultural Marketing Service, the Foreign Agricultural Service, and the United States Agency for International Development (USAID). CCC reimburses other agencies for their administrative costs. CCC cannot acquire property or interest in property unless it is related to providing storage for program implementation or protecting CCC's financial interests. CCC is allowed to rent or lease space necessary to conduct business (e.g., warehousing of commodities). <4. Financing CCC> CCC is responsible for the direct spending and credit guarantees used to finance the federal government's agricultural commodity price support and related activities that are undertaken by authority of agricultural legislation (such as farm bills) or the Charter Act itself. It is, in brief, a broadly empowered financial institution. The money CCC needs comes from its own funds (including its $100 million capital stock, appropriations from Congress, and its earnings) and from borrowings. In accordance with government accounting statutes and regulations, CCC is required to submit an annual business-type budget statement to Congress. This is typically released annually with the President's budget request. The Office of Management and Budget (OMB) also plays a role in how CCC funds are administered through an apportionment process, which allows OMB to set a limit on the funds available for obligation and subsequent outlay. OMB apportions funds for select CCC programs and operating expenditures. OMB is precluded, however, from apportioning funds "for price support and surplus removal of agricultural commodities." <4.1. Borrowing Authority> Most CCC-funded programs are classified as mandatory spending programs and therefore do not require annual appropriations in order to operate. CCC instead borrows from the U.S. Treasury to finance its programs. CCC has permanent indefinite authority to borrow from the Treasury (and also private lending institutions) within limits set by Congress. As the amount of money needed to carry out its activities has grown over time, the borrowing limit has been steadily increased ( Figure 1 ). At present, CCC's borrowing authority is limited to $30 billion, an amount that has not been increased since 1987. CCC activity is often described using two similar but different measures. The first is net expenditures , which is a combination of outlays and receipts. The second is net realized losses , which are expenditures that will never be recovered. <4.1.1. Net Expenditures> CCC recoups some money from authorized activities (e.g., sale of commodity stocks, loan repayments, and fees), though not nearly as much money as it spends, resulting in net expenditures. Net expenditures include all cash outlays minus all cash receipts, commonly referred to as "cash flow." CCC outlays or expenditures represent the total cash outlays of the CCC-funded programs (e.g., loans made, conservation program payments, commodity purchases, and disaster payments). Outlays are offset by receipts (e.g., loan repayment, sale of commodities, and fees). In practice a portion of these net expenditures may be recovered in future years (e.g., through loan repayments). <4.1.2. Net Realized Losses> CCC also has net realized losses, also referred to as nonrecoverable losses. These refer to the outlays that CCC will never recover, such as the cost of commodities sold or donated, uncollectible loans, storage and transportation costs, interest paid to the Treasury, program payments, and operating expenses. The net realized loss is the amount that CCC, by law, is authorized to receive through appropriations to replenish the CCC's borrowing authority (see Figure 2 ). The annual appropriation for CCC varies each year based on the net realized loss of the previous year. For example, the FY2019 appropriation ( P.L. 116-6 ) continues to provide an indefinite appropriation, covering the net realized loss for FY2018, which was $15.41 billion, 8% more than the net realized loss in FY2017 of $14.28 billion. The increase does not indicate any action by Congress to change program support but rather changes in farm program payments and other CCC activities that fluctuate based on economic circumstances and weather conditions. Also, CCC's assets, which include loans and commodity inventories, are not considered to be "losses" until CCC ultimately disposes of the asset (e.g., by sales, exports, or donations). At that time, the total cost is realized and added to other program expenses less any other program income. <4.2. Non-Borrowing Authority Appropriations> Some CCC operations are financed through appropriated funds and are unrelated to the permanent indefinite borrowing authority described above. These activities include a specific statutory authority for separate reimbursement for example, export credit guarantee programs, foreign donations, concessional sales under the Food for Peace Program (P.L. 83-480, also known as P.L. 480), and disaster aid. CCC has what it refers to as a "parent/child" account relationship with USAID. CCC allocates funds (as the parent) to USAID (as the child) to fund P.L. 480 Title II and Bill Emerson Humanitarian Trust transportation costs and other administrative costs in connection with foreign commodity donations. CCC then reports USAID's budgetary and proprietary activities in its financial statements. <5. Issues for Congress> <5.1. Expansion of CCC Activities> Over time, a number of new activities have been added to CCC's original mission, including conservation, specialty crop support, and bioenergy development. Some have suggested adding other agriculture-related activities to CCC. The idea of expanding CCC's activities generates both concern and support. Some consider this expansion to be beyond CCC's chartered purpose. Others, however, prefer the stability and consistency of mandatory funding to that of the annual appropriations process. Any expansion of mandatory funding authority, however, would require a spending or revenue offset under current budgetary rules. Although Congress as a whole makes final funding decisions, the rise in the number of agricultural programs with mandatory budget authority from the authorizing committees has not gone unnoticed or untouched by appropriators. In previous years, appropriations bills have reduced mandatory program spending below authorized levels. These reductions, as estimated by the Congressional Budget Office, are commonly referred to as changes in mandatory program spending (CHIMPS). CHIMPS can be used to offset increases in discretionary spending that are above discretionary budget caps. <5.2. Restrictions on Use> From FY2012 to FY2017, annual appropriation acts limited USDA's discretion to use CCC's authority to remove surplus commodities and support prices (see text box below). The FY2018 omnibus appropriation did not include this limitation, effectively allowing USDA to use CCC's full authority, including its discretion for surplus removal and price support activities, along with other authorized uses. USDA's ability to use its administrative powers in the Charter Act, however, may be restricted by executive budgetary rules such as "administrative PAYGO" that is, the need to offset additional spending created by administrative action. Administrative PAYGO has been cited as a potential roadblock to undertaking certain CCC actions but has also been waived or not raised as an issue in other cases involving CCC. <5.3. Administrative Discretion> The majority of CCC operations are directed by statutory authorities that specifically direct USDA on how to administer CCC activities and in what amounts to fund them. The broad CCC authorities, however, also allow USDA a level of discretion to carry out effectively any operation that supports U.S. agriculture. This discretion has been used throughout CCC's history for a number of different purposes, including responses to natural disasters, economic conditions, and administrative priorities. The scope and scale of this discretion has traditionally been targeted to specific events, crops, or domestic needs. In the decade before FY2018, administrative discretion was partially restricted (see " Restrictions on Use "). USDA's use of the unrestricted portion of CCC's authority during this period totaled in the hundreds of millions of dollars (see examples below). This changed in summer 2018, when USDA announced that it would be taking several actions to assist farmers in response to trade damage from retaliatory tariffs targeting various U.S. products. USDA used its administrative discretion to authorize up to $12 billion in assistance referred to as the "trade aid" package for certain agricultural commodities. This authority was then used again in summer 2019, when USDA announced a second trade aid package authorizing up to an additional $16 billion in assistance. Congressional support for discretionary use of CCC typically varies depending on purpose. Some in Congress have questioned how USDA has used CCC, but few have advocated for a restriction or repeal of the discretionary authority in the last two years. Some Members have called on USDA to use CCC for similar assistance to industries within their states and districts. Congress did require USDA to expand payments under the trade aid program in the FY2019 supplemental appropriations. This expansion could be viewed as congressional support for the trade aid package. <6. Conclusion> CCC is a government-owned and broadly empowered financial institution that has a mandate to support U.S. agriculture. Its activities are derived from authorities granted by Congress. While it is the primary funding mechanism used in omnibus farm bills, its existence, use, and operations are frequently misunderstood and often confused with USDA itself. One reason for this confusion may be because much of CCC's functional operations support USDA's program activities CCC has no staff of its own; rather, it operates through USDA agencies. These broad authorities that Congress has granted to CCC allow it to carry out almost any operation that is consistent with the objective of supporting U.S. agriculture. It is these same broad powers that make CCC the object of attention from various interest groups and from Congress. The mandatory funding nature of CCC activities makes it an attractive funding mechanism. Any expansion of mandatory funding authority by Congress, however, may require a spending/revenue offset or an amendment to current budgetary rules. Recent congressional action restoring CCC's authority have allowed for the Trump Administration's use of CCC to mitigate commodity price declines from retaliatory tariffs on a variety of U.S. agricultural products. The use of CCC's discretionary authority for the FY2018 and FY2019 trade aid packages is perhaps less controversial than the total amount authorized. Each package is close to the total amount expended by CCC annually in recent fiscal years, effectively doubling the annual net realized loss. This increase in spending brings CCC close to its borrowing authority limit of $30 billion. If the borrowing authority limit were reached before Congress appropriates the net realized loss reimbursement, all functions and operations of CCC would be suspended, including those authorized in the recently enacted 2018 farm bill. Additionally, since the two trade aid packages were undertaken using CCC's discretionary authority, no congressional budget offset was required, and administrative PAYGO was not raised. The corporation's permanent, indefinite funding authority means that trade aid expenditures are reimbursed annually as a net realized loss, thus increasing total federal spending.

The Commodity Credit Corporation (CCC) has served as a mandatory funding mechanism for agricultural programs since 1933. The CCC Charter Act enables the CCC to broadly support the U.S. agriculture industry through authorized programs including commodity and income support, natural resources conservation, export promotion, international food aid, disaster assistance, agricultural research, and bioenergy development. While CCC is authorized to carry out a number of activities, it has no staff of its own. Rather, U.S. Department of Agriculture (USDA) employees and facilities carry out all of its activities. CCC is overseen by the Secretary of Agriculture and a board of directors, which are also USDA officials. CCC has $100 million in capital stock; buys, owns, sells, and donates commodity stocks; and provides loans to farmers and ranchers. It has a permanent indefinite borrowing authority of $30 billion from the U.S. Treasury. By law, it receives an annual appropriation equal to the amount of the previous year's net realized loss. This replenishes its borrowing authority from the Treasury and allows it to cover authorized expenditures that will not be recovered. The majority of CCC activities are authorized through omnibus farm bills—most recently the Agriculture Improvement Act of 2018 ( P.L. 115-334 ). Farm bill authorization allows programs to utilize CCC's borrowing authority, thereby dispensing with the need for an annual appropriation for individual programs. The use of this mandatory authority has expanded over time and has led to tension between authorizing committees and appropriation committees in previous fiscal years. The Charter Act also grants the Secretary of Agriculture broad powers and discretion in the use of the CCC. This discretionary use was restricted in annual appropriations legislation from FY2012 through FY2017, effectively reducing the Secretary's discretionary use of CCC. The FY2018 Consolidated Appropriations Act ( P.L. 115-124 ) did not include these restrictions, which has allowed the Trump Administration to use CCC's authority to address market impacts from China's retaliatory tariffs on certain U.S. agricultural commodities in 2018 and 2019.

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<1. Introduction> Honduras, a Central American nation of 9.1 million people, faces significant domestic challenges. Democratic institutions are fragile, current economic growth rates and social policies are insufficient to reduce widespread poverty, and the country continues to experience some of the highest violent crime rates in the world. These interrelated challenges have produced periodic instability in Honduras and have contributed to relatively high levels of displacement and emigration in recent years. Although the Honduran government has taken some steps intended to address these deep-seated issues, many analysts maintain that Honduras lacks the institutions and resources necessary to do so on its own. U.S. policymakers have devoted more attention to Honduras and its Central American neighbors since 2014, when large flows of migrants and asylum-seekers from the region began arriving at the U.S. border. In the aftermath of the crisis, the Obama Administration determined that it was "in the national security interests of the United States" to work with Central American governments to improve security, strengthen governance, and promote economic prosperity in the region. Accordingly, the Obama Administration launched a new, whole-of-government U.S. Strategy for Engagement in Central America and requested significant increases in foreign assistance to support its implementation. The Trump Administration initially maintained the Central America strategy while seeking to scale back the amount of foreign assistance provided to Honduras and its neighbors. Although assistance to the region has declined each year since FY2016, Congress has rejected many of the Administration's proposed cuts. It has appropriated more than $2.6 billion for Central America over the past four years, including at least $431 million for Honduras (see Table 1 ). In March 2019, however, the Trump Administration announced its intention to end U.S. foreign assistance to the "Northern Triangle" nations of Honduras, El Salvador, and Guatemala due to the continued northward flow of migrants and asylum-seekers from the region. It remains unclear how the Administration intends to implement this shift in policy or if it intends to amend its FY2020 budget request, which includes at least $65.8 million for Honduras. Some Members of Congress have objected to the Administration's abrupt decision to end foreign aid for Honduras and its neighbors. The 116 th Congress could play a crucial role in determining the direction of U.S. policy in the region as it considers FY2020 appropriations, foreign assistance authorizations, and other legislative initiatives. This report analyzes political, economic, and security conditions in Honduras. It also examines issues in U.S.-Honduran relations that have been of particular interest to many in Congress, including foreign assistance, migration, security cooperation, human rights, and trade and investment. <2. Politics and Governance> Honduras has struggled with political instability and authoritarian governance for much of its history. The military traditionally has played an influential role in politics, most recently governing Honduras for most of the period between 1963 and 1982. The country's current constitution its 16 th since declaring independence from Spain in 1821 was adopted as Honduras transitioned back to civilian rule. It establishes a representative democracy with a separation of powers among an executive branch led by the president, a legislative branch consisting of a 128-seat unicameral national congress, and a judicial branch headed by the supreme court. In practice, however, the legislative process tends to be executive-driven and the judiciary is often subject to intimidation, corruption, and politicization. Honduras's traditional two-party political system, dominated by the Liberal ( Partido Liberal , PL) and National ( Partido Nacional , PN) Parties, has fractured over the past decade. Both traditional parties are considered to be ideologically center-right, and political competition between them has generally been focused more on using the public sector for patronage than on implementing programmatic agendas. The leadership of both parties supported a 2009 coup, in which the military, backed by the supreme court and congress, detained then-President Manuel Zelaya and flew him into forced exile. Zelaya had been elected as a moderate member of the PL but alienated many within the political and economic elite by governing in a populist manner and calling for a constituent assembly to draft a new constitution. Many rank-and-file members of the PL abandoned the party in the aftermath of the coup and joined Zelaya upon his return from exile to launch a new left-of-center Liberty and Re-foundation ( Libertad y Refundaci n , LIBRE) party. The post-coup split among traditional supporters of the PL has benefitted the PN, which now has the largest political base in Honduras and has controlled the presidency and congress since 2010. Many analysts maintain that the PN has gradually eroded checks and balances to consolidate its influence over other government institutions and entrench itself in power. For example, in 2012, the PN-controlled congress, led by Juan Orlando Hern ndez, replaced four supreme court justices who had struck down a pair of high-profile government initiatives. Although the Honduran minister of justice and human rights asserted that the move was illegal and violated the independence of the judiciary, it was never overturned. The justices who were installed in 2012 issued a ruling in 2015 that struck down the constitution's explicit ban on presidential reelection, allowing Hern ndez, who had been elected president in 2013, to seek a second term. The PN has also manipulated appointments to other nominally independent institutions, such as the country's electoral oversight body. Given that Honduras continues to hold multiparty elections but falls short of democratic standards in several areas, Freedom House classifies the country as "partly free," and the Varieties of Democracy Project classifies the country as an "electoral autocracy." <2.1. Hern ndez Administration> President Juan Orlando Hern ndez of the PN was inaugurated to a second four-year term in January 2018. He lacks legitimacy among many Hondurans, however, due to his controversial reelection. As noted above, the Honduran constitution explicitly prohibits presidential reelection, but Hern ndez was able to run for a second term as a result of a 2015 supreme court ruling issued by justices whose appointments Hern ndez had orchestrated as the head of congress in 2012. The 2017 election was also plagued by an "abundance of irregularities and deficiencies" that led some international observers to question whether the official results, which gave Hern ndez a narrow 42.9%-41.4% victory over Salvador Nasralla of the LIBRE-led "Opposition Alliance against the Dictatorship," accurately reflected the will of the Honduran people. Both major opposition parties contested the results, and many Hondurans took to the streets to protest the alleged election fraud. At least 23 Hondurans were killed in post-election violence, at least 16 of whom were shot by Honduran security forces. The United Nations sought to facilitate a national dialogue to promote societal reconciliation in the aftermath of the election. Individuals affiliated with the top three presidential candidates reportedly arrived at 169 areas of consensus related to human rights, electoral reforms, constitutional reforms, and the rule of law, but they were unable to conclude formal political agreements on most of those issues. Nevertheless, in January 2019, the Honduran congress approved a package of constitutional changes to partially reform the electoral process. The changes will restructure the national registry office, dissolve the country's existing electoral authority, and create two new institutions a national electoral council to organize and supervise electoral processes and an electoral justice court to settle electoral disputes. Although many analysts have recommended that Honduras depoliticize its electoral institutions, each of the agencies will consist of three primary officials, effectively allowing the PN, PL, and LIBRE to divide the positions among themselves as the PN and the PL have done historically. Over the past year and a half, Hern ndez has largely maintained the business-friendly economic policies and hardline approach to security policy that he implemented during his first term (see " Economic and Social Conditions " and " Security Conditions " below). His PN, which holds 61 of the 128 seats in congress, has been able to control the legislative agenda with the ad-hoc support of several small parties. Most Hondurans are dissatisfied with status quo, however, as 86% of those surveyed in May 2019 asserted that the country is moving in the wrong direction. Unemployment is considered the top problem in the country, cited by 30% of those surveyed, followed by corruption (19%), poor health care (15%), insecurity (11%), drugs (9%), and the cost of living (8%). Hondurans have repeatedly taken to the streets to protest the Hern ndez Administration's actions, and lack thereof, on those issues. <2.2. Anti-Corruption Progress and Setbacks> Corruption is widespread in Honduras, but the country has made some progress in combatting it since 2016 with the support of the OAS-backed Mission to Support the Fight against Corruption and Impunity in Honduras ( Misi n de Apoyo Contra la Corrupci n y la Impunidad en Honduras , MACCIH). Honduran civil society had carried out a series of mass demonstrations demanding the establishment of an international anti-corruption organization after Honduran authorities discovered that at least $300 million was embezzled from the Honduran social security institute during the PN administration of President Porfirio Lobo (2010-2014) and some of the stolen funds were used to fund Hern ndez's 2013 election campaign. Hern ndez was reluctant to create an independent organization with far-reaching authorities like the International Commission against Impunity in Guatemala (CICIG), which had helped bring down the Guatemalan president in 2015. Facing significant domestic and international pressure, however, he negotiated a more limited arrangement with the OAS. According to the agreement, signed in January 2016, the MACCIH is intended to support, strengthen, and collaborate with Honduran institutions to prevent, investigate, and punish acts of corruption. The MACCIH initially focused on strengthening Honduras's anti-corruption legal framework. It secured congressional approval for new laws to create anti-corruption courts with nationwide jurisdiction and to regulate the financing of political campaigns. The Honduran congress repeatedly delayed and weakened the MACCIH's proposed reforms, however, hindering the mission's anti-corruption efforts. For example, prior to enactment of the law to establish anti-corruption courts with nationwide jurisdiction, the Honduran congress modified the measure by stripping the new judges of the authority to order asset forfeitures, stipulating that the new judges can hear only cases involving three or more people, and removing certain crimes including the embezzlement of public funds from the jurisdiction of the new courts. Other measures the MACCIH has proposed, such as an "effective collaboration" bill to encourage members of criminal networks to cooperate with officials in exchange for reduced sentences, have stalled in congress. Such plea-bargaining laws have proven crucial to anti-corruption investigations in other countries, such as the ongoing "Car Wash" ( Lava Jato ) probe in Brazil. MACCIH officials are also working alongside Honduras's Special Prosecution Unit to Fight Corruption-related Impunity ( Unidad Fiscal Especial Contra la Impunidad de la Corrupci n , UFECIC) to jointly investigate and prosecute high-level corruption cases. To date, these integrated teams have presented 12 cases, uncovering corruption networks involved in activities ranging from using social assistance funds for personal expenses to awarding government contracts to narcotics traffickers in exchange for campaign contributions. Nearly 120 people are facing prosecution, including more than 70 cabinet ministers, legislators, and other government officials. However, the cases have been slow to move through the Honduran justice system: The first oral trial involving former First Lady Rosa Elena Bonilla de Lobo (2010-2014) began in March 2019. Honduran political and economic elites threatened by this tentative progress have sought to obstruct the MACCIH's efforts. In January 2018, for example, the Honduran congress passed a law that effectively blocked an investigation into legislators' mismanagement of public funds. Although the constitutional chamber of the supreme court overturned the law, the Honduran congress has continued to push forward similar measures. A new criminal code, which is to go into effect in November 2019, will reportedly reduce criminal penalties for narcotics trafficking, embezzlement, fraud, illicit enrichment, and abuse of authority, potentially allowing some corrupt officials to avoid serving any time in prison. Some analysts have also questioned the impartiality of judges presiding over the MACCIH-backed cases, several of whom have issued decisions in favor of those accused of corruption. The MACCIH's four-year mandate is scheduled to expire in January 2020. More than 61% of Hondurans would like the MACCIH to remain in Honduras, but the Hern ndez Administration has expressed little interest in renewing the agreement. The U.S. government, which has provided crucial diplomatic and financial support for the MACCIH over the past three and a half years, has called for an extension of the mission's mandate. Many analysts assert that Honduran public prosecutors would struggle to continue their anti-corruption efforts without the MACCIH or another source of international assistance and political support. <3. Economic and Social Conditions> The Honduran economy is one of the least developed in Latin America. Historically, the country's economic performance closely tracked the prices of agricultural commodities, such as bananas and coffee. While agriculture remains important, accounting for 14% of gross domestic product (GDP) and nearly a third of total employment, the Honduran economy has diversified since the late 1980s. Successive Honduran administrations privatized state-owned enterprises, lowered taxes and tariffs, and offered incentives to attract foreign investment, spurring growth in the maquila (offshore assembly for reexport) sector particularly in the apparel, garment, and textile industries. Those policy changes also fostered the development of nontraditional agricultural exports, such as seafood and palm oil. President Hern ndez's top economic policy priority upon taking office in 2014 was to put the government's finances on a more sustainable path. The nonfinancial public sector deficit had grown to 7.5% of GDP in 2013 as a result of weak tax collection, increased expenditures, and losses at state-owned enterprises. As the Honduran government struggled to obtain financing for its obligations, public employees and contractors occasionally went unpaid and basic government services were interrupted. In 2014, Hern ndez negotiated a three-year agreement with the International Monetary Fund (IMF), under which the Honduran government agreed to reduce the deficit to 2% of GDP by 2017 and carry out structural reforms related to the electricity and telecommunications sectors, pension funds, public-private partnerships, and tax administration in exchange for access to $189 million in financing. The Hern ndez Administration ultimately reduced the deficit to less than 1% of GDP in 2017 and adhered to most of its other commitments. In May 2019, the IMF and the Honduran government reached a staff-level agreement on a new two-year economic program that will give Honduras access to $311 million of financing. Hern ndez has also sought to make Honduras more attractive to foreign investment. He contracted a global consulting firm to develop the five-year "Honduras 20/20" plan, which seeks to attract $13 billion of investment and generate 600,000 jobs in four priority sectors: tourism, textiles, intermediate manufacturing, and business services. To achieve the plan's objectives, the Honduran government has adopted a new business-friendly tax code, increased investments in infrastructure, and entered into a customs union with Guatemala and El Salvador. The Hern ndez Administration is also moving forward with a controversial plan to establish "Employment and Economic Development Zones" specially designated areas where foreign investors are granted administrative autonomy to enact their own laws, set up their own judicial systems, and carry out other duties usually reserved for governments. Nevertheless, annual foreign direct investment inflows to Honduras fell from $1.4 billion in 2014 to $1.2 billion in 2018. The Honduran economy has expanded by an average of 3.9% annually over the past five years, but it is not generating sufficient employment to absorb the country's growing labor supply. In 2017, for example, the Honduran labor force increased by nearly 110,000 people, but only 8,500 jobs were created in the formal sector. The vast majority of new workers were left to work in the unregulated informal sector, without job protections or benefits, or seek opportunity elsewhere. Since nearly 40% of Hondurans are under the age of 19, the country's prime age working population is projected to continue growing for the next two decades. Without stronger job creation, Honduras may miss a key window of opportunity to boost economic growth. In 2018, nearly 20% of Hondurans were unemployed or underemployed, and another 49% of Hondurans worked full time for less than the minimum wage. Honduras's recent economic growth has also proven insufficient to reduce the country's high poverty rate. Some economic analysts argue that the Hern ndez Administration's fiscal austerity policies have exacerbated the situation by increasing the government's dependence on regressive, indirect taxes while limiting public investment and social welfare expenditures. More than 67% of Hondurans live below the national poverty line. Conditions are particularly difficult in rural Honduras, where nearly 63% of the population lives in extreme poverty unable to satisfy their basic nutritional needs. In recent years, many rural communities have struggled to contend with a coffee fungus outbreak and a series of droughts that have destroyed crops and reduced agricultural production and employment. Households have reportedly been forced to engage in extreme coping strategies, such as taking on debt, selling off land, and migrating. Honduras's medium-term economic performance is expected to mirror the U.S. business cycle, as the United States remains Honduras's top export market and primary source of investment, tourism, and remittances. To boost the country's long-term growth potential, analysts maintain that Honduras will have to improve education and infrastructure and address entrenched social ills, such as widespread crime and corruption and high levels of poverty. <4. Security Conditions> Honduras struggles with high levels of crime and violence. A number of interrelated factors appear to contribute to the poor security situation. Widespread poverty, fragmented families, and a lack of education and employment opportunities leave many Honduran youth susceptible to recruitment by gangs such as the Mara Salvatrucha (MS-13) and Barrio 18 . These organizations engage in drug dealing and extortion, among other criminal activities, and appear to be responsible for a substantial portion of homicides and much of the crime that affects citizens on a day-to-day basis. Honduras also serves as a significant drug-trafficking corridor as a result of its location between cocaine-producing countries in South America and the major consumer market in the United States. Heavily armed and well-financed transnational criminal organizations have sought to secure control of Honduran territory by battling one another and local affiliates and seeking to intimidate and infiltrate Honduran institutions. Many of these groups have close ties to political and economic elites who rely upon illicit finances to fund their election campaigns and maintain or increase the market share of their businesses. In November 2018, for example, the U.S. Department of Justice charged Antonio "Tony" Hern ndez a former member of congress and President Hern ndez's brother, for allegedly engaging in large-scale drug trafficking (see " Counternarcotics " below). Honduran security forces and justice-sector institutions have historically lacked the personnel, equipment, and training necessary to respond to criminal threats. They have also struggled with systemic corruption, with some sectors working on behalf of criminal organizations or private interests. President Hern ndez campaigned on a hard-line security platform, repeatedly pledging to do whatever it takes to reduce crime and violence in Honduras. Upon taking office in 2014, he immediately ordered the security forces into the streets to conduct intensive patrols of high-crime neighborhoods. Among the units involved in the ongoing operation are two hybrid forces that Hern ndez helped to establish while he was serving as the president of the Honduran congress: the military police force ( Polic a Militar de Orden P blico , PMOP), which is under the control of the ministry of defense, and a military-trained police unit known as the "Tigers" ( Tropa de Inteligencia y Grupos de Respuesta Especial de Seguri dad , TIGRES ). The PMOP has been implicated in numerous human rights abuses, including 13 of the 16 killings documented by the U.N. Office of the High Commissioner for Human Rights in the aftermath of the 2017 election. Human rights advocates have repeatedly called on the Hern ndez Administration to withdraw the military from domestic law enforcement activities. Hern ndez has also taken some steps to strengthen security and justice-sector institutions. He created a special police reform commission in April 2016 after press reports indicated that high-ranking police commanders had conspired with drug traffickers to assassinate two top Honduran antidrug officials in 2009 and 2011 and the head of the anti-money-laundering unit of the public prosecutor's office in 2013; other officials in the Honduran national police and security ministry reportedly covered up internal investigations of the crimes. Although previous attempts to reform the police force produced few results, the special commission dismissed more than 5,600 personnel, including half of the highest-ranked officers. It also proposed and won congressional approval for measures to restructure the national police force, increase police salaries, and implement new training and evaluation protocols. Public perceptions of the national police have yet to improve substantially, however, as fewer than 34% of Hondurans expressed confidence in the force in 2018. Honduras's investigative and prosecutorial capacity has improved in recent years, although impunity remains widespread. In 2015, the Honduran national police launched a new investigative division and the public prosecutor's office established a new criminal investigative agency. Both institutions have set up forensic laboratories and have begun to conduct more scientific investigations. The budget of the public prosecutor's office grew by more than 94% in nominal terms from 2014 to 2018, allowing Attorney General scar Chinchilla to hire additional detectives, prosecutors, and other specialized personnel. Nevertheless, the public prosecutor's office accounted for less than 1.5% of the Honduran central government's expenditures in 2018 and remains overburdened. These policies appear to have contributed to considerable improvements in security conditions over the past five years. Although the homicide rate remains high by global standards, it peaked at 86.5 murders per 100,000 residents in 2011 and fell to 41.3 murders per 100,000 residents in 2018 (see Figure 2 , below). Common crime also appears to have declined, with the percentage of Hondurans reporting they had been the victim of a crime in the past year falling from 20.5% in 2014 to 12.8% in 2018. Nevertheless, there continues to be a pervasive sense of insecurity in the country: 52% of Hondurans consider their cities unsafe, and nearly 88% consider the country unsafe. <5. U.S.-Honduran Relations> The United States has had close relations with Honduras over many years. The bilateral relationship was especially close in the 1980s, when Honduras returned to civilian rule and became the lynchpin for U.S. policy in Central America. The country served as a staging area for U.S.-supported raids into Nicaragua by the Contra forces attempting to overthrow the leftist Sandinista government and an outpost for U.S. military forces supporting the Salvadoran government's efforts to combat the Farabundo Mart National Liberation Front insurgency. A U.S. military presence known as Joint Task Force Bravo has been stationed in Honduras since 1983. Economic linkages also intensified in the 1980s after Honduras became a beneficiary of the Caribbean Basin Initiative, which allowed for duty-free importation of Honduran goods into the United States. Economic ties have deepened since the entrance into force of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) in 2006. Relations between the United States and Honduras were strained during the country's 2009 political crisis. The Obama Administration condemned the coup and, over the course of the following months, leveled a series of diplomatic and economic sanctions designed to pressure Honduran officials to restore Zelaya to power. The Administration limited contact with the Honduran government, suspended some foreign assistance, minimized cooperation with the Honduran military, and revoked the visas of members and supporters of the interim government headed by Roberto Micheletti. In November 2009, the Administration shifted the emphasis of U.S. policy from reversing Zelaya's removal to ensuring the legitimacy of previously scheduled elections. Although some analysts argued that the policy shift allowed those behind the coup to consolidate their hold on power, Administration officials maintained that elections had become the only realistic way to bring an end to the political crisis. Current U.S. policy in Honduras is focused on strengthening democratic governance, including the promotion of human rights and the rule of law, enhancing economic prosperity, and improving the long-term security situation in the country, thereby mitigating potential challenges for the United States such as irregular migration and organized crime. To advance these objectives, the United States provides Honduras with substantial foreign assistance, maintains significant security and commercial ties, and engages on issues such as migration and human rights. Bilateral cooperation could be constrained, however, if the United States ends foreign assistance programs in the region, as announced by the Trump Administration (see " Potential Termination of Assistance " below). <5.1. Foreign Assistance> The U.S. government has provided significant amounts of foreign assistance to Honduras over the years as a result of the country's long-standing development challenges and close relations with the United States. Aid levels were particularly high during the 1980s and early 1990s, as Honduras served as a base for U.S. operations in Central America. U.S. assistance to Honduras began to wane as the regional conflicts subsided, however, and has generally remained at lower levels since then, with a few exceptions, such as a spike following Hurricane Mitch in 1998 and again after the Millennium Challenge Corporation awarded Honduras a $215 million economic growth compact in 2005. Current assistance to Honduras is guided by the U.S. Strategy for Engagement in Central America, which is designed to promote economic prosperity, strengthen governance, and improve security in the region. The Obama Administration introduced the new strategy and sought to significantly increase assistance for Honduras and its neighbors following a 2014 surge in migration from Central America. Congress has appropriated more than $2.6 billion for the strategy through the State Department and the U.S. Agency for International Development (USAID) since FY2016. At least $431 million has been allocated to Honduras, either as bilateral assistance or through the Central America Regional Security Initiative (CARSI) (see Table 1 ). U.S. assistance funds a wide range of development activities in Honduras. These include good governance programs intended to strengthen institutions and encourage civil society engagement and oversight, agriculture programs intended to increase food security and rural income generation, education programs intended to improve the quality of the education system and increase access to formal schooling for at-risk youth, and economic reform programs intended to foster employment and income growth through competitive and inclusive markets. U.S. bilateral aid to Honduras also provides training and equipment for the Honduran military, while CARSI assistance supports law enforcement operations, justice-sector reform, and crime and violence prevention programs. <5.1.1. FY2019 Appropriations Legislation> In the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), Congress appropriated $527.6 million to continue implementing the U.S. Strategy for Engagement in Central America. The act gives the State Department significant flexibility in allocating assistance among the seven nations of the isthmus. The conference report ( H.Rept. 116-9 ) accompanying the act asserts that the Secretary of State should take into account the political will of Central American governments, including their commitment "to reduce illegal migration and reduce corruption and impunity," when deciding where to allocate the funds. The only assistance specifically designated for Honduras is $5 million to support the MACCIH and $20 million that is to be split among the attorneys general offices of Honduras, El Salvador, and Guatemala. Like prior appropriations measures, the act places strict conditions on assistance to the Honduran government. It requires 50% of assistance for the central government of Honduras to be withheld until the Secretary of State certifies that the Honduran government is meeting 16 conditions. These include improving border security, combating corruption, countering gangs and organized crime, supporting programs to reduce poverty and promote equitable economic growth, protecting the right of political opposition parties and other members of civil society to operate without interference, and resolving commercial disputes. <5.1.2. Potential Termination of Assistance> The future of U.S. foreign aid programs in Honduras is uncertain. The Trump Administration announced in March 2019 that it intends to end all foreign assistance to the country (as well as El Salvador and Guatemala). The announcement came after more than a year of threats from President Trump to cut off assistance to the "Northern Triangle" nations of Central America due to the continued northward flow of migrants and asylum-seekers from the region (see " Recent Flows of Migrants and Asylum-Seekers " below). Although the Administration has yet to provide details of its plans, the decision appears to affect nearly all U.S. assistance appropriated for Honduras in FY2018. It remains unclear how the President's decision may affect assistance appropriated in other fiscal years or the Administration's FY2020 budget request, which includes $65.8 million for Honduras. The Honduran government reacted to the announcement by expressing irritation with the "contradictory policies" of the U.S. government, noting that President Hern ndez had just hosted then-Secretary of Homeland Security Kirstjen Nielsen in Tegucigalpa, where they signed a new security cooperation agreement. Recent appropriations measures provide the President with significant discretion to cut some foreign assistance to the Northern Triangle. For example, Section 7045(a) of the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ) requires the State Department to withhold 75% of assistance for the central governments of El Salvador, Guatemala, and Honduras until the Secretary of State certifies that those governments are addressing 16 congressional concerns. It also empowers the Secretary of State to suspend those funds and reprogram them elsewhere in Latin America and the Caribbean if he/she determines the governments have made "insufficient progress." It appears as though the Administration could make additional cuts using the transfer and reprogramming authorities granted in annual appropriations legislation and the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151 et seq. ). Administrations typically consult with the Appropriations Committees and provide detailed justifications prior to taking such actions. The 116 th Congress is considering authorization and appropriations measures that could increase congressional oversight over foreign assistance programs and direct additional aid to Honduras and its Central American neighbors. The United States-Northern Triangle Enhanced Engagement Act, H.R. 2615 (Engel), would authorize $577 million for the U.S. Strategy for Engagement in Central America in FY2020, including "not less than" $490 million for the Northern Triangle. The bill, which was passed unanimously by the House Foreign Affairs Committee on May 22, 2019, would direct U.S. agencies to carry out a variety of programs in the region, impose annual reporting requirements, and prohibit the Administration from reprogramming or transferring the funds for other purposes. The Central America Reform and Enforcement Act, S. 144 5 (Schumer), would authorize $1.5 million for the Central America strategy in FY2020 and prohibit the reprogramming of any assistance appropriated for the Northern Triangle nations since FY2016. The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2020, H.R. 2839 (Lowey), would appropriate $540.9 million for the Central America strategy in FY2020, including at least $75 million for Honduras. The bill would also modify FY2017 ( P.L. 115-31 ), FY2018 ( P.L. 115-141 ), and FY2019 ( P.L. 116-6 ) appropriations legislation to strengthen the funding directives for aid to Central America. <5.2. Migration Issues> The United States and Honduras have strong migration ties. As of 2017, approximately 603,000 individuals born in Honduras resided in the United States, and an estimated 425,000 (70%) of them were in the country without authorization. Migration from Honduras to the United States has traditionally been driven by high levels of poverty and unemployment; however, the poor security situation in Honduras has increasingly played a role as well. According to a February 2019 poll, more than 40% of Hondurans have a family member who has emigrated in the past year. This could contribute to additional migration in the coming years, as those who leave Honduras may share their experiences and provide financial and logistical assistance to those who remain behind. <5.2.1. Recent Flows of Migrants and Asylum-Seekers> In recent years, there has been a significant increase in the number of Honduran migrants and asylum-seekers arriving at the U.S. border. U.S. apprehensions of Honduran nationals at the southwest border nearly tripled from about 30,350 in FY2012 to nearly 91,000 in FY2014. Although annual flows declined for a few years, more than 133,000 Hondurans were apprehended at the border through the first seven months of FY2019. The demographics of the Hondurans attempting to reach the United States have also changed significantly, with unaccompanied children and families many of whom have requested humanitarian protection accounting for 66% of those apprehended at the border over the past five and a half years (see Figure 3 below). Since 2014, the U.S. and Honduran governments have sought to deter migration in various ways. Both governments have run public-awareness campaigns to inform Hondurans about the potential dangers of unauthorized migration and to correct possible misperceptions about U.S. immigration policies. The Trump Administration has also sought to discourage migration with changes in asylum and immigration enforcement policies, such as the "zero tolerance" policy that reportedly resulted in more than 1,000 Honduran children being separated from their parents. Some analysts have questioned the effectiveness of such deterrence campaigns, with one recent study finding that Hondurans' "views of the dangers of migration to the United states, or the likelihood of deportation, do not seem to influence their emigration plans in any meaningful way." The U.S. and Honduran governments are also working together to combat human smuggling. The U.S. Department of Homeland Security (DHS) has worked with the Honduran national police to establish two Transnational Criminal Investigative Units. In the first seven months of 2018, the units initiated 32 human trafficking and smuggling investigations, made 20 arrests, and conducted biometric vetting of nearly 2,700 Honduran and third-country migrants. DHS has provided additional support to the Honduran national police's Special Tactical Operations Group, which conducts checkpoints along the Guatemalan border and specializes in detecting and interdicting human smuggling operations. Moreover, both countries are implementing initiatives intended to address the root causes of emigration. President Hern ndez joined with his counterparts in El Salvador and Guatemala to establish the Alliance for Prosperity in the Northern Triangle, which aims to foster economic growth, improve security conditions, strengthen government institutions, and increase opportunities for the region's citizens. The Honduran government has reportedly allocated nearly $2.9 billion to advance those objectives over the past three years. As noted above (see " Foreign Assistance "), the U.S. government has been supporting complementary efforts through the U.S. Strategy for Engagement in Central America, but the future of that initiative is uncertain. These programs may take several years to bear fruit, as research suggests the relationship between development and migration is complex. Numerous studies have found that economic development may increase outward migration initially by removing the financial barriers faced by households in poverty. Consequently, assistance programs that provide financial support or skills training without simultaneously ensuring the existence of local opportunities may end up intensifying rather than alleviating migration flows. There is some evidence that violence prevention programs may have a more immediate impact on migration trends by mitigating forced displacement. <5.2.2. Deportations and Temporary Protected Status> U.S. Immigration and Customs Enforcement (ICE) removed ( deported ) nearly 29,000 Hondurans from the United States in FY2018, making Honduras the third-largest recipient of deportees in the world behind Mexico and Guatemala. In addition to deportations from the United States, Honduras receives large numbers of deportees from Mexico, a transit country for Central American migrants bound for the United States. Honduran policymakers have expressed concerns about their country's ability to absorb the large volume of deportees, as it is often difficult for those returning to the country to find gainful employment, and deported criminals may exacerbate gang activity and crime. Since FY2014, the United States has provided at least $5.4 million to the International Organization for Migration to assist the Honduran government in improving its reception centers and services for repatriated migrants. Honduran leaders are also concerned about the potential economic impact of deportations because the Honduran economy is heavily dependent on the remittances of migrant workers abroad. In 2018, Honduras received nearly $4.8 billion (equivalent to 19.8% of GDP) in remittances. Given that remittances are the primary source of income for more than one-third of the Honduran households that receive them, a sharp reduction in remittances could have a dramatic effect on socioeconomic conditions in the country. According to the Honduran Central Bank, however, remittance levels have traditionally been more associated with the performance of the U.S. economy than the number of deportations from the United States. Nearly 81,000 Hondurans benefit from temporary protected status (TPS) a form of humanitarian relief that allows individuals who could otherwise be deported to stay in the United States. The United States first provided TPS to Hondurans in the aftermath of Hurricane Mitch, which killed nearly 5,700 people, displaced 1.1 million others, and produced more than $5 billion in damages in 1998. TPS for Honduras was extended 14 times before the Trump Administration announced the program's termination in May 2018. The Administration has given current beneficiaries, who have an estimated 53,500 U.S.-born children, until January 5, 2020 to seek an alternative lawful immigration status or depart from the United States. The termination decision is currently on hold, however, due to a court order. Then-Secretary of Homeland Security Kirstjen Nielsen asserted that the termination was required since "the disruption of living conditions in Honduras from Hurricane Mitch that served as the basis for its TPS designation has ceased to a degree that it should no longer be regarded as substantial." Some analysts disagree; they argue that the Secretary's decision ignored ongoing economic, security, and governance challenges in Honduras and could undermine U.S. and Honduran efforts to address the root causes of irregular migration. In 2017, TPS beneficiaries sent an estimated $176 million in cash remittances to Honduras, which is roughly the same amount that the U.S. government provided to Honduras in foreign aid. Some Members of Congress have expressed concerns about the termination of TPS for Hondurans, and the 116 th Congress may consider measures such as the American Dream and Promise Act of 2019, H.R. 6 (Roybal-Allard), which would provide a path toward permanent resident status for some TPS holders. <5.3. Security Cooperation> The United States and Honduras have cooperated closely on security issues for many years. Honduras served as a base for U.S. operations designed to counter Soviet influence in Central America during the 1980s and has hosted a U.S. troop presence Joint Task Force Bravo ever since (see text box "Joint Task Force Bravo"). Current bilateral security efforts primarily focus on citizen safety and drug trafficking. <5.3.1. Citizen Safety> As noted previously, Honduras faces significant security challenges (see " Security Conditions "). Many citizens contend with criminal threats on a daily basis, ranging from petty theft to extortion and forced gang recruitment. The U.S. government has sought to assist Honduras in addressing these challenges, often using funds appropriated through CARSI. USAID has used CARSI funds to implement a variety of crime- and violence-prevention programs. USAID interventions include primary prevention programs that work with communities to create safe spaces for families and young people, secondary prevention programs that identify the youth most at risk of engaging in violent behavior and provide them and their families with behavior-change counseling, and tertiary prevention programs that seek to reintegrate juvenile offenders into society. According to a 2014 impact evaluation, Honduran communities where USAID implemented crime- and violence-prevention programs reported 35% fewer robberies, 43% fewer murders, and 57% fewer extortion attempts than would have been expected based on trends in similar communities without a USAID presence. Other CARSI-funded efforts in Honduras are designed to support law enforcement and strengthen rule-of-law institutions. The State Department's Bureau of International Narcotics and Law Enforcement Affairs (INL) has established "model police precincts," which are designed to build local confidence in law enforcement by converting police forces into more community-based, service-oriented organizations. INL has also supported efforts to purge the Honduran national police of corrupt officers, helped establish a criminal investigative school, and helped stand up the criminal investigation and forensic medicine directorates within the public prosecutor's office. The Federal Bureau of Investigation (FBI) leads a Transnational Anti-Gang Unit designed to interrupt criminal gang activity, including kidnappings and extortion. Over the past few years, USAID and INL have integrated their respective prevention and law enforcement interventions as part of a "place-based strategy" that seeks to concentrate U.S. efforts within the most dangerous communities in Honduras. <5.3.2. Counternarcotics> Honduras is a major transshipment point for illicit narcotics as a result of its location between cocaine producers in South America and consumers in the United States. The Caribbean coastal region of the country is a primary landing point for both maritime and aerial traffickers due to its remote location, limited infrastructure, and lack of government presence. In 2017, the State Department estimated that three to four metric tons of cocaine transit through Honduras every month. The U.S. government has sought to strengthen counternarcotics cooperation with Honduras to reduce illicit flows through the country. Although the United States has not provided the Honduran government with any assistance that would support aerial interdiction since Honduras enacted an aerial intercept law in 2014, close bilateral cooperation has continued in several other areas. U.S. agencies, including the Drug Enforcement Administration (DEA), have used CARSI funds to establish and support specially vetted units and task forces designed to combat transnational criminal organizations. These units, which include U.S. advisers and selected members of the Honduran security forces, carry out complex investigations into drug trafficking, money laundering, and other transnational crime. The U.S. Department of Defense (DOD) provides additional counternarcotics assistance to Honduras. This support includes equipment intended to extend the reach of Honduran security forces and enable them to better control their national territories. It also includes specialized training. For example, U.S. Special Operations Forces have helped finance and train the TIGRES unit of the Honduran national police, which has been employed as a counterdrug SWAT (Special Weapons and Tactics) team. DOD counternarcotics assistance to Honduras totaled nearly $12 million in FY2016 and $12.4 million in FY2017. DOD planned to provide Honduras with at least $5.7 million of assistance to support ground and maritime interdiction efforts in FY2018. As a result of this cooperation, U.S. and Honduran authorities have apprehended numerous high-level drug traffickers. At least 24 Hondurans have been extradited to the United States, and at least a dozen others have turned themselves in to U.S. authorities since 2014. Many of those now in U.S. custody had previously been designated by the U.S. Treasury Department's Office of Foreign Asset Control as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (codified at 21 U.S.C. 1901 et seq. ), freezing their assets and prohibiting U.S. citizens from conducting financial or commercial transactions with them. Nevertheless, the State Department asserts that U.S. and Honduran counternarcotics efforts have "not yet translated into significant increases in drug seizures or notable disruptions to drug trafficking organizations" and that "there is no concrete information to suggest the overall volume of illicit drugs being trafficked through Honduras has decreased." This lack of progress may be due to organized crime infiltrating Honduran government institutions. In September 2017, Fabio Lobo, the son of former President Porfirio Lobo (2010-2014), was sentenced to 24 years in prison for conspiring to import cocaine into the United States. According to the U.S. Department of Justice (DOJ), Fabio Lobo connected Honduran drug traffickers to corrupt politicians and security forces who provided protection and government contracts in exchange for bribes. DOJ has charged several current and former members of the Honduran congress, including Juan Antonio "Tony" Hern ndez President Hern ndez's brother, with similar offenses. Some observers have raised questions about the effectiveness of U.S. counternarcotics efforts and whether they contribute to human rights abuses. In April 2012, for example, the DEA and its vetted unit within the Honduran national police, with operational support from the State Department, initiated Operation Anvil, a 90-day pilot program intended to disrupt drug trafficking through Honduras. Three joint interdiction missions carried out as part of the operation ended with suspects being killed, including a May 2012 incident in which the vetted unit opened fire on a river taxi, killing four people and injuring four others. In May 2017, the State Department and DOJ Offices of Inspectors General released a joint report on the three deadly force incidents. They found that the DEA had not adequately planned for the operation, conducted a flawed review of the May 2012 incident, inappropriately withheld information from the U.S. ambassador, and provided inaccurate information to DOJ leadership and Congress. The report also noted that Honduran officers filed inaccurate reports about the three deadly force incidents and planted a gun at one of the crime scenes. Although DEA officials were aware of the inaccurate reports and planted weapon, they took no action. <5.4. Human Rights Concerns> In recent years, human rights organizations have alleged a wide range of abuses by Honduran security forces acting in their official capacities or on behalf of private interests or criminal organizations. In perhaps the most high-profile case, Berta C ceres, an indigenous and environmental activist, was killed in March 2016, apparently as a result of her efforts to prevent the construction of a hydroelectric project. Seven men were convicted for their roles in the murder in November 2018, including a retired Honduran army lieutenant and an active-duty army major. Honduran authorities have also arrested the general manager of the firm responsible for the hydroelectric project, but C ceres's family and other human rights advocates maintain that those who ordered and financed the murder remain at large. Numerous similar attacks have been carried out against journalists and other human rights defenders, including leaders of Afro-descendent, indigenous, land rights, LGBT (lesbian, gay, bisexual, and transgender), and workers' organizations. The extent to which Honduran security forces have been involved is unclear, since "the vast majority of murders and attacks targeting rights defenders go unpunished; if investigations are launched at all, they are inconclusive." The Honduran government has often attributed attacks against journalists, human rights defenders, and political and social activists to the country's high level of generalized violence and downplayed the possibility that the attacks may be related to the victims' work. Such attacks have persisted, however, even as annual homicides have fallen 48% from a peak of 7,172 in 2012 to 3,726 in 2017. According to the Honduran government's national commissioner for human rights, 33 journalists and social communicators were killed from 2014 to 2018, while 37 were killed from 2009 to 2013. Similarly, a coalition of domestic election observers documented 62 political killings during the 2017 electoral process, up from 48 in 2013. Human rights advocates have also criticized the Honduran government's "practice of criminalizing journalists' professional activities and the activities of rights defenders." President Hern ndez and high-ranking members of his administration have repeatedly dismissed protests and sought to justify repressive actions by the Honduran security forces by characterizing members of the political opposition and social movements as criminals, drug traffickers, and gang members. The Honduran government has also brought criminal charges, such as defamation and unlawful occupation of a premises, against journalists and human rights defenders "as a deterrent that is intended to stop people from investigating abuses, irregularities or human rights violations." <5.4.1. U.S. Initiatives> Human rights promotion has long been an objective of U.S. policy in Honduras, though some analysts argue that it has been subordinated to other U.S. interests, such as maintaining bilateral security cooperation. The U.S. Strategy for Engagement in Central America has 13 sub-objectives, one of which is ensuring that Central American governments uphold democratic values and practices, including respect for human rights. The Trump Administration, like the Obama Administration before it, has generally refrained from publically criticizing the Honduran government over human rights abuses but has sought to support Honduran efforts to improve the situation. For example, the U.S. and Honduran governments maintain a high-level bilateral human rights working group, which has met six times since it was launched in 2012. The most recent meeting, held in April 2018, focused on efforts to strengthen the Honduran government's human rights institutions, improve cooperation with international partners and civil society, foster citizen security, combat corruption and impunity, and address migration issues. The U.S. government has also allocated foreign assistance to promote human rights in Honduras, including about $9 million in FY2017 (the most recent year for which data is available). For example, USAID is working with Honduran government institutions and human rights organizations on the implementation of a 2015 law that created a protection mechanism for journalists, human rights defenders, and justice sector officials. Among other activities, U.S. assistance is supporting efforts to develop early warning systems, conduct risk analyses, and improve the processes for providing protective measures. As of November 2018, the protection mechanism was implementing protection measures for 124 human rights defenders, 31 journalists, 24 media workers, and 20 justice sector officials. The protective measures include self-protection trainings, psychosocial support, technological and infrastructure measures, police escorts, and temporary relocations and evacuations. Many human rights defenders do not trust the protection mechanism, however, due to its heavy reliance on the country's security forces, which continue to be viewed as the main perpetrators of human rights violations in Honduras. The U.S. government also supports efforts to strengthen the rule-of-law and reduce impunity in Honduras. USAID is providing assistance to the Honduran government and civil society organizations to support the development of more effective, transparent, and accountable judicial institutions, with a particular focus on guaranteeing equal access to justice for women, youth, LGBT individuals, and other victims of human rights abuses. INL also supports a variety rule-of-law initiatives, including a Violent Crimes Task Force that investigates attacks against journalists and activists. The task force, which includes vetted members of the Honduran national police, the public prosecutor's office, and U.S. advisers, reportedly arrested at least 42 people and obtained at least six convictions in 2018. <5.4.2. Human Rights Restrictions on Foreign Assistance> The U.S. government has placed restrictions on some foreign assistance due to human rights concerns. Like all countries, Honduras is subject to legal provisions (codified at 22 U.S.C. 2378d and 10 U.S.C. 362 ) that require the State Department and the Department of Defense to vet foreign security forces and prohibit funding for any military or other security unit if there is credible evidence that it has committed "a gross violation of human rights." In other cases, the U.S. government has chosen not to work with certain Honduran security forces as a matter of policy. For example, the United States has never provided assistance to the military police force, Some members of the Honduran military who have received U.S. training, however, have subsequently been assigned to the military police. Congress has placed additional restrictions on U.S. security assistance to Honduras over the past eight years. From FY2012 to FY2015, annual foreign aid appropriations measures required the State Department to withhold between 20% and 35% of aid for Honduran security forces until the Secretary of State could certify that certain human rights conditions were met. Since FY2016, annual appropriations measures have required the State Department to withhold 50% of aid for the central government of Honduras until the Secretary of State can certify that the Honduran government is addressing a variety of congressional concerns, including investigating and prosecuting in the civilian justice system government personnel who are credibly alleged to have violated human rights; cooperating with commissions against corruption and impunity and with regional human rights entities; and protecting the right of political opposition parties and other members of civil society to operate without interference. The State Department certified that Honduras met the conditions necessary to release assistance every year from FY2012 through FY2017. It has yet to issue certifications for FY2018 or FY2019. The 116 th Congress could consider legislative initiatives to place additional human rights restrictions on assistance to Honduras. The Berta C ceres Human Rights in Honduras Act, H.R. 1945 (H. Johnson), would suspend all U.S. security assistance to Honduras and direct U.S. representatives at multilateral development banks to oppose all loans for Honduran security forces until the State Department certifies that Honduras has effectively investigated and prosecuted a series of human rights abuses, including the killing of Berta C ceres, and satisfied several other conditions. <5.5. Commercial Ties> The United States and Honduras have maintained close commercial ties for many years. In 1984, Honduras became one of the first beneficiaries of the Caribbean Basin Initiative, a unilateral U.S. preferential trade arrangement providing duty-free importation for many goods from the region. In the late 1980s, Honduras benefitted from production-sharing arrangements with U.S. apparel companies for duty-free entry into the United States of certain apparel products assembled in Honduras. As a result, maquiladoras , or export-assembly companies, flourished. The passage of the Caribbean Basin Trade Partnership Act ( P.L. 106-200 ) in 2000, which provided Caribbean Basin nations with North America Free Trade Agreement (NAFTA)-like preferential tariff treatment, further boosted the maquila sector. Commercial relations have expanded most recently as a result of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), which significantly liberalized trade in goods and services after entering into force in 2006. CAFTA-DR has eliminated tariffs on all consumer and industrial goods and is scheduled to phase out tariffs on nearly all agricultural products by 2020. Although U.S. Trade Representative Robert Lighthizer has asserted that CAFTA-DR and other trade arrangements throughout Latin America "need to be modernized," the Trump Administration has not yet sought to renegotiate the agreement. <5.5.1. Trade and Investment> Despite a significant decline in bilateral trade in the aftermath of the global financial crisis, total merchandise trade between the United States and Honduras has increased 47% since 2005; U.S. exports to Honduras have grown by 72%, and U.S. imports from Honduras have grown by 25% (see Figure 4 below). Analysts had predicted that CAFTA-DR would lead to a relatively larger increase in U.S. exports because a large portion of imports from Honduras already entered the United States duty free prior to implementation of the agreement. The United States has run a trade surplus with Honduras since 2007. Total two-way trade amounted to $10.3 billion in 2018: $5.6 billion in U.S. exports to Honduras and $4.7 billion in U.S. imports from Honduras. Top U.S. exports to Honduras included textile and apparel inputs (such as yarns and fabrics), refined oil products, machinery, and cereals. Top U.S. imports from Honduras included apparel, insulated wire, bananas and other fruit, and coffee. The United States was Honduras's largest trading partner. U.S. foreign direct investment in Honduras has grown significantly since the implementation of CAFTA-DR. The total stock of U.S. foreign direct investment in the country amounted to $1.4 billion in 2017, an increase of 71% since 2005. More than 75% is invested in the manufacturing sector. According to the State Department, approximately 200 U.S. companies operate in Honduras. While relatively low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cort s make Honduras attractive to investors, the country's investment climate is reportedly hampered by high levels of crime, weak institutions, corruption, low educational levels, and poor infrastructure. <5.5.2. Labor Rights> Some observers in the United States and Honduras have expressed concerns about the enforcement of the labor rights provisions of CAFTA-DR. In 2012, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) joined with 26 Honduran trade unions and civil society organizations to file a petition with the U.S. Department of Labor asserting that the Honduran government had failed to meet its obligations to effectively enforce its laws relating to freedom of association, the right to organize and bargain collectively, child labor, and the right to acceptable working conditions. It identified specific violations in the port, apparel, agriculture, and auto manufacturing sectors. After a nearly three-year investigation, the Department of Labor issued a public report in 2015 stating that it had found evidence of labor law violations in nearly all of the cases included in the petition. The report stated that the department "has serious concerns regarding the protection of internationally recognized labor rights in Honduras, including concerns regarding the Government of Honduras's enforcement of its labor laws." It also noted that "there has not yet been measurable systematic improvement in Honduras to address the concerns raised." In December 2015, U.S. and Honduran officials signed a monitoring and action plan designed to address the legal, institutional, and practical challenges to labor law enforcement in Honduras. Although Honduras passed a comprehensive labor inspection law in 2017, enforcement reportedly remains inconsistent and ineffective. Anti-union discrimination also continues to be a "serious problem," according to the U.S. State Department, with some employers harassing and threatening union leaders to undermine union operations. The Network against Anti-Union Violence in Honduras has documented at least 109 incidents of violence against labor activists since 2015, including seven murders and a forced disappearance. USAID is supporting a labor rights program that seeks to strengthen the Honduran government's ability to uphold labor rights and enhance Honduran civil society's capacity to advocate for labor rights and monitor compliance with labor legislation. <6. Outlook> Honduras has made uneven progress in addressing the country's considerable domestic challenges over the past five years. Public prosecutors have begun to combat high-level corruption with the support of the MACCIH, but their efforts have generated fierce backlash from political leaders and other sectors of the Honduran elite. The country's finances have improved, but living standards for most Hondurans remain poor. The homicide rate has been nearly cut in half, but human rights abuses persist and impunity remains widespread. Since launching the U.S. Strategy for Engagement in Central America, the United States has significantly increased foreign assistance to Honduras to strengthen government institutions, foster economic prosperity, and improve security in the country. It is too early to assess the impact of those efforts since much of the assistance only began to be delivered in 2017. Moreover, these are difficult and long-term endeavors, and significant improvements in living conditions in Honduras will likely require concerted efforts by the Honduran government and the international community over many years. U.S. policy is now uncertain as Congress has continued to appropriate funding to implement the U.S. Strategy for Engagement in Central America, but the Trump Administration has announced its intention to end some foreign assistance programs. In the absence of sustained support and engagement from the United States and other international partners, Honduras is likely to continue struggling with political and social instability, which, given the country's geographic proximity, is likely to affect the United States.

Honduras, a Central American nation of 9.1 million people, has had close ties with the United States for many years. The country served as a base for U.S. operations designed to counter Soviet influence in Central America during the 1980s, and it continues to host a U.S. military presence and cooperate on antidrug efforts today. Trade and investment linkages are also long-standing and have grown stronger since the implementation of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) in 2006. In recent years, instability in Honduras—including a 2009 coup and significant outflows of migrants and asylum-seekers since 2014—has led U.S. policymakers to focus greater attention on conditions in the country and their implications for the United States. Domestic Situation President Juan Orlando Hernández of the conservative National Party was inaugurated to a second four-year term in January 2018. He lacks legitimacy among many Hondurans, however, due to allegations that his 2017 reelection was unconstitutional and marred by fraud. Over the past five years, Honduras has made some progress in reducing violence and putting public finances on a more sustainable path. Anti-corruption efforts have also made some headway, largely as a result of cooperation between the Honduran public prosecutor's office and the Organization of American States-backed Mission to Support the Fight Against Corruption and Impunity in Honduras. Nevertheless, considerable challenges remain. Honduras continues to be one of the poorest countries in Latin America, with more than 67% of Hondurans living below the poverty line. It also remains one of the most violent countries in the world and continues to suffer from persistent human rights abuses and widespread impunity. Moreover, the country's tentative progress in combating corruption has generated a fierce backlash, calling into question the sustainability of those efforts. U.S. Policy In recent years, U.S. policy in Honduras has been guided by the U.S. Strategy for Engagement in Central America, a whole-of-government effort designed to promote economic prosperity, strengthen governance, and improve security in Honduras and the rest of the region. Congress has appropriated more than $2.6 billion for the strategy since FY2016, at least $431 million of which has been allocated to Honduras. Continued U.S. engagement in the region is uncertain, however, as the Trump Administration announced in March 2019 that it intends to end foreign assistance programs in Honduras, El Salvador, and Guatemala due to the continued northward flow of migrants and asylum-seekers to the United States. The 116th Congress could play an important role in shaping U.S. policy toward Honduras and the broader region. Several legislative initiatives that have been introduced—including H.R. 2615, S. 1445, and H.R. 2836—would authorize foreign assistance for certain activities in Central America. Congress will also consider FY2020 foreign aid appropriations. H.R. 2839 would appropriate $540.9 million for the Central America strategy, including at least $75 million for Honduras. That would be $96 million more than the Administration requested for Central America and about $9 million more than the Administration requested for Honduras. Other bills Congress may consider would tie U.S. security assistance to human rights conditions in Honduras (H.R. 1945), tie U.S. assistance to the number of unaccompanied Honduran children that arrive at the U.S. border (H.R. 2049), and expand in-country refugee processing in Honduras (H.R. 2347).

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crs_R46012_0

<1. Introduction> Over the past two years, increasing migration across the Southwest border of the United States has posed considerable challenges to U.S. federal agencies charged with apprehending and processing unauthorized migrants. From FY2000 to FY2017, unauthorized migration flows measured in this report by the number of migrants apprehended by the Department of Homeland Security's (DHS's) Customs and Border Protection (CBP) had been generally declining. Apprehensions statistics historically have been used as a rough measure of trends in unauthorized migration flows, as well as a rough indicator of border enforcement (see " Interpreting Apprehensions Data " below). After reaching an all-time peak of 1,643,679 in FY2000, apprehensions fell to a 45-year low of 303,916 in FY2017. In FY2018 apprehensions increased to 396,579, and in FY2019 they more than doubled to 851,508. The Administration and some Members of Congress have characterized the recent increases as a border security and humanitarian crisis. For example, then-CBP Commissioner Kevin McAleenan, in testimony to the Senate Judiciary Committee on March 6, 2019, stated I have heard a number of commentators observe that even with these alarming levels of migration, the numbers are lower than the historical peaks, and as a result, they suggest what we are seeing at the border today is not a crisis. I fundamentally disagree. From the experience of our agents and officers on the ground, it is indeed both a border security and a humanitarian crisis. What many looking at total numbers fail to understand is the difference in what is happening now in terms of who is crossing, the risks that they are facing, and the consequences for our system. The difference McAleenan cited refers to the characteristics of apprehended migrants at the Southwest border their origin countries, demographic characteristics, and migratory motivations all of which have changed considerably during the past decade. In prior decades, unauthorized migrant flows involved predominantly adult male Mexicans, whose primary motivation was U.S. employment. If apprehended, they were typically processed through expedited removal and quickly repatriated. Relatively few migrants applied for humanitarian immigration relief such as asylum. Mexican migrants now make up a minority of total apprehensions. Sizable numbers of migrants from the "Northern Triangle" the Central American countries of El Salvador, Guatemala, and Honduras now make up the largest group. Smaller numbers of migrants are also arriving at the Southwest border from South America (e.g., Venezuela, Peru), the Caribbean (e.g., Cuba), Africa (e.g., Cameroon, Uganda), Central Asia (e.g., Uzbekistan), and South Asia (e.g., India, Bangladesh), among other regions. Instead of being dominated by adult males, migrant flows over the course of this decade have been increasingly characterized by migrants traveling as families (family units) and unaccompanied alien children (UAC). While a sizeable proportion of unauthorized migrants seek U.S. employment, a growing proportion of arriving migrants are seeking asylum and protection from violence. Studies of recent migration trends cite persistent poverty, inequality, demographic pressure related to high population growth, vulnerability to natural disasters, high crime rates, poor security conditions, and the lack of a strong state presence as factors that "push" migrants to make the risky and often dangerous journey from the Northern Triangle. "Pull" factors include the increasing use of U.S. asylum policy that, until recently, allowed most asylum seekers to remain in the United States while they awaited a decision on their cases. Lengthy court backlogs allow migrants admitted to the United States the opportunity to reunite with family members and acquire work authorization, typically six months after U.S. admission. Motivations for leaving Northern Triangle countries and choosing the United States are often a mixture of these push and pull factors, which can be interconnected, especially for families and unaccompanied children. Some observers argue that the recent migrant flows represent a failure of the rule of law. They question the legitimacy of asylum claims being made by recent unauthorized migrants and contend that many are abusing U.S. immigration laws bestowing humanitarian relief in order to gain entry into, or permission to remain in, the United States. Other observers characterize the recent migrant flows as a legitimate international humanitarian crisis resulting from violent and lawless circumstances in migrants' countries of origin. These observers contend that the "crisis" at the border reflects the inability of U.S. federal agencies to adequately process arriving migrants and adjudicate their claims for immigration relief. The changing character of the migrant flow has reportedly produced a number of logistical and resource challenges for federal agencies. These include a general capacity shortfall in CBP holding facilities, lack of appropriate facilities to detain families in ICE detention centers, reassignment of CBP personnel from port of entry duty to responding to migrants in processing facilities, and lengthy immigration court backlogs that delay expeditious proceedings. During migration peaks, these resource constraints coupled with legal restrictions on the length of time that some migrants may be held have forced DHS to release migrants who have entered the United States unlawfully, particularly those in family units, rather than detaining or removing them. In response to the large increase in arrivals of migrants without proper entry documents, the Trump Administration has initiated changes to existing policy for apprehended migrants, largely designed to discourage these unauthorized migration flows. In January 2019, the Administration implemented the Migrant Protection Protocols (MPP), also known as the "remain in Mexico" immigration policy, which allow DHS to return applicants for admission to the United States to the contiguous country from which they arrived (on land) pending removal proceedings. The MPP sends migrants back to Mexico to await their court proceedings for the duration of their case. This program requires the coordination and assistance of the government of Mexico, a country facing its own high levels of unauthorized migration on its southern border. The program is currently operating in six border locations. Understanding changing migration patterns over the past decade may help inform Congress as it considers immigration-related legislation. This report discusses recent migrant apprehension trends at the Southwest border. It describes how unauthorized migration to the United States has changed in terms of the absolute numbers of migrants as well as their origin countries, demographic composition, and primary migratory motivations. The report concludes with a brief discussion of related policy implications. <2. Changing Migration and Apprehension Trends> The Trump Administration's and Congress's responses to the changing characteristics of unauthorized migrants at the Southwest border occur within the context of border security debates. Border security has been an ongoing subject of congressional interest since the 1970s, when unauthorized immigration to the United States first registered as a serious national challenge, and it has received increased attention since the terrorist attacks of 2001. Current debates center on how best to secure the Southwest border, including how and where to place barriers and other tactical infrastructure to impede unauthorized migration as well as the deployment of U.S. Border Patrol agents to prevent unlawful entries of migrants and contraband. Securing the border while facilitating legitimate trade and travel to and from the United States is CBP's primary mission; major shifts in CBP activities can strain resources and disrupt operations. According to U.S. immigration law, foreign nationals who arrive in the United States without valid entry documentation may pursue asylum and related protections if they demonstrate a credible fear of persecution or torture in their country of origin. These migrants, along with others either apprehended or refused admission at a port of entry, appear in the statistics kept by CBP (see "Interpreting Apprehensions Data" below). While CBP's responsibilities include monitoring the Southwest and Northern land borders, as well as the Atlantic and Pacific coasts, the Southwest border with Mexico commands most of the agency's resources because of its attendant risks. The Southwest border runs for nearly 2,000 miles along the four Southwestern states of California, Arizona, New Mexico, and Texas. It is not only the locus of most unauthorized migration to the United States but also that of illicit drugs, counterfeit products, dangerous agricultural products, and trafficked children. Much of this activity occurs at U.S. ports of entry at the Southwest border, where CBP officers inspect all individuals and vehicles that seek to enter the United States. <2.1. Interpreting Apprehensions Data> CBP's two components that monitor the Southwest border at and between ports of entry the U.S. Border Patrol (USBP) and the Office of Field Operations (OFO) collect statistics on individuals who have crossed the border illegally and those who are denied entry. Between ports of entry, USBP agents are responsible for apprehending individuals not lawfully present in the United States. OFO officers are responsible for inspections at U.S. ports of entry and collect data on noncitizens who are denied entry to the United States at ports of entry. Migrants typically are denied entry because they are not in possession of a valid entry document or are determined "inadmissible" on one of several grounds, such as having a criminal record, being a potential public safety threat, or being a public health threat. Inadmissible migrants made up 27%, 24%, and 13% of all migrants arriving at ports of entries along the Southwest border in FY2017, FY2018, and FY2019, respectively. While the number of inadmissible migrants grew slightly from FY2018 to FY2019, their percentage share of all CBP encounters diminished compared to apprehensions, as absolute numbers of apprehensions more than doubled during that period. ( Table 1 ). Both inadmissible and apprehended migrants can be placed in the MPP program. Apprehensions statistics historically have been used as a rough measure of trends in unauthorized migration flows. The utility of these statistics for measuring border enforcement effectiveness, on the other hand, has long been considered of limited usefulness because of the unknown relationship between apprehensions and successful unlawful entries, among other reasons. Apprehensions data, by definition, do not include illegal border crossers who evade USBP agents. They also do not account for the number of potential migrants who are discouraged from attempting U.S. entry because of enforcement measures. Consequently, it is generally unclear if an increase in apprehensions results from more attempts by migrants to enter the country illegally or from a higher apprehension rate of those attempting to enter the United States illegally or both. However, these statistics are arguably now less relevant than in previous years as a metric of border security efforts. In the past several years, an indeterminate but sizable share of migrants who cross between U.S. ports of entry have actively sought out U.S. Border Patrol agents in order to "turn themselves in" to request asylum. In prior years, such migrants typically would have attempted to evade USBP agents. As such, CBP's classification of these migrants as apprehensions may overstate the degree to which the agency's resources, personnel, and strategies prevent migrants from crossing the border illegally and entering the United States. <2.2. Total Apprehensions> The number of total apprehensions has long been used as a basic measure of migration pressure and border enforcement. Total annual apprehensions at the Southwest border averaged 687,639 during the 1970s; 999,476 during the 1980s; 1,266,556 during the 1990s; and 1,020,143 during the 2000s; but then declined to 427,766 during the 2010s. Annual apprehensions reached a 45-year low in FY2017 (303,916). In FY2018, total apprehensions increased to 396,579; and in FY2019, they more than doubled to 851,508, the highest level since FY2007 (see Figure 1 ). While high relative to annual apprehensions during the past decade, the FY2019 level is lower than annual apprehension levels for 25 of the past 45 years. Thus, recent changes in the character of the migrant flows during the past decade occurred within the context of historically low numbers of apprehensions since FY2000. Apprehensions at the Southwest border initially peaked at 1.62 million in 1986, the same year that Congress enacted the Immigration Reform and Control Act (IRCA), which gave lawful permanent resident status to roughly 2.7 million unauthorized aliens residing in the United States. After declining substantially for a few years, apprehensions rose again, climbing from 0.85 million in FY1989 to an all-time high of 1.64 million in FY2000. Apprehensions generally fell after that (with the exception of FY2004-FY2006), reaching a then-low point of 327,577 in FY2011. Since that year, apprehensions have fluctuated, as noted above. <2.3. Apprehensions by Country of Origin> The national origins of apprehended migrants have shifted considerably during the past two decades (see Figure 2 ). In FY2000, for example, almost all of the 1.6 million aliens apprehended at the Southwest border (98%) were Mexican nationals, and relatively few requested asylum. As recently as FY2011, Mexican nationals made up 86% of all 327,577 Southwest border apprehensions in that year. That share has declined, however, and for most years after FY2013, Mexicans accounted for less than half of total apprehensions on the Southwest border. In FY2019, "other-than-Mexicans" comprised 81% of all 851,508 apprehensions. From FY2012 to FY2019, the number of Mexican nationals apprehended dropped by 37%, from 262,341 to 166,458, while the number of migrants apprehended from all other countries increased six-fold, from 94,532 to 685,050. <2.4. Apprehensions by Demographic Category> CBP classifies apprehended unauthorized migrants into three demographic categories: single adults, family units (at least one parent/guardian and at least one child), and unaccompanied alien children (UAC). Of the three categories, apprehensions of persons in family units have increased the most in absolute terms since FY2012, the first year for which publicly available CBP data differentiated among the three demographic categories (see Figure 3 ). In FY2012, 321,276 single adults made up 90% of the 356,873 arriving migrants apprehended at the Southwest border, while members of family units numbered 11,116, and UAC accounted for 24,481. By FY2019, however, apprehensions of persons in family units numbered 473,682, more than all family unit apprehensions from FY2012 to FY2018 combined. Together in FY2019, those persons in family units as well as UAC (76,020 apprehensions) accounted for 65% of all apprehensions while the remaining 35% (301,806) were single adults, of whom 84% were men. Approximately 48% of family units apprehended in FY2019 were headed by mothers, 44% were headed by fathers, and about 8% were headed by two parents. <2.5. Apprehensions of Family Units by Country of Origin> As the number of apprehensions of individuals in family units has increased in recent years, their national origins have shifted from mostly Mexican, (comprising 80% of all 11,116 family unit apprehensions in FY2012), to mostly Salvadoran, Guatemalan, and Honduran, who together made up 91% of all 457,871 such apprehensions in FY2019 (see Figure 4 ). Apprehensions of individuals in family units from El Salvador increased from 636 (6%) of all such apprehensions in FY2012 to 27,114 (35%) of all 77,674 of such apprehensions in FY2016 before declining to 54,915 (12%) in FY2019. Over the same period, the share of family unit apprehensions from Honduras (513) and Guatemala (340) each grew from less than 5% of the total in FY2012 to 188,416 and 185,233, respectively, about 39% each of the total in FY2019. By comparison, the 6,004 apprehensions of Mexicans in family units made up 1% of the total in FY2019. Notably, the percentage of persons in family units from "all other countries," has been relatively low over the same period. In absolute numbers, this category registered less than 4,000 apprehensions in all years prior to FY2019, but rose to 37,132 family unit apprehensions in FY2019 (7% of the total, the same share as in FY2012). <2.6. Apprehensions of Unaccompanied Alien Children> Over the past decade, the number of unaccompanied alien children apprehended at the Southwest border has increased considerably (see Figure 5 ). From FY2011 to FY2014, UAC apprehensions increased each year, and more than quadrupled from 16,067 in FY2011 to 68,541 in FY2014. From FY2014 to FY2018, UAC apprehensions fluctuated, declining to 39,970 in FY2015; increasing to 59,692 in FY2016; declining again to 41,435 in FY2017; and increasing again to 50,036 in FY2018. In FY2019, UAC apprehensions reached 76,020, a level that exceeds the previous peak in FY2014. In FY2019, approximately 30% of apprehended UAC were girls. In the past decade, the country-of-origin composition of apprehended UAC, like that of family units, has shifted from mostly Mexican to mostly Salvadoran, Guatemalan, and Honduran. For example, in FY2009 Mexican UAC (16,114) made up 82% of all 19,668 UAC apprehensions in that year, while Salvadoran (1,221), Guatemalan (1,115), and Honduran (968) UAC made up 6%, 6%, and 5%, respectively, of the total. In contrast, by FY2019 Mexican UAC (10,487) made up 14% of all 76,020 UAC apprehensions in that year, while Salvadoran (12,021), Guatemalan (30,329), and Honduran (20,398) UAC made up 16%, 40%, and 27%, respectively, of the total. Current statute treats children from contiguous countries (Mexico and Canada) differently than children from non-contiguous countries. While UAC from Mexico can be repatriated promptly through a process known as voluntary departure , UAC from all other countries are placed in formal removal proceedings. The latter are then referred to the Department of Health and Human Services' (HHS') Office of Refugee Resettlement (ORR), where they are initially sheltered and subsequently placed with family members or sponsors while they await their immigration hearing. Hence, the shift in the country-of-origin composition of the apprehended UAC population has had considerable impact on agencies charged with the processing and care of these children. <2.7. Total Apprehensions by Month in FY2019> Over the past two decades, apprehensions have followed a pattern consistent with a seasonal migration cycle. In this cycle, peak numbers of apprehensions occur in the spring months (March June), followed by progressively lower numbers in the hotter summer months (July September), lower-than-average numbers through the fall months (October December), and even lower numbers in January, before rising again through the spring months when the pattern begins to repeat. During FY2019, the monthly pattern in total apprehensions at the Southwestern border was similar to the trends during the past two decades (see Figure 6 ). From the peak in May through September of FY2019, apprehensions declined nearly 70%, from approximately 133,000 to just over 40,000. These data suggest that the declines in monthly apprehensions from May to September of FY2019 stemmed primarily from declining numbers of family unit apprehensions. The number of persons in family units apprehended on a monthly basis dropped from 84,490 in May to 15,824 in September (an 81% decrease). For UAC, apprehensions declined by 72%, from 11,475 in May to 3,165 in September. Apprehensions of single adults saw a smaller decline (42%) over this period, from 36,894 in May to 21,518 in September. These patterns suggest that declining apprehensions in recent months may have resulted not only from the immigration enforcement policies of the Trump Administration but also from decades-long seasonal migration patterns, among other factors. <3. Policy Implications> This report has described the following major shifts in the composition and character of migrant flows to the Southwest border that have unfolded in less than a decade: In the past two years, the number of total apprehensions has increased substantially, a reverse of the general trend of declining and relatively low apprehension levels seen since FY2001. The unauthorized migrant flow apprehended at the Southwest border no longer consists primarily of individuals from Mexico, a country with whom the United States shares a border and close economic and historical ties. It now originates largely from El Salvador, Guatemala, and Honduras. Also, growing numbers of unauthorized migrants are originating from Africa, Asia, and the Caribbean. The unauthorized migrant flow is no longer dominated by economic migrants exclusively seeking employment. It is now driven to a larger extent than in past years by asylum seekers and others with similar motivations, such as escaping violence and domestic insecurity, who may also be interested in working in the United States. Such migrants often seek out U.S. Border Patrol agents at the border when crossing illegally between U.S. ports of entry rather than attempting to elude them. The unauthorized migrant flow no longer consists primarily of single adult migrants but rather of families and children traveling without their parents. Although not previously discussed, changing migration strategies are also altering how federal agencies respond to migrant flows. For example, migrants have been increasingly traveling in large groups, reportedly to protect themselves from harm. In addition, more migrants are arriving at remote CBP outposts along the Southwest border, sometimes overwhelming the relatively few CBP personnel who staff them. These changing patterns at the Southwest border have considerable policy implications. In comparison with apprehended single adult economic migrants from Mexico, more-recently apprehended migrants require lengthier processing and create a call for greater resources and personnel of more federal agencies. When migrants originate from countries other than the contiguous countries of Mexico and Canada, their removals involve longer processing time, higher transportation costs, and more involved inter-agency coordination. If arriving migrants are unaccompanied alien children from noncontiguous countries, they are protected from immediate removal by statutes that require them to be put into formal immigration removal proceedings and they are referred to the care and custody of ORR. If migrants seek asylum, they generally require a credible fear hearing. They may be detained in DHS facilities for varying periods and must be processed by DOJ's Executive Office for Immigration Review (EOIR). CBP, among all federal agencies, is arguably the most affected by the break with historical migration patterns. The pressures of large groups of migrants arriving together and the greater vulnerabilities of new arrivals are reportedly testing CBP's border infrastructure, agency personnel, and long-standing policies. When unauthorized migrant flows consist largely of families and children, who often arrive in large groups or at remote U.S. border locations, CBP has adjusted its operations and allocated resources and personnel to accommodate more vulnerable migrants. Some studies also suggest that smuggling guides sometimes direct migrants to cross in specific locations to outmaneuver USBP agents and infrastructure and avoid detection. Moreover, anecdotal evidence suggests migrant arrival strategies can be based upon perceptions of differences in border enforcement policies and practices among and within the nine CBP Southwest border sectors. If enforcement policies vary by sector, CBP can expect migration patterns to shift to sectors that migrants perceive as offering them the greatest chance of acquiring the immigration relief they seek. The Trump Administration has changed immigration enforcement policies and practices at the border in an attempt to reduce unauthorized migration and discourage fraudulent or frivolous claims for humanitarian immigration relief. President Trump, DHS, DOD, and DOJ have acted together with a series of policy changes that make it more difficult for migrants to be awarded asylum. For example, see the following: In November 2018, the President issued a proclamation to suspend immediately the entry into the United States of aliens who cross the Southwest border between ports of entry. This proclamation has been challenged in court and a preliminary injunction was issued by a federal district court. As noted above, DHS implemented the Migrant Protection Protocols (MPP) in January 2019, and for the past several years CBP has also used the practice of "metering" migrants. Both of these policies require migrants to wait on the Mexican side of the border. Since April 2018, National Guard personnel have supported DHS at the border, while active duty personnel began providing support in October 2018. In February 2019, President Trump proclaimed a national emergency pursuant to the National Emergencies Act in order to fund a physical barrier at the Southwest border with Mexico using $6.1 billion in funds from the Department of Defense (DOD). In September 2019, the Secretary of Defense deferred funding for military construction projects in order to redirect funds to border barrier projects using his authority under the emergency statute 10 U.S.C., Section 2808. In July 2019, DHS and DOJ jointly issued an interim final rule (IFR) that makes aliens ineligible for asylum in the United States if they arrive at the Southwest border without first seeking protection from persecution in other countries through which they transit. In addition, the United States is working with Mexico to decrease Central American migrant flows and with Central American governments to promote economic prosperity, improve security, and strengthen regional governance. The changing character of recent migrant flows at the Southwest border also may suggest that apprehensions may be less useful than in the past for measuring border enforcement. Because many apprehended migrants now actively seek out U.S. Border Patrol agents in order to request asylum, increases or decreases in apprehension numbers may not reflect the effectiveness of border enforcement strategies. Rather, an increase in apprehensions combined with the changing characteristics of recently apprehended migrants may increasingly portend greater resource needs for federal agencies because the administrative requirements for asylum claims are more resource-intensive than those for unauthorized migrants who do not request asylum and are quickly repatriated through expedited removal. The challenge of deterring unauthorized migrants from entering the United States has been complicated and overshadowed by the challenge of processing, in a fair and timely manner, relatively greater numbers of migrants seeking asylum. Recent migration research suggests that forced migration from civil conflict, violence, weather events, and climate change is playing a more prominent role in worldwide migratory patterns. To some extent, patterns described in this report are consistent with that trend. Declining birth rates in parts of Latin America and improving employment prospects in Mexico over the past decade have reduced the relative proportion of single adult migrants whose primary motivation is U.S. employment. In contrast, relatively high levels of violence and lack of public security, among other factors, have increased the relative proportion of Central American and Mexican families and children whose primary migratory motivation is humanitarian relief. Options for Congress could include legislative responses to the series of policies that the Administration has developed to address the changing flow of migrants at the Southwest border. Some proposals may consider changes to the appropriations of agencies charged with processing unauthorized migrants to reshape the system from one that was designed to apprehend and return single unauthorized adults from Mexico with no claims for protection, to one that can more quickly adjudicate those seeking humanitarian protection. Other options may include greater supervision of unauthorized migrants who are released into the United States, and mandating the collection and publication of more-detailed and timely data from DHS to more completely assess the flow of unauthorized migrants, including those in the MPP program, and their impact on border enforcement and the immigration court system.

Unauthorized migration across the U.S. Southwest border poses considerable challenges to federal agencies that apprehend and process unauthorized migrants (aliens) due to changing characteristics and motivations of migrants in the past few years. Unauthorized migration flows are reflected by the number of migrants apprehended by the Department of Homeland Security's (DHS's) Customs and Border Protection (CBP). In FY2000, total annual apprehensions at the border were at an all-time high of 1.64 million, before gradually declining to 303,916 in FY2017, a 45-year low. Apprehensions then increased to 396,579 in FY2018 and 851,508 in FY2019, the highest level since FY2007. More notably, the character of unauthorized migrants has changed during the past decade. Historically, unauthorized migrant flows involved predominantly single adult Mexicans, traveling without families, whose primary motivation was U.S. employment. As recently as FY2011, Mexican nationals made up 86% of all apprehensions, and relatively few requested asylum. In FY2019, however, "Northern Triangle" migrants from El Salvador, Guatemala, and Honduras comprised 81% of all apprehensions that year. Economic migrants exclusively seeking employment no longer dominate the unauthorized migrant flow, which is now driven to a greater extent by asylum seekers and those escaping violence and domestic insecurity, or those with motivations involving a mixture of protection and economic opportunity. CBP classifies apprehended unauthorized migrants into single adults, family units (at least one parent/guardian and at least one child), and unaccompanied alien children (UAC). In 2012, single adults made up 90% of apprehended migrants at the Southwest border. In FY2019, however, persons in family units and UAC together accounted for 65% of all apprehended migrants that year. In FY2019, CBP apprehended a record 473,682 persons in family units, exceeding all apprehensions of family unit members from FY2012-FY2018 combined. Mothers headed almost half of all family units apprehended in FY2019. In addition, apprehended persons in family units shifted from mostly Mexican nationals (80%) in FY2012 to mostly Salvadoran, Guatemalan, and Honduran nationals (91%) in FY2019. Similar changes occurred in the origin countries of unaccompanied alien children, whose total apprehensions also reached a record (76,020) in FY2019. The changing character of the migrant flow has led to logistical and resource challenges for federal agencies, particularly CBP. These include a general capacity shortfall in CBP holding facilities, the lack of appropriate facilities to detain families in Immigration Customs and Enforcement (ICE) detention centers, the reassignment of some CBP personnel who monitor the border to process and respond to migrants in holding facilities, and rapidly expanding immigration court backlogs that delay expeditious proceedings. The changing underlying motivations and border migration strategies of recent migrants also makes apprehension data less useful than in the past for measuring border enforcement. Because many unauthorized migrants now actively seek out U.S. Border Patrol agents in order to request asylum, increases or decreases in apprehension numbers may not reflect the effectiveness of border enforcement strategies. In response, the Trump Administration has changed existing policies for apprehended migrants, including implementing the Migrant Protection Protocols (MPP), also known as the "remain in Mexico" immigration policy, which allow DHS to return migrants seeking U.S. admission to the contiguous country from which they arrived on land, pending removal proceedings. Options for Congress could include legislative responses to the series of policies that the Administration has developed to address the changing flow of migrants at the Southwest border. Some proposals may consider changes to the appropriations of agencies charged with processing unauthorized migrants to reshape the system from one that was designed to apprehend and return single unauthorized adults from Mexico with no claims for protection, to one that can more quickly adjudicate those seeking humanitarian protection. Other options may include greater supervision of unauthorized migrants who are released into the United States, and mandating the collection and publication of more-detailed and timely data from CBP to more completely assess the flow of unauthorized migrants, including those in the MPP program, and their impact on border enforcement and the immigration court system.

crs_R46140

crs_R46140_0

<1. Introduction> On October 7, 2019, after six months of formal negotiations, the United States and Japan signed two agreements intended to liberalize bilateral trade. One, the U.S.-Japan Trade Agreement (USJTA), provides for limited tariff reductions and quota expansions to improve market access. The other, the U.S.-Japan Digital Trade Agreement, includes commitments pertaining to digital aspects of international commerce, such as on data flows. These agreements constitute what President Donald Trump and Prime Minister Shinzo Abe envision as "stage one" of a broader trade liberalization negotiation, which the two leaders first announced in September 2018. The two sides have stated their intent to begin second stage negotiations on a more comprehensive deal after these agreements enter into force. Congress will not have a role in approving the two agreements. The Trump Administration intends to use delegated tariff proclamation authorities in Trade Promotion Authority (TPA) to enact the tariff changes and quota modifications, while the digital trade commitments, which would not require changes to U.S. law, are in the form of an Executive Agreement. Japan's Diet (the national legislature), however, had to ratify the pact, and did so on December 5, 2019, paving the way for entry into force on January 1, 2020. The two Japan deals raise a number of issues for Congress, including their limited coverage and staged approach, as compared to past U.S. free trade agreement (FTA) negotiations, the trade authorities used to bring them into effect in the United States, questions over their compliance with World Trade Organization (WTO) rules, and questions over how they compare with the trade agreement the United States previously negotiated with Japan in the former Trans-Pacific Partnership (TPP) and current TPP-11. Given the narrow scope of the agreements, particularly the USJTA tariff commitments, their commercial and strategic impact is likely to be determined by whether a more comprehensive bilateral agreement can be achieved. Many Members of Congress and other stakeholders support the agreements, but view the prospective second stage of trade talks as critical for U.S. interests. At the same time, some observers have raised questions about the potential coverage of issues in future talks and whether there will be sufficient political support in both countries to make progress, especially during an election year in the United States. <2. Background and Motivation for Negotiations> In October 2018, in line with TPA requirements under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ; TPA-2015), the Administration provided Congress 90 days advance notification of its intent to begin negotiations. The Administration released its negotiating objectives, which included a number of issues beyond tariffs and digital trade, in December of the same year. The Trump Administration's interest in a trade agreement with Japan is closely tied to its decision to withdraw the United States from the TPP in 2017, and to pursue bilateral agreements, as opposed to the more regional approach taken under TPP. It also reflects the Administration's strategy of focusing on reaching agreements with major U.S. trade partners, especially those with which the United States runs a trade deficit (the U.S. goods trade deficit with Japan was $67.2 billion in 2018, the fourth-largest bilateral U.S. deficit). Although TPP included 10 countries in addition to the United States and Japan, the U.S.-Japan component of the agreement was the most economically consequential given existing U.S. trade agreements with 6 of the 10 other participants, and the relatively small economies of the remaining four (Brunei, Malaysia, New Zealand, and Vietnam). In these limited, stage one agreements with Japan, the Administration has attempted to address concerns raised by TPP proponents, especially agricultural groups, that the U.S. withdrawal placed U.S. exporters at a disadvantage in the Japanese market, in particular given Japan's recently enacted trade agreements with other trade partners. Following U.S. withdrawal from the TPP, Japan led efforts among the remaining 11 TPP countries to conclude the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11), which took effect in December 2018 for the first six signatories who ratified, including Japan, and for Vietnam in early 2019. The TPP-11 includes the comprehensive tariff liberalization commitments of TPP (near complete elimination among the parties), and the majority of TPP rules and disciplines on numerous trade-related issues, though the parties agreed to suspend a small number of nontariff commitments sought largely by the United States, following the U.S. withdrawal. Japan's FTA with the European Union (EU), which is to eventually remove nearly all tariffs and establish trade rules between the parties, went into effect in February 2019. It provides for elimination of the EU's 10% auto tariff, and elimination or reduction of most Japanese agricultural tariffs. Additional trade agreements involving Japan could take effect in coming years, compounding U.S. exporter concerns, including the possible 2020 conclusion of the Regional Comprehensive Economic Partnership (RCEP), which includes Japan, China, and 13 other Asian countries. Given Japan's commitment to TPP, Prime Minister Abe was initially hesitant to agree to bilateral U.S. trade negotiations, instead urging the Trump Administration to reconsider its withdrawal. Japan's decision to participate in bilateral talks came after President Trump raised the possibility, based on national security concerns, of imposing unilateral motor vehicle tariffs on Japan, an industry of national significance and accounting for one-third of U.S. goods imports from Japan (see " Motor Vehicles and Threat of U.S. Section 232 Tariffs "). The importance of the U.S.-Japan security relationship may also have factored into Japan's decisionmaking. Japan relies heavily on the United States for its military defense. The two countries' agreement on how to share the costs of the roughly 50,000 U.S. troops stationed in Japan is due to be renegotiated in 2020 as the current agreement expires at the end of March 2021. President Trump has called for Japan to significantly increase its contributions, perhaps by as much as fourfold. Japan, some analysts suggest, may see a bilateral trade agreement as way to reduce tension in the bilateral relationship, in light of other pressing security issues. Additionally, the Trump Administration may try to use the cost-sharing negotiations to extract concessions from Japan in proposed stage-two trade negotiations, or vice versa. As the United States' fourth-largest trading partner and the world's third-largest economy, Japan routinely features prominently in U.S. trade policy. In 2018, Japan accounted for 5% of total U.S. exports ($121 billion) and 6% of total U.S. imports ($179 billion). The United States is arguably even more important to Japan, representing its second-largest trading partner after China in 2018, and accounting for nearly 20% of Japan's goods exports. The two countries are also major investment partners, with Japanese foreign direct investment (FDI) in the United States valued at $484 billion in 2018 on a historical cost basis, largely in manufacturing, and U.S. FDI in Japan valued at $125 billion, concentrated in finance and insurance. Major areas of U.S. focus in the trade relationship include market access for U.S. agricultural goods, given Japan's relatively high tariffs in this sector, and the elimination of various nontariff barriers, such as in the motor vehicles and services sectors. <2.1. Agriculture and Japan's Other Trade Agreements> Japan is an important market for U.S. farmers and ranchers, accounting for about 9% of total U.S. agricultural exports to all destinations since 2014. In 2018, Japan was the third-largest export market for the United States, after Canada and Mexico, with $12.9 billion in U.S. agricultural exports out of a total of $140 billion shipped to Japan. Corn, beef, pork, soybeans, and wheat make up more than 60% of total U.S. agricultural exports to Japan ( Figure 1 ). With TPP-11 and the EU-Japan FTA entering into force in late 2018 and early 2019, exports from EU and TPP-11 member countries became more competitive for Japanese importers. U.S. agricultural exports to Japan meanwhile declined 7% ($8.3 billion) from January through August 2019, compared with the same period in 2018 ($9 billion). According to Japanese Customs data, notable product-specific declines during the first nine months of 2019, compared to the same period in 2018, include non-durum wheat (down 13%), pork (down 7%), and beef (down 4%). Over the same period, Japanese imports of these commodities from several EU and TPP-11 countries have increased. With the stage one U.S.-Japan agreement resulting in lower tariff rates on most U.S. agricultural products in the near term, it could improve the outlook for U.S. agricultural exporters. <2.2. Motor Vehicles and Threat of U.S. Section 232 Tariffs> Motor vehicles and parts are the largest U.S. import category from Japan ($56.0 billion in 2018), while Japan imports few U.S.-made autos ($2.4 billion in 2018), despite having no auto tariffs ( Figure 2 ). U.S. industry argues the latter stems from nontariff barriers, including discriminatory regulatory treatment, while Japan argues that U.S. producers' inability to cater to the Japanese market is to blame. Although Japan buys few U.S. cars, Japanese-owned production facilities in the United States (valued at $51 billion in 2018) employ more than 170,000 workers, according to the Bureau of Economic Analysis (BEA). President Trump has repeatedly flagged the U.S. automotive trade deficit and noted that U.S. goals in broader trade talks include market access outcomes that will increase U.S. auto production and employment, but no provisions on motor vehicles were included in the stage one agreement. In May 2019, one year after the start of an investigation by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862), President Trump proclaimed motor vehicle and parts imports, particularly from Japan and the EU, a threat to U.S. national security. This determination asserted that the imports affect "American-owned" producers' global competitiveness and research and development on which U.S. military superiority depends. Under affirmative Section 232 determinations, the President is granted authority to impose import restrictions, including tariffs. Toyota and other Japanese-owned auto firms took particular issue with the President's emphasis on U.S. ownership in his determination, noting their significant U.S. investments in automotive manufacturing and research facilities. The President directed the U.S. Trade Representative (USTR) to negotiate with Japan (and the EU) to address this threat and report back within 180 days. Speaking immediately after the signing of the USJTA, USTR Lighthizer stated that in light of the new trade agreement, the Administration has no intent, "at this point," to pursue additional Section 232 U.S. auto import restrictions. Japan also remains subject to Section 232 tariffs on U.S. steel and aluminum imports, which the Administration implemented in March 2018. <2.3. U.S. Trade Agreement Authorities> Congress sets objectives for U.S. trade negotiations and establishes certain authorities to enact agreements that make progress toward achieving those objectives in Trade Promotion Authority (TPA) legislation under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ; TPA-2015). TPA allows for expedited consideration of implementing legislation to enact trade agreements covering tariff and nontariff barriers, provided the Administration meets certain notification and consultation requirements. It also provides the President, under Section 103(a) (19 U.S.C. 4202(a)), delegated authority to proclaim limited tariff reductions without further congressional action. The limits on Section 103(a) authority primarily relate to the amount and staging of the reduction in duty rates (see " U.S. Tariff and Quota Commitments "). Prior to the Trump Administration, the United States negotiated FTAs that removed virtually all tariffs between the parties and covered a broad range of trade-related rules and disciplines in one comprehensive negotiation. Nontariff issues often require implementing legislation by Congress to take effect, and Congress has typically considered implementing legislation for past U.S. FTAs under TPA's expedited procedures. The Trump Administration, however, plans to put the limited, stage one agreements with Japan into effect without congressional approval. The Administration intends to use delegated authorities pursuant to Section 103(a) of TPA to proclaim the tariff changes included in the USJTA, while the U.S.-Japan Digital Trade Agreement does not appear to require changes to U.S. law and is being treated as an Executive Agreement. Some observers and Members of Congress have questioned whether Section 103(a) authorizes the President to also establish rules of origin and modify import quotas, which are components of the U.S. market access tariff commitments in the USJTA. The language of Section 103(a) proclamation authority originated in the Reciprocal Trade Agreements Act of 1934, when tariff barriers were the primary focus of trade agreement negotiations. Similar language has been included in subsequent iterations of the TPA statue, including the current TPA-2015, which is effective through July 1, 2021. Past U.S. Administrations have invoked Section 103(a) and its past iterations to modify U.S. tariffs and implement agreements addressing tariff barriers. Most recently, in 2015 President Barack Obama invoked this authority to implement an agreement among members of the Asia-Pacific Economic Cooperation (APEC) forum to reduce duties on environmental goods. <3. Agreement Provisions> The two agreements included in the "stage one" U.S.-Japan trade deal cover tariff and quota commitments on industrial and agricultural goods and commitments on digital trade. The limited coverage and composition represents a significant departure from recent U.S. trade agreements, which typically are comprehensive and cover additional issues such as customs procedures, government procurement, labor and environment protections, intellectual property rights (IPR), services, and investment. Notably, neither agreement includes a formal dispute settlement mechanism to enforce commitments should either side take fault with the other's implementation. The Trump Administration points to Article 6 of the USJTA, which lays out a 60-day consultation process for resolving issues relating to "the operation or interpretation" of the agreement as a means to resolve disputes relating to tariffs and quota commitments. A future comprehensive deal could include a formal dispute settlement mechanism, but it is unclear how this would affect the initial agreements. <3.1. U.S.-Japan Trade Agreement (Tariff and Quota Commitments)> The USJTA, which covers tariff and quota commitments, is four pages in length and includes eleven articles governing the operation of the agreement. Two separate annexes include the specific tariff reduction schedules for the United States and Japan. The annexes also include staging categories, which lay out the timeline for tariff reductions, and rules of origin, which specify the conditions under which imports are considered to originate from each country and therefore are eligible for the preferential tariff treatment. In total, the agreement is to reduce or eliminate tariffs on approximately $14.4 billion or 5% of bilateral trade ($7.2 billion each of U.S. imports and exports, Figure 3 ). The agreement also includes provisions providing for amendment and termination procedures (Article 8 and Article 10, respectively). While the Trump Administration has stated that the USJTA should "enable American [agricultural] producers to compete more effectively with countries that currently have preferential tariffs in the Japanese market," the U.S.-Japan agreement is narrower in scope than either TPP-11 or the EU-Japan FTA. In particular, because of the legal authority under which the United States negotiated the USJTA, the agricultural provisions address only tariffs and quotas, while TPP-11 and the EU-Japan FTA also address many other policies that may interfere with trade in agricultural products. As a result, U.S. agricultural exporters may continue to be at some disadvantage in the Japanese market against those from the TPP-11 countries or the EU. Lack of legal text on non-market-access provisions, such as agricultural biotechnology, geographical indications, sanitary and phytosanitary measures, and technical barriers to trade (TBT) in the USJTA may limit the United States' ability to challenge potential future trade barriers in Japan (and vice versa) related to these issues, for example, if Japan were to align its requirements for agricultural imports more closely with those of the EU or of TPP-11 countries. <3.1.1. U.S. Tariff and Quota Commitments> The USJTA tariff schedule commits the United States to reduce or eliminate tariffs on 241 tariff lines that accounted for $7.2 billion of U.S. imports from Japan in 2018 (about 5% of total U.S. goods imports from Japan). Per requirements under TPA's tariff proclamation authorities, which as discussed, the Administration intends to use to implement the agreement, U.S. products slated for tariff elimination must have less than a 5% current U.S. most-favored nation (MFN) tariff rate. The authority allows for the Administration to reduce tariffs by 50% for products with current MFN tariff rates above 5%. According to the USJTA tariff schedule, the United States is to eliminate tariffs on 169 of covered U.S. tariff lines, while the remaining 72 are to be reduced to 50% of their current MFN rate. Unlike the former TPP, which committed the United States to eliminate tariffs on 99% of U.S. tariff lines, the USJTA agreement is to affect a relatively small share of U.S. imports from Japan, both because it covers fewer products and does not include autos and auto parts, the largest single U.S. import category. The U.S. tariff schedule of the USJTA states that auto and auto parts "will be subject to further negotiations with respect to the elimination of customs duties." Under TPP, by contrast, the United States committed to eliminate its 2.5% car tariff over 25 years and its 25% light truck tariff over 30 years. Most of the U.S. products covered in the agreement are industrial goods. Select tariff lines from 30 different U.S. Harmonized Schedule (HS) chapters or categories are included. However, roughly half of the covered products, both in terms of the number of tariff lines and U.S. import value, are from three chapters: machinery (U.S. imports of $3.3 billion in 2018), electrical machinery ($771 million), and tools ($683 million). Other product categories include optical/medical equipment ($534 million), iron and steel articles ($305 million), rubber ($302 million), organic chemicals ($182 million), inorganic chemicals ($182 million), musical instruments ($133 million), copper and articles ($125 million), photographic and cinematographic goods ($118 million), railway ($105 million), and toys ($79 million). The top 10 tariff lines covered by the agreement accounted for $3 billion of U.S. imports in 2018 or 42% of all imports covered ( Table 1 ). U.S. tariffs on these 10 products are to be eliminated either upon entry into force (EIF) of the agreement or at the start of year two. The United States also agreed to reduce or eliminate tariffs on 42 agricultural tariff lines on imports from Japan, which include certain perennial plants and cut flowers, persimmons, green tea, chewing gum, certain confectionary products, and soy sauce. In a side letter, the United States agreed to modify its tariff-rate quota (TRQ) for imports of Japanese beef. TRQs involve a two-tiered tariff scheme in which imports within an established quota face lower tariff rates, and imports beyond the quota face higher tariff rates. The United States has agreed to eliminate the 200 metric tons (MT) country-specific beef quota for Japan and increase its quota for "other countries or areas" to 65,005 MT. This would enable Japan to ship additional amounts of beef to the United States at low tariff rates under the increased "other countries or areas" quota. <3.1.2. Japan's Tariff and Quota Commitments> Under the USJTA, Japan agreed to eliminate or reduce tariffs for certain U.S. agricultural products and to provide preferential quotas for other U.S. agricultural products. Japan's commitments cover approximately 600 tariff lines, accounting for $7.2 billion of U.S. exports in 2018, according to the USTR. Essentially, Japan is providing the same level of market access to the products included in the USJTA as provided to exports from countries that are members of TPP-11. Some products included in TPP-11 such as rice and certain dairy products, however, are not included in the USJTA. According to the USTR, once this agreement is implemented, over 90% of U.S. food and agricultural products exported to Japan will either enter duty-free or receive preferential tariff access. When TPP-11 went into effect in December 2018, Japan implemented its first set of tariff cuts and TRQ expansions for TPP-11 countries, and followed these with a second round of tariff cuts and TRQ expansions on April 1, 2019, the start of its new fiscal year. In the USJTA, Japan agreed to accelerate and adjust its TRQ expansion and tariff reduction schedule so that Japan's imports of affected U.S. agricultural products are to receive the same level of market access as imports from TPP-11 countries. This means that tariff rates under the USJTA are to fall slightly faster than those under the TPP-11. For example, under TPP-11, tariffs on beef imports into Japan, previously 38.5%, were reduced to 27.5% in Year 1, to 26.6% in Year 2, and are to reach 9% in Year 16. Under the USJTA, tariffs on Japanese imports of U.S. beef would be reduced to 26.6% in Year 1 and would reach 9% in Year 15. <3.1.2.1. Key Products and Provisions> Japan is to reduce tariffs on meat products that collectively accounted for $2.9 billion of U.S. exports to Japan in 2018. Tariffs on processed beef products, including beef jerky and meat extracts, are to be eliminated in 5 to 15 years. Japan's right to raise tariffs if imports of U.S. beef exceed a specified level are to be restricted, and would be eliminated if the specified level is not exceeded for four consecutive fiscal years after Year 14. Tariffs on pork muscle cuts are to be eliminated over 9 years, and tariffs on processed pork products are to go to zero in Year 5. Certain fresh and frozen pork products would continue to be subject to Japan's variable levies when import prices are low, but the maximum variable rate is to be reduced by almost 90% by Year 9. As with beef, Japan's right to raise tariffs if imports of U.S. pork exceed a specified level is to be restricted. Japan is to gradually increase the amount of U.S. fresh, chilled, and frozen pork that could be imported annually without triggering additional tariffs, and such tariffs are to be terminated at the end of Year 10. Japan is to eliminate tariffs immediately upon entry into force of the agreement on selected products, including almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, and broccoli, that collectively accounted for $1.3 billion of U.S. exports to Japan in 2018. Tariffs on corn used for feed, the largest U.S. agricultural export to Japan ($2.8 billion or 22% of total U.S. agricultural exports to Japan in 2018), are also to be eliminated upon entry into force of the agreement. Japan is to phase out tariffs in stages for products accounting for $3 billion of U.S. exports in 2018, such as cheeses, processed pork, poultry, beef offal, ethanol, wine, frozen potatoes, oranges, fresh cherries, egg products, and tomato paste. Japan agreed to provide country-specific quotas (CSQ) for some products, which provide access to a specified quantity of imports from the United States at a preferential tariff rate, generally zero. The CSQs would provide these products the same access into Japan as would have been accorded if the United States had joined the TPP-11. Products covered by CSQs include wheat, wheat products, malt, processed cheese, glucose, fructose, corn starch, potato starch and inulin. Additionally, Japan agreed to create a single whey CSQ for the United States that would begin at 5,400 MT and grow to 9,000 MT in Year 10. This CSQ combines the provisions of three separate CSQs for whey under the TPP provisions: whey used in infant formula (3,000 MT); whey mineral concentrate (4,000 MT); and whey permeate (2,000 MT). Japan agreed to improve access for U.S. skim milk powder by introducing an annual global (WTO) tender for 750 MT of skim milk powder, which would be accessible to the U.S. as well as other WTO-member exporters. This is viewed to represent a minor concession, given that the United States exported 713,000 MT of skim milk powder in 2018. Japan agreed to reduce the government-mandated mark-up on imported U.S. wheat and barley, which are controlled by state trading enterprises. Japan agreed to limit the use of safeguard measures to control surges in imports of U.S. whey, oranges, and race horses. <3.1.2.2. Quota-Specific Issues> According to the USTR, Japan has stated a commitment to "match the [agricultural] tariffs" provided to TPP-11 member countries in USJTA. While Japan's tariff schedule under the USJTA attempts to match the TPP-11 schedule, the TRQ schedule falls short of the TPP-11 schedule, potentially disadvantaging market access for some U.S. agricultural products. Under the TPP provisions, Japan had agreed to provide a rice CSQ for the United States, which was to start at 50,000 MT in Year 1 and reach 70,000 MT in Year 13. The U.S.-Japan Trade Agreement does not make provisions for a CSQ for U.S. rice, but Japan has made provisions for a CSQ for Australian rice under the TPP-11. TPP-11 additionally includes provisions for global TRQs for barley and barley products other than malt; butter; skim and other milk powder; cocoa products; evaporated and condensed milk; edible fats and oils; vegetable preparations; coffee, tea and other preparations; chocolate, candies and confectionary; and sugar. No corresponding TRQs are included in the U.S.-Japan agreement. Japan's simple average MFN tariff on all agricultural imports was 15.7% in 2018, although almost 22% of the Japanese agricultural tariff lines had MFN tariff rates greater than 15%. Many of the agricultural products subject to in-quota tariffs are subject to additional mark-ups through the state trading system, making the products more expensive to Japanese consumers. This may tend to suppress imports. For example, 29% of the amount of whey for infant formula that could have been imported under the TRQ was actually imported into Japan in 2017, and the corresponding fill rates for skim-milk powder ranged between 25% and 34%. Given that many TRQ quotas go unfilled and that over-quota tariff rates are extremely high, there is little trade beyond the set quota levels. <3.2. U.S.-Japan Digital Trade Agreement> Digital trade, a growing part of the U.S. and global economy, is an area in which the United States and Japan have had largely similar goals on addressing the lack of common trade rules and disciplines. Digital trade entails not only digital products and services delivered over the internet, but is also a means to facilitate economic activity and innovation, as companies across sectors increasingly rely on digital technologies to reach new markets, track global supply chains, and analyze big data. The USTR has referred to the U.S.-Japan Digital Trade Agreement, which parallels the proposed U.S.-Mexico-Canada Agreement (USMCA), as the "most comprehensive and high-standard trade agreement" negotiated on digital trade barriers. Provisions of the U.S.-Japan Digital Trade Agreement largely reflect the proposed USMCA, as well as related U.S. negotiating objectives that Congress established under TPA, suggesting the agreement is likely to serve as a template for future U.S. FTAs. The agreement has also been cast by the USTR as demonstrating the "continued leading role" of both nations in global rulemaking on digital trade. In this view, U.S.-Japan approaches on rules and standards could set precedents for other ongoing talks, including at the WTO on a potential e-commerce agreement, where conflicting approaches to digital and data issues by other participating members (such as China) have been raised as joint concerns. Key Provisions and Selected Comparisons Key commitments of the U.S.-Japan Digital Trade Agreement are highlighted below, with some comparisons to the latest U.S. and Japanese commitments in USMCA and TPP-11, respectively. In USMCA and TPP-11, given the crosscutting nature of digital trade and cross-border data flows, related provisions are covered in multiple FTA chapters beyond digital trade or e-commerce, including financial services, IPR, technical barriers to trade, and telecommunications. Like the USJTA, the U.S.-Japan Digital Trade Agreement includes provisions allowing for potential amendments and possible termination (Article 22). Customs duties and nondiscrimination . Commitments prohibit customs duties on products transmitted electronically and discrimination against digital products, including coverage of tax measures. Cross-border data flows and data localization . Commitments prohibit restrictions on cross-border data flows, except as necessary for "legitimate public policy objectives." It also prohibits requirements for "localization of computing facilities" (i.e., data localization) as a condition for conducting business. Financial service providers are covered under the rules on data localization, as long as financial regulators have access to information for regulatory and supervisory purposes. This approach is distinct from Japan's commitments under TPP-11, which excludes financial services, but is similar to U.S. commitments under USMCA. Consumer protection and privacy . Commitments require parties to adopt or maintain online consumer protection laws, as well as a legal framework on privacy to protect personal information of users of digital trade. The content and enforcement of these laws are left to each government's discretion, while encouraging development of mechanisms to promote interoperability between different regimes. Unlike USMCA, there is no explicit reference to take into account guidelines of relevant international bodies' privacy frameworks, such as the Asia-Pacific Economic Cooperation (APEC) forum or the Organization for Economic Co-operation and Development (OECD). However, both the United States and Japan have endorsed and participate in the APEC Cross-Border Privacy Rules (CBPR) system. Source code and technology transfer . Commitments prohibit requiring the transfer or disclosure of software source code or algorithms expressed in source code as a condition for market access, with some exceptions. By comparison, under TPP-11 algorithms are not covered. Liability for interactive computer services . Commitments limit imposing civil liability with respect to third-party content for internet platforms that depend on interaction with users, with some exclusions such as for intellectual property rights infringement. This rule reflects provisions of the U.S. Communications Decency Act, which has raised concerns for some Members of Congress and civil society organizations about inclusion in U.S. FTAs, amid ongoing debate about the provisions' merits and possible revision to the law in the future. Cybersecurity . Commitments promote collaboration on cybersecurity and use of risk-based strategies and consensus-based standards over prescriptive regulation in dealing with cybersecurity risks and events. Open government data . Commitments promote publication of and access to government data in machine-readable and open format for public usage. Cryptography . Commitments prohibit requiring the transfer or access to proprietary information, including a particular technology or production process, by manufacturers or suppliers of information and communication technology (ICT) goods that use cryptography, as a condition for market access, with some exceptions, such as for networks and devices owned, controlled, or used by government. <4. Views and Next Steps> <4.1. U.S. Views> In general, the stage one agreements have been well received by several Members of Congress and U.S. stakeholders for the expected benefits to agriculture and cross-border digital trade. At the same time, many observers also contend the deals should not be a substitute for a comprehensive agreement and view the second stage of talks as critical to U.S. interests. The U.S. Trade Advisory Committee Report to the USTR and Congress reflects a range of views from among the various committees represented. The private sector Advisory Committee for Trade Policy and Negotiations (ACTPN) expressed support for the initial deals and the "significant boost to the U.S. economy that will result from implementation," while urging immediate negotiation of a comprehensive agreement and recommending several priorities for the talks. The Intergovernmental Policy Advisory Committee (IGPAC), which is composed of representatives from state and local governments, however, argued that the agreement did not meet most negotiating objectives under TPA, due to its "narrow nature." In the view of the Labor Advisory Committee, the deal is a "lopsided agreement designed to address short-term political objectives." Various industry committees issued reports outlining priorities for future talks. Some cited what they viewed as the USTR's lack of consultation and the lack of dispute settlement provisions in the agreements as concerns. Overall, many observers agree that the USJTA is important for U.S. agriculture to regain competitiveness in the Japanese market. At the same time, some raise concerns about product exclusions and the lack of provisions on nontariff barriers that were generally covered in past U.S. FTAs. One trade policy expert cautioned against the tariff-only approach as a model for future U.S. agreements. Given this concern, U.S. businesses have strongly advocated for continued progress toward a more comprehensive agreement. Other stakeholders question whether there will be sufficient political support in both countries to make progress in future talks, especially during an election year in the United States. In particular, since the agriculture sector among countries' most sensitive markets and thus typically relegated to final stage negotiations has already secured access, some view the United States as having limited leverage to secure further concessions. Other trade experts view the agreement as failing to maximize the potential of the U.S.-Japan economic relationship, both in terms of the market access gains, which essentially had already been agreed to in TPP, but also in terms of advancing U.S.-Japan leadership on rulemaking. More broadly, some view successful next-stage talks as also being critical to "engineer an American return to the regional economic architecture." Under this outlook, reaching a second-stage comprehensive agreement with Japan could help ease the perception among many East Asian policymakers and scholars that the Trump Administration's Indo-Pacific strategy has an insufficient economic component. <4.2. Japanese Views> While Prime Minister Abe framed the agreement as a "win-win outcome" that benefits both countries, some Japanese observers have criticized the agreement as a one-sided deal benefiting the political and economic interests of the United States. In particular, critics cite the lack of U.S. market access commitments in the auto sector in exchange for Japanese agricultural concessions, as well as the lack of concrete commitment by the United States not to impose Section 232 auto tariffs, despite verbal assurances from the Trump Administration. Instead, in a joint statement, both sides indirectly alluded to the issue, committing to "refrain from taking measures against the spirit of these agreements and make efforts for an early solution to other tariff-related issues." An estimate by the Japanese government of the economic benefits of a bilateral trade deal assumes the removal of U.S. auto tariffs an approach criticized by some members of the Japanese Diet, who remain skeptical of achieving this future concession. More broadly, some analysts point to Japan conceding to bilateral talks as dimming any prospect for a possible U.S. return to TPP, a long-held Japanese goal. In others' view, the deal was favorable to Japan in achieving the primary goals of avoiding potential auto tariffs and sealing an expeditious conclusion of an agreement limited to goods Prime Minister Abe's initial characterization of the deal. Further, while Japan made concessions in agriculture, they remain limited to commitments in past Japanese trade agreements (TPP-minus in some cases). Japanese industry broadly welcomes the agreement, in particular the sectors that gain from reduced U.S. tariffs, but like U.S. industry, urge further progress. <4.3. Next Steps> Japan ratified the agreements on December 5, 2019, while the Trump Administration previously signed an executive agreement on the digital trade commitments, and is expected to issue a proclamation implementing the agreed tariff changes in December, paving the way for entry into force in January 2020. In its notification to Congress of the U.S. intent to enter into the agreements, the Administration stated that it "looks forward to continued collaboration with Congress on further negotiations with Japan to achieve a more comprehensive trade agreement." The Administration did not specify a timeline, however. The United States and Japan stated their intent to "conclude consultations within four months after the date of entry into force of the United States-Japan Trade Agreement and enter into negotiations thereafter in the areas of customs duties and other restrictions on trade, barriers to trade in services and investment, and other issues in order to promote mutually beneficial, fair, and reciprocal trade." While USTR trade negotiating objectives released at the outset of the talks in December 2018 suggested a broad range of issues beyond tariffs and digital trade are to be covered, it remains unclear what specific issues would be the subject of the next-stage talks. <5. Issues for Congress> The stage one agreements with Japan on agriculture, industrial goods, and digital trade, as well as the approach the Trump Administration has taken to negotiate them represent a significant shift in U.S. trade agreement policy. Given its constitutional authority to regulate foreign commerce, Congress may reflect on whether this shift aligns with congressional objectives. Congress may also consider the impact of the agreements on the U.S. economy, including the implications of completing (or not completing) a broader second-stage deal with Japan, and how a staged approach affects the countries' ability to achieve additional agreements. <5.1. Congressional Role in Limited Scope and Staged Agreements> The Administration's plan to implement the stage one U.S.-Japan agreements without the approval of Congress, an unprecedented move for U.S. FTA negotiations, has prompted debate among some Members over the appropriate congressional role. In a November 26, 2019, letter to the USTR some Members sought clarification from the Administration regarding its intent to implement the agreements and how Section 103(a) trade authorities under TPA allow the Administration to enter into a tariff agreement with Japan. Some analysts and Members cite uncertainties as to whether the delegated authorities also permit implementation of changes in rules of origin and quota modifications under the agreements. Some Members further suggest that future debate over potential reauthorization of TPA should consider congressional intent behind these delegated tariff authorities. At the same time, other Members have indicated that they would not object to the Administration's plan to implement the agreements with Japan without congressional approval. On procedure, questions have been raised by some as to whether the Administration has fulfilled the consultation requirements of TPA throughout the negotiations Section 103(a) includes fewer requirements with respect to tariff-only agreements. The digital trade commitments do not appear to require changes to U.S. law, but the inclusion of certain provisions has prompted some congressional debate. In the case of past U.S. FTAs, such debate would typically play out during congressional debate and formal consideration of legislation to implement the respective agreement under TPA. Key questions for Congress may include What role should Congress play in limited trade agreements, given the authorities and requirements established in TPA? Should Congress consider changes to delegated authorities in future consideration of potential TPA reauthorization? <5.2. Staged Negotiation or Comprehensive Deal> Congress set negotiating objectives for U.S. trade agreements in statute in its 2015 grant of TPA (19 U.S.C. 3802). Based on these guidelines and as required by TPA, the Trump Administration laid out 22 specific areas of focus for its bilateral negotiations with Japan. The stage one U.S.-Japan trade agreements, however, include provisions related to two of these areas: a limited reduction of tariffs on trade in goods and digital trade. The Administration has stated its intent to address the remaining issues in future negotiations, but its ability to conclude and implement such negotiations depend on the political landscape and will in both countries, making a second-phase deal an uncertain prospect. While the U.S. trade advisory committees generally support the initial-stage agreements, some, such as the services sector advisory committee, also argue that the two-stage or perhaps a multi-stage approach could make it more challenging for the United States to achieve the strongest possible overall outcomes in certain sectors. The staged approach also raises questions over the potential economic impact of the agreement. Due to the Administration's intended use of Section 103(a) proclamation authorities to enact the agreed tariff changes with Japan, an economic assessment by the U.S. International Trade Commission (USITC) will not be required for this stage one deal. The agreement may have a modest overall effect on the U.S. economy, given that it covers a small share of bilateral trade, but it could be significant for the U.S. agricultural exporters that will enjoy improved access to Japan's highly protected market. Key questions for Congress may include How do these stage one agreements with Japan affect the ability of the United States to negotiate a more comprehensive agreement in the future? Do staged trade negotiations adhere to Congress's negotiating objectives in TPA, and should Congress support this staged approach in future U.S. trade negotiations? <5.3. Section 232 Auto Tariff Threat> Congress delegated authority to the President to enact tariffs under Section 232 specifically to address possible threats to U.S. national security. President Trump, however, has stated that his use of tariff authorities have been a critical tool in getting U.S. trade partners to the negotiating table, and Japan's Foreign Minister, Toshimitsu Motegi, who negotiated the phase-one deal for Japan, highlighted the importance of avoiding Section 232 auto tariffs as a key outcome of the U.S.-Japan negotiations. The Administration has yet to publish the Commerce Department's report outlining the national security threat posed by auto imports, despite direct requests from Congress and legal requirement to do so. Some trade analysts caution that U.S. use or threat of trade barriers as negotiating leverage undermines existing global trade rules and could set a precedent used by other countries against the United States in the future. Many Members of Congress have questioned the security rationale behind the President's proposed and implemented tariff actions, and some support legislation revising Section 232 authorities. Key questions for Congress may include Does the use of Section 232 tariff authorities as leverage in broader trade and tariff negotiations represent an appropriate use of the delegated authorities? What are the potential long-term implications to U.S. and global trade policy of using the threat of tariff increases as leverage in trade liberalization negotiations? <5.4. WTO Compliance> The limited scope of the USJTA commitments (in particular, the exclusion of auto trade), has led several analysts and some Members of Congress to question the extent to which the agreement adheres to Article XXIV of the General Agreement on Tariffs and Trade (GATT) under the WTO. This provision requires regional trade agreements outside the WTO to eliminate duties and other restrictive regulations of commerce on "substantially all trade" between the parties. As discussed, U.S. market access commitments in the initial deal cover a limited share of U.S. goods imports from Japan. Congress has historically taken issue with other countries' partial scope agreements, advocating for better adherence to Article XXIV, including within TPA and other trade statutes. Some analysts suggest this concern could be mitigated if the stage one U.S.-Japan agreement were to qualify as an "interim agreement" under Article XXIV; but these agreements must include a "plan and schedule" for the formation of the free trade area within a "reasonable length of time." In practice, however, WTO members have rarely challenged other trading partners' agreements for consistency with these requirements under formal dispute settlement proceedings. Whether or not the agreement ultimately is inconsistent with the letter or spirit of WTO rules likely depends on the timeline and scope of the next-stage U.S.-Japan talks, which both sides have indicated aim to be comprehensive in scope. Key questions for Congress may include Are the stage one agreements consistent with U.S. obligations under the WTO? Does the limited scope of the agreements set precedents for other countries to negotiate other partial trade agreements that liberalize trade on a limited set of products or sectors that could potentially discriminate against the United States, as well as potentially undermine respect and adherence to the letter and spirit of WTO rules? <5.5. Comparison to TPP (and TPP-11) and Strategic Considerations> The Trump Administration's bilateral trade agreement negotiations with Japan represent an alternative to the U.S.-Japan trade agreement negotiated as part of TPP. Given the Trump Administration's decision to conclude a limited, stage one agreement, the most significant distinction with TPP (and TPP-11) at this point is that TPP covered a much broader range of commitments. For example, USJTA commits the countries to reduce or eliminate tariffs on small share of each country's overall tariff lines, whereas TPP committed both countries to eliminate tariffs on all but a limited number of agricultural products. In addition, this phase-one agreement with Japan includes one nontariff issue, digital trade, whereas TPP covered issues such as rules on technical barriers to trade, sanitary and phytosanitary measures, state-owned enterprises, labor and environmental standards, investment and intellectual property rights protections, and market access for services, among others. As discussed, whether the Administration will include such commitments in future negotiations with Japan and in what form remains to be seen. The Trump Administration's bilateral approach to negotiations with Japan also differs from the Obama Administration's and the George W. Bush Administration's multiparty approach to TPP, which may be tied to differing strategic priorities by the Administrations. For example, the Obama Administration saw the TPP as the economic component of its rebalance to Asia and a vehicle to establish rules that reflect U.S. interests and values as the regional framework for commerce, rather than allowing other countries, such as China, to set regional norms. The broad membership of TPP, arguably, was an important component of this strategy, creating an opportunity to harmonize rules across multiple trading partners, and creating a greater likelihood of attracting additional future participants. The Trump Administration, alternatively, has prioritized achieving fair and reciprocal trade, both in its objectives for the U.S.-Japan trade agreement and its broader Indo-Pacific strategy. The Administration argues that a bilateral approach to negotiations allows the United States to take full advantage of its economic heft to secure the most advantageous terms and allows for better enforceability. Key questions for Congress may include How has the U.S. withdrawal from TPP affected U.S. economic and strategic interests in Japan and the Asia-Pacific region and what is the best approach to advancing those interests moving forward in the next stage of talks with Japan? What are the costs and benefits of bilateral versus regional or multiparty approaches to U.S. trade agreement negotiations? Should the United States consider joining TPP-11?

On October 7, 2019, after six months of formal negotiations, the United States and Japan signed two agreements intended to liberalize bilateral trade. One, the U.S.-Japan Trade Agreement (USJTA), provides for limited tariff reductions and quota expansions to improve market access. The other, the U.S.-Japan Digital Trade Agreement, includes commitments pertaining to digital aspects of international commerce, such as cross-border data flows. These agreements constitute what the Trump and Abe Administrations envision as "stage one" of a broader trade liberalization negotiation, which the two leaders first announced in September 2018. The two sides have stated their intent to continue negotiations on a more comprehensive deal after these agreements enter into force. Congress has an interest in U.S.-Japan trade agreement negotiations given congressional authority to regulate foreign commerce and the agreements' potential effects on the U.S. economy and constituents. USJTA is to reduce or eliminate tariffs on agriculture and some industrial goods, covering approximately $14.4 billion ($7.2 billion each of U.S. imports and exports) or 5% of bilateral trade. The United States is to reduce or eliminate tariffs on a small number (241) of mostly industrial goods, while Japan is to reduce or eliminate tariffs on roughly 600 agricultural tariff lines and expand preferential tariff-rate quotas for a limited number of U.S. products. The United States framed the digital trade commitments as "gold standard," with commitments on nondiscriminatory treatment of digital products, and prohibition of data localization barriers and restrictions on cross-border data flows, among other provisions. The stage one agreement excludes most other goods from tariff liberalization and does not cover market access for services, rules beyond digital trade, or nontariff barriers. Notably, the agreement does not cover trade in autos, an industry accounting for one-third of U.S. imports from Japan. Japan's decision to participate in bilateral talks came after President Donald Trump threatened to impose additional auto tariffs on Japan, based on national security concerns. Prior to the Trump Administration, the United States negotiated free trade agreements (FTAs) that removed virtually all tariffs between the parties and covered a broad range of trade-related rules and disciplines in one comprehensive negotiation, driven in significant part by congressionally mandated U.S. negotiating objectives. Nontariff issues often require implementing legislation by Congress to take effect, and Congress has typically considered implementing legislation for past U.S. FTAs through expedited procedures under Trade Promotion Authority (TPA). The Trump Administration, however, plans to put the stage one agreements with Japan into effect without action by Congress. The Administration plans to use delegated tariff authorities in TPA to proclaim the USJTA market access provisions, while the U.S.-Japan Digital Trade Agreement does not appear to require changes to U.S. law and is being treated as an Executive Agreement. Japan's Diet (the national legislature) ratified the pact in December 2019. The Administration expects the agreements to take effect in early 2020, with negotiations on the second stage of commitments to begin within four months. The Trump Administration's interest in bilateral trade negotiations is tied to its withdrawal from the Trans-Pacific Partnership (TPP) agreement in 2017, which included the United States and Japan, along with 10 other Asia-Pacific countries. In general, TPP was far more comprehensive than the stage one U.S.-Japan agreements, as it would have eliminated most tariffs among the parties and created rules and disciplines on a number of trade-related issues, such as intellectual property rights and services. Japan's FTAs with other countries, including the TPP-11, which entered into force among the remaining TPP members in 2018, and an FTA with the European Union (EU), which took effect in 2019, have led to growing concerns among U.S. industry and many in Congress that U.S. exporters face certain disadvantages in the Japanese market. The USJTA will largely place U.S. agricultural exporters on par with Japan's other FTA partners with regard to tariffs, but unlike the TPP and its successor, the agreement excludes some agricultural products, such as rice and barley. It also does not include rules, such as on technical barriers to trade (TBT) and sanitary and phytosanitary measures, and therefore will not address various nontariff barriers U.S. agriculture and other industries face in Japan. Thus, U.S. agricultural exporters may continue to be at some disadvantage in the Japanese market compared to those from TPP countries or the EU. In general, Congress and U.S. stakeholders support the agreements due to the expected benefits to U.S. agriculture and cross-border digital trade. At the same time, the overall economic effects of the agreement are likely to be modest due to the limited scope of the agreement. Many observers contend the deal should not be a substitute for a comprehensive trade agreement and view the second stage of talks as critical to U.S. interests. If more comprehensive negotiations begin in 2020, they may become intertwined with other bilateral issues, such as concerns among many Japanese officials that the United States has a waning interest in maintaining its current influence in East Asia, and upcoming negotiations over the renewal of the U.S.-Japan agreement on how to share the costs of basing U.S. military troops in Japan. Some Members of Congress have also raised questions over whether the staged approach to the U.S.-Japan negotiations is in the best interest of the United States, and what it may mean for future U.S. trade agreement negotiations. There are also questions about whether the agreements adhere to multilateral trade rules under the World Trade Organization (WTO), given their limited scope, and whether the Administration has adequately consulted with Congress in its negotiation and implementation of the new agreements.

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<1. Introduction> The U.S. government's Visa Waiver Program (VWP) allows eligible nationals from 39 countries to enter the United States for stays of fewer than 90 days for tourism or business purposes without applying for a visa from a U.S. embassy or consulate (see Figure 1 ). Originally established in 1986 as a pilot program, the VWP was made permanent in 2000. VWP countries now account for the largest group of visitors to the United States other than travelers from neighboring Canada and Mexico. In FY2018, 22.8 million VWP visitors were admitted to the United States, the largest number of people ever to enter under the program in a single year, up almost 30% from 17.6 million in FY2008. Countries that want to join the VWP must meet strict criteria, including signing on to information-sharing agreements, issuing tamper-proof travel documents, and upholding security standards at their borders. Travelers from VWP countries are not automatically guaranteed admission into the United States. Every VWP traveler must obtain preclearance to board a flight or ship to the United States through the Electronic System for Travel Authorization (ESTA). This web-based application checks the traveler's information against relevant law enforcement and security databases and determines eligibility for travel under the VWP. In addition, as with all international travelers, Customs and Border Protection (CBP) officers may deny entry to a VWP traveler upon arrival. This report offers an overview of the VWP. It discusses the potential effects on national security and considers the likely economic effects on the U.S. travel and tourism industries if more countries were to be added to the program. The report also reviews legislative proposals in the 116 th Congress related to the expansion and implementation of the VWP, and legislation targeting U.S. travel promotion namely the Brand USA program, which is partially funded by ESTA. <2. Visa Waiver Program Designation> The Department of Homeland Security (DHS), in consultation with the Department of State (DOS), has the authority to designate participants into the VWP. The Secretary of State must formally make the nomination; DHS then conducts a final review and certifies that the aspiring participant meets all the requirements. To be eligible, a country must comply with an extensive list of conditions specified in several different laws. It must offer reciprocal privileges to U.S. citizens; have had a nonimmigrant visitor visa refusal rate of less than 3% for the previous year or a lower average percentage over the previous two fiscal years; issue electronic, machine-readable passports that contain a biometric identifier (known as e-passports ); certify that it issues tamper-resistant, machine-readable visa documents that incorporate biometric identifiers, which are verifiable at the country's port of entry; certify that it has in place mechanisms to validate machine-readable passports and e-passports at each port of entry; enter into an agreement with the United States to report or make available through INTERPOL information about the theft or loss of passports no later than 24 hours after a theft or loss is reported to the VWP country; certify, to the maximum extent allowed under its laws, that it is screening each foreign national who is admitted or departs, using relevant INTERPOL databases and notices, or other means designated by the Secretary of Homeland Security (this requirement only applies to countries that have an international airport); accept the repatriation of any citizen, former citizen, or national against whom a final order of removal from the United States is issued no later than three weeks after the order is issued; enter into and fully implement an agreement with the United States to share information regarding whether a national traveling to the United States represents a threat to U.S. security or welfare; and be determined, by the Secretary of Homeland Security, in consultation with the Secretary of State, not to compromise the law enforcement or security interests of the United States by its inclusion in the program. As of March 2020, 31 European countries, 7 Asia-Pacific countries, and 1 country in South America are in the program (see Figure 1 ). <2.1. Nonimmigrant Visitor Visa Refusal Rate Versus Overstay Rate> One of the VWP criteria the nonimmigrant, or temporary, visitor visa refusal rate has been the subject of scrutiny by Congress. This rate represents the proportion of individuals whose applications for tourist or business visas have been rejected by U.S. consular officials in their home countries. When the VWP was conceived, some legislators argued that the number of nonimmigrants who overstay the terms of their entry under the VWP would be a better standard for future program participation, as the nonimmigrant visitor visa refusal rate is not based on the actual behavior of nonimmigrants. However, DHS is not able to calculate overstay rates accurately; because it relies on information from passenger manifests, persons entering by air or sea but exiting at a land port of entry may be mischaracterized as overstays. Advocates of expanding the VWP contend that the 3% nonimmigrant visitor visa refusal rate criterion, which has been a significant barrier to entry into the VWP, should be replaced with the overstay rate, or the refusal rate threshold should be raised and used in conjunction with the overstay rate. Some advocates have called for the return of the nonimmigrant visitor visa refusal rate waiver, which was available from October 2008 to July 2009. The waiver allowed DHS to admit into the VWP countries that had met all of the security requirements if they had a low overstay rate and a declining nonimmigrant visitor visa refusal rate that was below 10% in the previous fiscal year. Due to this waiver, eight countries that otherwise would not have qualified for the VWP were added in 2008. For current aspiring VWP countries, a complicating factor is that the Secretary of Homeland Security's authority to waive the nonimmigrant visitor visa refusal rate is suspended until the airline passenger exit system is able to match an alien's biometric information with relevant watchlists and manifest information . In FY2018, all the VWP countries had DHS-estimated overstay rates of less than 0.5% (Poland, which had not yet been admitted to the VWP, had a DHS-estimated overstay rate of less than 1%). The worldwide DHS-estimated overstay rate for non-VWP countries in FY2018 was 2%. Figure 2 shows the most recently available nonimmigrant visitor visa refusal rates and the DHS-estimated overstay rates for selected aspiring VWP countries. All of these countries (except Brazil) had a nonimmigrant visitor visa refusal rate of less than 10% in FY2019, and all of them had a DHS-estimated overstay rate of less than 2% in FY2018. <3. Adding Countries to VWP> Since the establishment of the VWP, the number of participating countries has been increased several times and two countries have been removed. The United Kingdom was the first country to be admitted, in July 1988, followed by Japan in December of the same year (see Figure 3 ). Six countries were added in 1989. An additional 13 countries were admitted in 1991, and another eight countries joined from 1993 to 1999. There was a gap until 2008, when another eight countries were admitted. In the past 10 years, Chile, Greece, Taiwan, and, most recently, Poland have been added. Adding countries to the VWP is done through bilateral negotiations, and membership is often perceived as evidence of close ties with the United States. Argentina and Uruguay are the only two countries that have been removed from the program, in 2002 and 2003, respectively. <3.1. Aspiring VWP Countries> Since 2010, DHS has admitted four countries into the VWP ( Figure 3 ). Many other countries would like to join the program to make it easier for their nationals to travel to the United States. In 2005, the George W. Bush Administration began providing countries interested in joining the VWP with road maps to aid them in meeting the program's criteria. The original 13 aspiring countries were Bulgaria, Cyprus, Czech Republic, Estonia, Greece, Hungary, South Korea, Latvia, Lithuania, Malta, Poland, Romania, and Slovakia. Of these, 10 have since been admitted. This report examines a selected list of aspiring VWP countries: Argentina, Brazil, Bulgaria, Croatia, Cyprus, Israel, Romania, and Uruguay (see Figure 1 ). Four currently aspiring countries Bulgaria, Croatia, Cyprus, and Romania are in the European Union (EU). They are the only EU countries not in the VWP. U.S. citizens are permitted to travel to all the EU member states for short-term business or tourism purposes without a visa, whereas citizens of the four EU countries outside the VWP need a visa to travel to the United States. The European Commission has pointed out that the United States is the only country on the EU's visa-free list that does not fully reciprocate, adding that "visa reciprocity is a fundamental principle of the European Union's common visa policy." The European Union considered suspending its visa waiver for U.S. nationals in 2017, but decided not to do so. Israel has also been vocal about wanting to enter the VWP, but it has faced challenges meeting certain criteria. For instance, Israel's Biometric Database Law prohibits sharing fingerprint data with foreign authorities, though reportedly the United States and Israel came to an agreement to share data for those with a criminal background. Another hurdle for Israel is that to become a VWP member, foreign countries must treat all American visa applicants equally; however, Israel has been accused of discriminating against Arab Americans. Moreover, Israel has yet to meet the 3% nonimmigrant visitor visa refusal rate criterion; its rate was 5.33% in FY2019. Brazil is often included in reports about aspiring VWP countries. It has recently made changes to its visa policy for U.S. citizens. In June 2019, Brazil introduced visa-free entry for U.S. citizens and citizens of three other countries, reportedly to stimulate tourism. <3.2. Countries Removed from the VWP> A country can be terminated from the program if the Secretary of Homeland Security, in consultation with the Secretary of State, determines that a country's participation in the VWP undermines U.S. law enforcement, including immigration enforcement. Argentina and Uruguay are former members of the VWP. Argentina joined in 1996, but the United States removed it in 2002 after poor economic conditions in the country led to an increase in the number of Argentine nationals entering the United States without visas and remaining illegally past the 90-day period of admission. Uruguay joined in 1999, but it was removed in 2003 because a recession led to an increasing number of Uruguayan citizens entering the United States under the VWP to live and work illegally. <4. National Security> National security is a key goal of the VWP. Over the years, Congress has continued to add security criteria for VWP participation. One of the VWP's most significant security additions was ESTA, which was put in place in 2009 and is administered by DHS. In addition, several laws require VWP partner countries to share information with the United States and to set standards for travel documentation. Nevertheless, debate remains as to whether the VWP sufficiently vets individual travelers prior to arrival at a U.S. port of entry. <4.1. Electronic System for Travel Authorization (ESTA)> Before traveling to the United States, a VWP traveler must submit biographical information through DHS's ESTA. This web-based application checks the traveler's information against relevant law enforcement and security databases and determines eligibility for travel under the VWP. ESTA alerts the foreign national whether he or she has been approved to travel. If not approved, the individual must obtain a visa prior to coming to the United States. This normally involves making an appointment for an interview with a U.S. consular official, a process that could delay the individual's departure for the United States. ESTA became fully operational for all VWP visitors traveling to the United States by airplane or cruise ship on January 12, 2009. Prior to the implementation of ESTA, the first time a foreign national traveling under the VWP to the United States was screened was after checking in for a flight to the United States at a foreign airport. Under the current system, at the time a foreign national submits an ESTA application (at least 72 hours before travel), he or she is screened against a number of security databases, including the Terrorist Screening Database; TECS (not an acronym), a system used by U.S. Customs and Border Protection officers to screen arriving travelers to the United States; the Automated Targeting System; and INTERPOL's Lost and Stolen Passport database. Appendix B offers an explanation of these systems and databases. An ESTA authorization is generally valid for multiple entries over a period of two years. Throughout this period, the ESTA system continually vets approved individuals' information against these databases. DHS can immediately revoke an ESTA approval if new derogatory information is discovered. In addition, the validity period can be shortened at any time for any reason. ESTA only screens against biographical security databases; VWP travelers do not submit biometric information (e.g., fingerprints and photographs) until they reach a U.S. port of entry, at which point their biometrics are run through multiple security databases. Notably, a determination under ESTA that a foreign national is eligible to travel to the United States does not constitute a determination that the individual is admissible. The foreign national may still be deemed inadmissible and denied entry by CBP inspectors upon arrival at a U.S. port of entry. Travelers who use ESTA pay a $14 fee, which was instituted in September 2010. The fee includes $4 to cover the costs of administering ESTA and $10 for the travel promotion fee established by Congress in the Travel Promotion Act of 2009. In December 2019, the Further Consolidated Appropriations Act of 2020 directed that the ESTA fee be raised to $21 (see section on " The VWP and U.S. Travel Promotion Efforts "). This fee increase has not been put into effect. <4.2. Security Debate> Although there tends to be agreement that the VWP benefits the U.S. economy by facilitating tourism ( see section on " U.S. Travel and Tourism Economy ") , disagreement exists about VWP's effect on national security. The VWP contains provisions that affect national security at two levels: country-to-country security agreements and individual traveler security screening. <4.2.1. Country-to-Country Security Agreements> To participate in the VWP, countries must agree to share extensive information with the United States about lost passports, known and suspected terrorists, and serious criminals. Since 2015, the Secretary of Homeland Security had been authorized to immediately suspend a country's participation in the VWP if the country fails to provide information related to security threats. The VWP also sets standards for participating foreign countries' passports, visas, and border security. As previously mentioned, VWP countries must issue biometric e-passports and tamper-resistant, machine-readable visa documents. Furthermore, since December 2017, DHS requires VWP countries to use U.S. counterterrorism information to screen travelers crossing their borders and to implement certain aviation security measures. Moreover, foreign countries' participation in the VWP allows the United States to monitor their border operations. Since 2002, DHS is statutorily obligated to assess and report on VWP countries' compliance with VWP criteria every two years. Thus, to remain in the program participating countries are subject to regular audits of their security operations, which include "rigorous and thorough inspection of airports, seaports, land borders, and passport production/issuance facilities as well as continuous monitoring." According to DHS, "no other program enables the U.S. Government to conduct such broad and consequential assessments of foreign partners' border security operations." The possibility of joining the VWP is an incentive for aspiring VWP countries to share such information and improve their border security. According to DHS, "many countries not in the VWP complete program requirements in the hope of joining the program." For participating countries that wish to remain in the VWP program, DHS contends that "VWP requirements provide our allies with the impetus to implement security measures that can sometimes be politically challenging for them, like amending legislation and updating their data privacy frameworks." <4.2.2. Individual VWP Traveler Screening> The vetting of VWP travelers contains some features absent from the traditional screening required to receive a nonimmigrant visitor visa for business and tourist travel. As previously mentioned, ESTA screens the data of those authorized for VWP travel on a daily basis throughout ESTA's two-year validity period; new derogatory information could result in a denial of ESTA authorization. In contrast, many nonimmigrant visitor visas are valid for 10 years and are not continuously vetted. Moreover, travelers entering under the VWP must present e-passports, which tend to be more difficult to alter than other types of passports. VWP travelers do not undergo the same screening required of travelers from most countries to receive a nonimmigrant visitor visa, which typically includes a personal interview with a U.S. consular officer. As such, VWP travelers' first face-to-face encounter with U.S. officials could be at a port of entry. Additionally, ESTA is a name-based system and cannot be used to run checks against databases that use biometrics, such as the Automated Biometric Identification System and Next Generation Identification. However, when VWP travelers enter the United States, CBP takes their fingerprints and photographs and checks them against these biometric systems. Finally, visitor visa applicants are required to submit social media identifiers, but this is optional for VWP travelers. Another concern, following a number of high-profile terrorist attacks in Europe in recent years perpetrated mainly by European citizens, has been the possible threat posed by nationals from VWP countries who are aligned with the Islamic State. A focus had been on radicalized citizens of VWP countries who could have fought in the Middle East for the Islamic State or other terrorist groups. Conceivably, these individuals may have been able to travel to the United States under the VWP if there was no derogatory information about them in U.S. biographic databases. In response, Congress passed the Visa Waiver Program Improvement and Terrorist Travel Prevention Act, enacted as part of the FY2016 Consolidated Appropriations Act. This makes citizens of VWP countries ineligible for admission to the United States under the VWP if they are dual nationals of the Democratic People's Republic of Korea, Iran, Iraq, Sudan, or Syria or had been present in any of those countries, or in Libya, Somalia, or Yemen, at any time on or after March 1, 2011 (with limited exceptions). These individuals can still apply for a visa to travel to the United States. Another point of contention is whether the VWP threatens the United States' immigration enforcement interests. As of December 2017, VWP countries that have an overstay rate of over 2% must initiate a public information campaign to educate their citizens about the conditions for admission to the United States. If this does not reduce overstay violations, a country could be removed from the program, as occurred with Argentina and Uruguay in 2002 and 2003, respectively. <5. U.S. Travel and Tourism Economy> A principal objective of the VWP is to boost the U.S. travel and tourism sectors by encouraging travel from high-volume and low-risk countries to the United States. The number of international visitors arriving in the United States totaled 79.3 million in 2019, down slightly from a record high of 79.7 million in 2018. Because of the sharp decline in international travel in the wake of the COVID-19 pandemic, many international flights have been cancelled and visitor volume is likely to fall sharply in 2020. In 2018, the travel and tourism sectors accounted for 2.9% of U.S. gross domestic product, a larger share than many other industries, including agriculture, mining, or utilities, and they directly and indirectly employed 9.2 million workers. Every dollar international visitors spend in the United States counts as an export. Collectively, foreign visitors spent about $256 billion in 2018 on domestic passenger fares aboard U.S. airlines and on travel-related goods and services, which makes tourism the United States' single-largest services sector export. Every year since 1989, the U.S. travel and tourism industries have posted a trade surplus, which in 2018 was $69.6 billion. Travel- and tourism-related exports accounted for 31% of all U.S. services exports and 10% of total exports in 2018. Each overseas visitor spends, on average, about $4,200 per trip in the United States on travel activities such as shopping, lodging, dining, and sightseeing. According to the Bureau of Economic Analysis (BEA), international travelers account for a disproportionate amount of all travel and tourism spending in the United States. One reason for this is that international visitors have relatively longer stays than domestic visitors, spending, on average, 18 nights in the United States. Travelers from VWP countries are among the highest in spending and visitor volume (see Table 1 ). However, an increasing number of overseas visitors come from non-VWP countries, notably China, Venezuela, Brazil, and India. Combined, these four non-VWP countries accounted for nearly 6.7 million visitors to the United States in 2019, down 4% from a year earlier. Travelers from these countries spent more than $5,000 on average per trip during their visits to the United States, with visitors from China leading in country-level travel spending. Spending in the United States by visitors from large source markets has risen substantially in recent years, up 45% from China and 78% from India since 2013. <5.1. Global Competitiveness of the U.S. Travel and Tourism Sectors> Although the number of foreign visitors to the United States has continued to rise, the U.S. share of total global tourism arrivals declined from 6.4% in 2015 to 5.7% in 2017, the most recent year for which statistics are available. One reason for this declining market share is that it is now much easier for travelers to visit many parts of the world, including Asia and Africa, compared to a few years ago. In 2012, the Obama Administration established a Task Force on Travel and Competitiveness, which set a goal of welcoming 100 million international visitors in 2021. Among other things, the task force recommended expediting visa processing for tourists from certain emerging economies, such as China and Brazil, and adding countries to the VWP in order to encourage tourism. Before the advent of the global pandemic (COVID-19) in 2020, the U.S. government had forecasted that the volume of tourist arrivals would not meet the task force's goal, with the number of total international visitors to the United States expected to reach close to 82.9 million in 2021. It is too early to know what the repercussions of shutting down a significant share of overseas travel to the United States may mean for the U.S. travel and tourism industries. Current indications suggest that the stated goal in overseas travelers to the United States is beyond reach by 2021 as potential visitors modify their travel plans. <5.2. Economic Impact of Visitors from VWP Countries> Determining whether the VWP has directly led to increased travel to the United States is not straightforward because many factors affect international travel, including general economic conditions, currency exchange rates, and even the nature of bilateral relations. Nevertheless, the VWP could be a factor that has encouraged more visits to the United State because it arguably reduces uncertainty, inconvenience, and costs associated with a visa application. Of the 37 nations in the VWP as of 2012, all but 10 recorded an increase in the volume of tourists and business visitors to the United States from FY2013 to FY2018. Three-fourths of the top 20 countries by number of VWP visitors recorded double-digit growth rates in VWP admissions over this period, including Taiwan, South Korea, Spain, and New Zealand, although the annual change for VWP countries has been uneven. Germany, Austria, Switzerland, and Japan are among the 20 VWP countries that posted drops in U.S. VWP admissions between FY2013 and FY2018 (see Table 2 ). <5.3. Economic Impact of Adding New Countries to the VWP> U.S. Travel, an advocacy group for the travel industry, has produced several analyses of the effects of adding countries to the VWP. All of the organization's reports conclude that adding new countries to the program would yield positive results. For example, in a 2014 report U.S. Travel estimated that if Brazil, Bulgaria, Croatia, Israel, Poland, Romania, and Uruguay were included in the program, annual visitation from those countries would increase by more than 500,000, adding $5.3 billion per year to the U.S. economy and supporting 31,600 additional jobs in the United States. Likewise, an economic analysis of U.S. Department of Commerce data on travel and tourism from 1980 to 2013 found that the VWP had a "meaningful impact driving increases in U.S. tourist volumes." In a 2019 report, U.S. Travel predicted that over the first three years of Poland's participation in the VWP, travel spending by Polish visitors to the United States would increase by $312 million, the number of Polish arrivals would rise by 97,000, and visitors from Poland would support 4,200 American jobs. Visitors from the four non-VWP EU countries (Bulgaria, Croatia, Cyprus, and Romania), who currently enter the United States on nonimmigrant visitor visas, accounted for approximately 1% of total EU visitor spending in the United States in 2018 (approximately $580 million). This seems to suggest that the overall economic effect of adding these four countries to the VWP would likely be relatively small. According to an estimate by U.S. Travel, the number of arrivals in the United States from these countries would increase by nearly 73,000 visitors at the end of the first three years after joining the VWP. In a separate report, U.S. Travel projected that if Romania were to become a VWP country, annual arrivals from the country would increase by 38,000 and bring $128 million in additional travel spending to the United States. Both reports were prepared before the COVID-19 pandemic interrupted international travel in 2020. According to figures from the Department of Commerce spending by Israeli visitors in 2018 in the United States on passenger fares and travel-related goods and services was nearly $1.8 billion. U.S. Travel estimated in 2019 that if Israel were admitted to the VWP, an additional 450,200 Israeli travelers would visit the United States over a three-year period, generating $1.2 billion in travel spending. The U.S. travel and tourism industries support expanding the VWP to other countries, especially populous countries such as Brazil. Brazil was the fifth-largest tourism source market for the United States, with 2.1 million Brazilians visiting in 2018. As shown in Table 1 , average spending per Brazilian visitor to the United States was $5,200 in 2018, among the highest of all source countries. The number of visitors from Brazil is projected to reach 2.6 million by 2024 even if Brazil is not admitted to the VWP. In November 2019, the United States announced that Brazil will soon join the Global Entry program, which will reduce waiting time for approved Brazilian visitors arriving at U.S. airport immigration checkpoints. <5.4. The VWP and U.S. Travel Promotion Efforts> The VWP is closely related to the promotion of foreign tourism to the United States. The United States no longer has a central agency to promote travel to it; the National Travel and Tourism Office (NTTO), within the International Trade Administration of the U.S. Department of Commerce, mainly provides official tourism statistics. Travel promotion is the responsibility of Brand USA (formally known as the Corporation for Travel Promotion), a nonprofit public-private entity that also is charged with communicating U.S. visa and entry policies to overseas visitors. Brand USA was established under the Travel Promotion Act of 2009 ( P.L. 111-145 ) and began operations in May 2011. In addition to private funding, since 2010 Brand USA has received $10 of the $14 fee paid by each prospective visitor from a VWP country who requests approval to travel to the United States through ESTA. In 2019, Congress approved raising the ESTA fee from $14 to $21, while reducing the amount available to Brand USA to $7 per traveler. Of the remainder, $4 will continue to go to CBP to cover the costs of administering ESTA, and $10 will be directed to the U.S. Treasury for the general fund. The effective date of the new ESTA fee has not yet been announced. Brand USA is not without controversy. The Trump Administration's FY2021 budget called for ending the federal grant that matches the private sector contributions to Brand USA and making the revenue available to the U.S. Treasury to reduce the federal deficit. Brand USA remains controversial among other travel and tourism stakeholders too, with some critics asserting that promotion of tourism should be left to the private sector. For example, Airlines for America, an airline industry group representing U.S. carriers, opposed Brand USA's reauthorization, asserting that ESTA funds would be better spent by CBP on border security, vetting travelers and refugees, and modernizing entry and exit processes. In another effort to promote travel and tourism, the United States has indicated that it is considering rejoining the United Nations' World Tourism Organization (UNWTO), which was established in 1975 to promote tourism worldwide. The United States was one of its founding members, but withdrew in 1996 after Congress stopped funding the United States Travel and Tourism Administration. In June 2019, the Trump Administration announced that the United States may rejoin the UNWTO. The announcement met with some criticism, and the Administration has subsequently taken no action. Other countries with large travel and tourism sectors that are not members of the UNWTO include the United Kingdom, Canada, and Australia. <6. Legislation in the 116th Congress> Proposals introduced in the 116 th Congress would give DHS greater flexibility to admit countries into the VWP that do not meet the criteria discussed above. Representative Mike Quigley introduced the Jobs Originated through Launching Travel (JOLT) Act ( H.R. 2187 ) , which would reinstate DHS's authority to grant a waiver for the nonimmigrant visitor visa refusal rate. That bill would also change the name of the VWP to Secure Travel Partnership. H.R. 1996 , also introduced by Representative Quigley, would solely rename the VWP to Secure Travel Partnership. Representative Dan Lipinski introduced the Allied Nations Travel Modernization Act ( H.R. 2946 ), which would allow countries to be designated into the VWP if, instead of a low nonimmigrant visitor visa refusal rate, they have a low visa overstay rate and agree to spend 2% of their gross domestic product on defense; according to the sponsor, the bill was drafted "to create an alternative pathway into the program for NATO nations like Poland." As noted above, Poland was recently designated into the VWP. In previous Congresses, numerous bills have been introduced to designate Israel and Hong Kong into the VWP. Senator John Cornyn introduced the Humanitarian Upgrades to Manage and Assist our Nation's Enforcement (HUMANE) Act of 2019 ( S. 1303 ); among other provisions, it seeks to deter VWP overstays by amending the Immigration and Nationality Act's terms and conditions of admission for VWP travelers, the VWP waiver of rights, and the detention and repatriation of visa waiver violators. The 116 th Congress also addressed the spending of ESTA funds. Senator Mike Enzi introduced the Responsibly Enhancing America's Landscapes Act ( S. 2783 ), which would establish the National Park Service Legacy Restoration Fund to help with the backlog of maintenance projects in national parks. This fund would be paid for by increasing the ESTA fee by $16, along with an increase in nonimmigrant visitor visa fees by $25 and a park fee increase of $5. The Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ), which passed in December 2019, extended the authority for Brand USA to receive fees from the VWP through the end of September 2027 and raised the ESTA fee (as described in " The VWP and U.S. Travel Promotion Efforts " section above). The private sector still must provide at least $100 million per year in in-kind contributions and cash to the Brand USA program in order for it to receive these federal funds. Appendix A. Temporary Visitors to the United States for Business or Pleasure from Selected Aspiring VWP Countries Appendix B. Selected Immigration Inspections Databases and Systems

The Visa Waiver Program (VWP), which allows citizens of certain countries to visit the United States for up to three months without a visa, has two explicit missions: to enhance national security and to boost the U.S. travel and tourism sectors. On November 8, 2019, the United States designated Poland into the VWP, bringing the number of participating countries to 39. A concern for Congress is whether the VWP exposes the United States to security threats, despite implementation of strict security requirements over recent years. At the same time, because of longstanding congressional interest in promoting the U.S. travel and tourism sectors, many lawmakers support adding more countries to the VWP. A key goal of the VWP is to improve standards for aviation security, travel documents, and law enforcement in countries around the world. To qualify for the VWP, countries must issue electronic passports, report information on all lost and stolen passports to the United States through the International Criminal Police Organization (INTERPOL), and share information on travelers who may pose a terrorist or criminal threat. Every VWP traveler must obtain preclearance to board a flight to the United States through the Electronic System for Travel Authorization (ESTA). Supporters of the VWP see admission into the program as an incentive for foreign countries to increase their security infrastructure and information sharing with the United States. A competing view is that despite security improvements following the 2015 terrorist attacks in Europe, such as screening of passengers entering under the VWP based on past travel to a country known as a terrorist sanctuary, the program remains a national security vulnerability. Another objective of the VWP is to facilitate and encourage foreign business and leisure travel from high-volume and low-risk countries to the United States. In FY2018, 22.8 million nonimmigrant visitors—constituting nearly one-third of all visitor admissions to the United States—arrived through the VWP. Figures from U.S. Travel, the industry group representing travel and tourism organizations, show that nationals from VWP countries generated an estimated $190 billion in economic activity and supported close to 1 million jobs in the United States in 2017. In addition, the U.S. government's National Travel and Tourism Office (NTTO) reports that a record 80 million international travelers visited the United States in 2018, with the number falling slightly in 2019. The number of foreign visitor arrivals in 2019 indicated that the United States would likely fall short of the goal set by the federal government's travel and tourism strategy of attracting 100 million visitors annually by the end of 2021. The COVID-19 pandemic has sharply reduced foreign tourism in 2020 as countries have discouraged international travel and required arriving passengers to quarantine themselves for extended periods, probably putting the 2021 goal out of reach. Nonetheless, advocates for the U.S. travel and tourism industries argue that adding more countries to the VWP would further promote tourism, trade, and commerce by increasing the number of overseas visitors traveling to the United States. Activity in the 116 th Congress related to the VWP seeks to expand the number of countries by changing the qualification criteria or designating specific countries. Other bills would rename the VWP to "Secure Travel Partnership" to reflect one of its main goals of securing U.S. borders. Legislation in the 116 th Congress also addresses the ESTA fee paid by VWP applicants. In December 2019, Congress authorized the continued use of the ESTA fee to partially fund Brand USA, a national tourism promotion program, through September 30, 2027. Congress also raised the ESTA fee from $14 to $21 (Division I, Title 8 of P.L. 116-94 ). The effective date of the new ESTA fee has not yet been announced.

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crs_R45767_0

<1. Introduction> According to a 2014 study conducted by the National Center for Education Statistics (NCES) within the U.S. Department of Education (ED), 53% of public elementary and secondary schools need to spend money on repairs, renovations, and modernizations to put their onsite buildings in good overall condition. The study estimated that the nationwide spending necessary to reach this standard would be approximately $197 billion, or about $4.5 million per school that needs improvements. The 2014 study was the first by NCES to estimate such costs since a 2000 report and is the most recent available. As there is no ongoing federal data collection on the physical condition of schools, it is difficult to assess the current state of the nation's school facilities and the need for infrastructure investment. While the construction, renovation, repair, and maintenance of public school facilities have primarily and typically been the responsibility of state and local governments, the federal government has provided some funding for construction and renovation for specific purposes. This report provides a description of and background for selected provisions of the Rebuild America's Schools Act of 2019 ( H.R. 865 / S. 266 ), which was ordered to be reported by the House Committee on Education and Labor on February 26, 2019. H.R. 865 proposes to authorize $70 billion in grants and facilitate $30 billion in school infrastructure tax credit bonds to be used toward the construction and repair of public elementary and secondary school facilities. Grant funds and school infrastructure bond limits would be allocated to states proportionally based on their prior-year local educational agency (LEA) grant allocations under Title I-A of the Elementary and Secondary Education Act (ESEA). Additional funds would also be authorized for Impact Aid construction payments authorized under Section 7007 of the ESEA for FY2020 through FY2023. <2. Background> Funding public schools has traditionally been primarily the responsibility of state and local governments. In school year 2015-2016, for instance, public elementary and secondary schools in the United States collectively received about 47% of their revenue from state governments and about 45% from local governments. Of the local revenue, the majority approximately 81% was derived from property taxes. While different states and LEAs have access to various other funding streams and mechanisms to finance school construction, a common practice to raise funds for this purpose is to issue a general obligation bond (backed by the credit of the state or local government) and repay the debt over time with revenue from sources such as property taxes. Nationwide, public schools spent approximately $48 billion on facilities acquisition and construction in the 2015-2016 school year. While state and local governments typically provide the majority of support for facilities-related expenditures in public K-12 schools, the federal government also provides some direct and indirect support for school infrastructure. Federal direct support is provided through loans and grants to K-12 schools with specific needs or serving certain populations of students. For example, there are school infrastructure grant programs respectively for schools with high populations of students with disabilities or students who are Alaska Natives, Native Hawaiians, American Indians, or children of military parents. Funding is also available to schools affected by natural disasters or located in rural areas. Additionally, there are facilities financing assistance programs to encourage the development of charter schools. Although ED administers several of the grant programs funding facilities at elementary and secondary schools, other agencies, such as the Department of the Interior and the Department of Defense, also administer programs. Aside from the targeted efforts, a one-time appropriation of $1.2 billion was made under the Consolidated Appropriations Act for FY2001 ( P.L. 106-554 ) for emergency school renovation and repair activities, as well as activities under Part B of the Individuals with Disabilities Education Act and technology activities. Most recently, Congress provided a one-time appropriation in 2009, as part of the response to the Great Recession, that could be used for renovation and construction, among other purposes. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) authorized a $54 billion State Fiscal Stabilization Fund (SFSF). States were required to use at least 81.8% of their share of the SFSF to restore support of public elementary, secondary, and postsecondary schools, and, as applicable, early childhood education programs and services. Among the allowable uses of restoration funds were modernization, renovation, or repair of public school facilities. States were required to use the remaining 18.2% of their share of the SFSF for education, public safety, and other government services, which included modernization, renovation, or repair of public school and public or private college facilities, depending on the criteria that the state's governor used to allocate the funds. ED issued guidance specifically allowing a portion of the SFSF to be used for the construction of K-12 schools but not institutions of higher education. Another large source of federal contributions to school facilities the forgone revenue attributable to the exemption of interest on state and local governmental bonds used for school construction, modernization, renovation, and repair is indirect. The Internal Revenue Code (IRC, or Chapter 26 of the U.S. Code) provides for the federal government to exempt interest income earned on bonds issued by state, local, and tribal governments for a "public" purpose from federal income tax (26 U.S.C. 103). Examples of public projects include elementary, secondary, and postsecondary schools; public buildings; and roads. The tax exemption lowers the cost of capital for state and local governments because investors are generally willing to accept a lower rate of return when it is not subject to federal taxation. There is no bond volume cap on tax exempt state and local government bonds. <3. Major Provisions of H.R. 865> H.R. 865 would support public elementary and secondary school construction through several approaches. ED would administer federal grants, the Department of the Treasury would administer tax credit bonds, and regular reports on the condition and need for school facilities would fill a knowledge gap in order to inform future federal support. The following sections summarize the major provisions of the four titles included in H.R. 865 . Title I would authorize grants for the long-term improvement of public school facilities, Title II would authorize school infrastructure bonds, Title III would cover general provisions, and Title IV would authorize a temporary increase in funding for Impact Aid construction. <3.1. Title I: Grants> H.R. 865 would authorize $7 billion in grants per fiscal year from FY2020 to FY2029 to support long-term improvements to public school facilities. Of the amounts appropriated, 0.5% would be reserved for the outlying areas, and 0.5% would be reserved for schools funded by the Bureau of Indian Education. The remainder would be allocated to the states in proportion to their share of all ESEA Title I-A state grants allocated during the prior fiscal year with no hold harmless provision applied. The states would then award competitive grants to qualified LEAs. To be eligible for an allocation, a state would have to submit a plan to ED that describes how it would use the funds to make long-term improvements to public school facilities and how it would maintain fiscal effort for the funded activities after it no longer receives the allocation. The plan would also need to explain how the state would determine the eligibility and priority of grant recipients and carry out its state-level responsibilities. States would be required to match 10% of the allocated amount from nonfederal sources to support the activities funded by the allocation. A maintenance of effort provision would also require that the fiscal effort per student or aggregate expenditure by the states on public school facilities could not be less than 90% of the level in the prior fiscal year. Further, states would be required to use their allocations to supplement not supplant federal, state, and local public funds that would otherwise be available for supported activities. The bill would allow states to reserve no more than 1% of their allocation for their state-level responsibilities, including providing technical assistance to LEAs and developing an online database that contains an inventory of the infrastructure of all public school facilities in the state. Such funds could also be used for issuing and reviewing health and safety regulations and creating a plan to reduce exposure to toxins and chemicals. To be eligible to receive a competitive grant from the state, an LEA would have to have received an ESEA Title I-A grant in the previous year. Further, an LEA would have to be among those with the highest number or percentage of children "counted" in the formulas used to allocate ESEA Title I-A state grants. LEAs meeting these criteria would also be required to prioritize improvement of facilities of public schools that serve the highest percentages of students who qualify for free or reduced price lunches. Additional consideration in the awarding of grants to LEAs may be given to those with school facilities that pose a severe health or safety threat. States would have to ensure that LEA grantees represent the geographic diversity of the state. In addition, states would have the option of including the need to improve facilities or having the most limited capacity to raise funds for that purpose in the LEA eligibility criteria. States would be required to prioritize applications from LEAs by comparing these eligibility criteria. Additionally, states would be able to prioritize applications for grants to improve access to broadband or grants for schools without access to broadband. To be considered for a competitive grant, qualifying LEAs would have to submit an application to the state. Application requirements could be determined by the individual states, but H.R. 865 would require all applications to include certain information: information necessary for the state to determine eligibility and priority; a description of the projects that the LEA plans to carry out with the grant; an explanation of how such projects will reduce risks to the health and safety of staff and students at schools served by the LEA; and for charter schools, whether the operator has control or ownership of the facility, and the extent to which the charter schools lack access to funding through financing methods available to public schools or LEAs in the state. After grants are awarded, the bill would require certain actions by LEAs, states, and ED. Within 180 days of receiving a grant, an LEA would be required to submit to the state a 10-year facilities master plan. Each LEA that receives a grant would also be required to annually compile, publish, and submit to the state certain information about the LEA, its student population, and projects funded by the grant. States would then be required to compile, publish, and distribute such information to the LEAs, the public, and tribal governments in the state. In addition, states would be required to submit the information to the Secretary of Education. By the end of each fiscal year, the Secretary of Education would be required to submit a report to the House Committee on Education and Labor and the Senate Committee on Health, Education, Labor, and Pensions (hereinafter, the "appropriate congressional committees") containing the information collected from the states. <3.2. Title II: Bonds> H.R. 865 would reauthorize certain repealed tax credit bonds (TCBs) and authorize a new TCB, School Infrastructure Bonds. TCBs are an alternative to tax-exempt bonds that offer investors a federal tax credit or the issuer a direct payment proportional to the bond's value in lieu of a federal tax exemption. Before the 2017 tax revision ( P.L. 115-97 ) repealed the authority to issue new TCBs after December 31, 2017, Qualified School Construction Bonds (QSCBs) and Qualified Zone Academy Bonds (QZABs) were TCBs used to fund school construction and renovation, among other purposes. The bill would also apply certain wage rate requirements to any school infrastructure bond, as have been required for QZABs issued since the date of the enactment of the ARRA. The remainder of this section provides more-detailed information about the various bond provisions included in H.R. 865 . <3.2.1. QSCBs and QZABs> H.R. 865 would amend the Internal Revenue Code to authorize QSCBs and QZABs for the first time since 2017. QSCBs made bond proceeds available for the construction, rehabilitation, or repair of, or the acquisition of land for, a public school facility, including charter schools but excluding postsecondary facilities. They were generally allocated to states based on a state's share of ESEA Title I-A grants. The bonds had a national limit of $11 billion in each of 2009 and 2010. The authority to issue QSCBs expired at the end of calendar year 2010. H.R. 865 would not authorize a new bond limitation for QSCBs, but it would restore a subparagraph in statute (formerly 26 U.S.C. 54A(d)(1)(E)) listing QSCBs as a qualified tax credit bond. H.R. 865 would also reauthorize QZABs, remove the former private business contribution requirement associated with them, and set the bond limitation at $1.4 billion for each calendar year into perpetuity. In addition to school renovation, the bill would authorize QZABs to be used to fund school construction as well. To be eligible to receive the proceeds from QZABs, a school must be public; be providing education or training below the postsecondary level in an empowerment zone or enterprise community, or have 35% or more of its students qualified for free or reduced price lunches; and cooperate with businesses to enhance the school's curriculum, increase graduation and employment rates, and prepare students for college and the workforce. <3.2.2. School Infrastructure Bonds> Under H.R. 865 , School Infrastructure Bonds would function as a new type of tax credit bond to support long-term improvements to public school facilities. The bill would authorize a national volume cap of $10 billion in School Infrastructure Bonds per calendar year from 2020 to 2022. As with the grant appropriation, 0.5% of the annual bond limitation of $10 billion would be allocated to possessions of the United States, and 0.5% would be allocated to the Secretary of the Interior for schools funded by the Bureau of Indian Education. The remainder would be allocated to the states in proportion to their share of all prior-year Title I-A state grants, as authorized under the ESEA, with no hold harmless provision applied. State educational agencies and the U.S. possessions would then allocate their share of the bond limitation to issuers within their jurisdictions using the same required eligibility and priority criteria established for the competitive grant program in Title I of H.R. 865 . The new School Infrastructure Bond program would provide bond holders with a tax credit equal to 100% of the amount of interest payable by the issuer, and any unused credit could be carried over to the succeeding taxable year. The bill would require bond issuers to spend 100% of the available project proceeds within six years of the date of issuance. By the end of each fiscal year, the Secretary of the Treasury would be required to submit an annual report on the bond program to the appropriate congressional committees. <3.3. Title III: General Provisions> <3.3.1. Uses of Funds> H.R. 865 would place certain restrictions on how funds from grants or bonds may be used. Allowable uses would generally include new construction, renovation, major repairs, site acquisition, the reduction or elimination of toxins and pests, the expansion of access to broadband, and compliance with the Americans with Disabilities Act, among other uses for public school facilities. Funds could also be used to develop the facilities master plans required by the bill. LEAs would be prohibited from using funds for routine and predictable maintenance, minor repairs, facilities used primarily for athletic contests or other events that charge admission, vehicles, or facilities that are not primarily used to educate students. The bill also specifies, for each year, a certain percentage of funds used for new construction or renovation that would have to be used for such activities that are certified, verified, or consistent with "green" standards. The applicable percentage would be 60% in FY2020, 70% in FY2021, 80% in FY2022, 90% in FY2023, and 100% in FY2024 through FY2029. For FY2030 and thereafter, there would be no such requirement for QZABs. LEAs that receive covered funds from grants or bonds authorized by H.R. 865 would be required to ensure that any iron, steel, and manufactured products used in projects are produced in the United States. However, the Secretary of Education would have authority to waive this requirement if applying it would be inconsistent with the national interest, if materials produced in the United States are not sufficiently available or of satisfactory quality, or if using materials produced in the United States would increase the cost of the overall project by more than 25%. <3.3.2. Reporting and Information> Within two years of enactment, H.R. 865 would require the Government Accountability Office (GAO) to submit a report on projects carried out by covered funds to the appropriate congressional committees. The report would include the types of projects carried out, their geographic distribution, and an assessment of their impacts on the health and safety of staff and students. The report would also address how the Secretary of Education or the states could make covered funds more accessible to schools with the highest numbers and percentages of students counted in ESEA Title I-A allocation formulas and schools with fiscal challenges in raising capital for school infrastructure projects. GAO would be required to prepare an updated version of the report between 5 and 6 years after enactment and again between 10 and 11 years after enactment. The bill would also require ED's Institute of Education Sciences to carry out and submit to the appropriate congressional committees a comprehensive study of the physical condition of all public schools in the United States at least once every five years. The report would include an assessment of the effect of school facilities on health, safety, and academic outcomes; the condition of facilities, categorized by geographic region, racial and ethnic groups, and economic status of students; the accessibility of school facilities for students and staff with disabilities; and any differences in these areas of disaggregation between LEAs that received covered funds and those that did not. H.R. 865 does not include an authorization of appropriations for this purpose. Additionally, H.R. 865 would require the Secretary of Education to establish a clearinghouse to disseminate information on federal programs and financing mechanisms that may be used to assist schools in initiating, developing, and financing energy efficient, energy retrofitting, and distributed generation projects. The bill does not include an authorization of appropriations for this purpose. <3.4. Title IV: Impact Aid> The Impact Aid program, administered by ED and authorized by Title VII of the ESEA, compensates LEAs for a "substantial and continuing financial burden" resulting from federal activities, such as federal ownership of certain lands, as well as the enrollments in LEAs of children whose parents work or live on federal property and of children living on tribal lands. The Impact Aid program authorizes several types of payments, including a construction payment (ESEA, Section 7007). The construction payment provides funds for construction and facilities upgrades to certain LEAs, such as those serving high percentages of children living on tribal lands or children with parents on active duty in the uniformed services. These funds are used to make formula and competitive grants. For FY2019, Section 7007 was appropriated $17.4 million. Authorizations of appropriations for Section 7007 are provided through FY2020. H.R. 865 would extend the authorization of appropriations for Section 7007 through FY2023 at levels substantially higher than current authorization of appropriations levels. For FY2020, Section 7007 has an existing authorization of appropriations level of $18,756,765. H.R. 865 would increase that level to $50,406,000 for FY2021 and FY2022 and $52,756,765 for FY2023. <4. Cost Estimate> The Congressional Budget Office (CBO) estimates that enactment of H.R. 865 would result in an increase of approximately $8.4 billion in direct spending, a decrease of approximately $1.2 billion in revenues, and an increase of approximately $55.6 billion in outlays subject to appropriation in the period from FY2019 to FY2029. In producing this estimate, CBO assumes that H.R. 865 would be enacted near the end of FY2019 and that authorized and estimated funds would be appropriated every year.

A 2014 study conducted by the National Center for Education Statistics within the U.S. Department of Education (ED) found that 53% of public elementary and secondary schools need to spend money on repairs, renovations, and modernizations to put their onsite buildings in good overall condition. The study estimated that the nationwide spending necessary to reach this standard would be approximately $197 billion, or about $4.5 million per school that needs improvements. This report provides a description of and background for selected provisions in the Rebuild America's Schools Act of 2019 ( H.R. 865 / S. 266 ), which would provide federal funding for public school construction. H.R. 865 was ordered to be reported by the House Committee on Education and Labor on February 26, 2019. As no action has been taken on the identical companion bill S. 266 since it was introduced in the Senate, this report addresses H.R. 865 . While the construction, renovation, repair, and maintenance of public school facilities are typically the responsibility of state and local governments, the federal government has provided some funding for construction and renovation for specific purposes. H.R. 865 proposes to authorize $70 billion in grants and facilitate $30 billion in school infrastructure tax credit bonds to be used toward the construction and repair of public elementary and secondary school facilities. Funds would be allocated to states proportionally based on their prior-year share of grant allocations under Title I-A of the Elementary and Secondary Education Act (ESEA), a grant program designed to provide educational and related services to low-achieving and other students attending schools with relatively high concentrations of students from low-income families. States are directed to award grant funds provided through the bill to local educational agencies (LEAs) with the highest numbers or percentages of students who are "counted" in the formulas used to allocate ESEA Title I-A grants—and among LEAs meeting this criterion, to those prioritizing improvement of facilities of public schools that serve the highest percentages of students who qualify for free or reduced price lunches. Additional consideration in the awarding of grants to LEAs may be given to those with school facilities that pose a severe health or safety threat. Funds would also be authorized under H.R. 865 for Impact Aid construction for FY2020 through FY2023 at levels substantially higher than current authorization of appropriations levels. H.R. 865 would place certain restrictions on how funds from grants or bonds may be used. For instance, it specifies for each fiscal year a certain percentage of covered funds that must be used for construction or renovation that is consistent with "green" standards. Additionally, LEAs that receive covered funds from grants or bonds authorized by the bill would be required to ensure that any iron, steel, and manufactured products used in projects are produced in the United States. However, the Secretary of Education would have authority to waive this requirement under certain circumstances. The bill would also require the Institute of Education Sciences to carry out and submit to the appropriate congressional committees a comprehensive study of the physical condition of all public schools in the United States at least once every five years. The Congressional Budget Office estimates that enactment of H.R. 865 would result in an increase of approximately $8.4 billion in direct spending, a decrease of approximately $1.2 billion in revenues, and an increase of approximately $55.6 billion in outlays subject to appropriation in the period from FY2019 to FY2029.

crs_R45981

crs_R45981_0

<1. Introduction> Dams may provide flood control, hydroelectric power, recreation, navigation, and water supply. Dams also entail financial costs for construction, operation and maintenance (O&M), rehabilitation (i.e., bringing a dam up to current safety standards), and repair, and they often result in environmental c hange (e.g., alteration of riverine habitat). Federal government agencies reported owning 3% of the more than 90,000 dams in the National Inventory of Dams (NID), including some of the country's largest dams (e.g., the Bureau of Reclamation's Hoover Dam in Nevada is 730 feet tall with storage capacity of over 30 million acre-feet of water). Most dams in the United States are owned by private entities, state or local governments, or public utilities. Dams may pose a potential safety threat to populations living downstream of dams and populations surrounding associated reservoirs. As dams age, they can deteriorate, which also may pose a potential safety threat. The risks of dam deterioration may be amplified by lack of maintenance, misoperation, development in surrounding areas, natural hazards (e.g., weather and seismic activity), and security threats. Structural failure of dams may threaten public safety, local and regional economies, and the environment, as well as cause the loss of services provided by a dam. In recent years, several dam safety incidents have highlighted the public safety risks posed by the failure of dams and related facilities. From 2015 to 2018, over 100 dams breached in North Carolina and South Carolina due to record flooding. In 2017, the near failure of Oroville Dam's spillway in California resulted in a precautionary evacuation of approximately 200,000 people and more than $1.1 billion in emergency response and repair. In 2018, California began to expedite inspections of dams and associated spillway structures. Congress has expressed an interest in dam safety over several decades, often prompted by destructive events. Dam failures in the 1970s resulting in the loss of life and billions of dollars in property damage prompted Congress and the executive branch to establish the NID, the National Dam Safety Program (NDSP), and other federal activities related to dam safety. Following terrorist attacks on September 11, 2001, the federal government focused on dam security and the potential for acts of terrorism at major dam sites. As dams age and the population density near many dams increases, attention has turned to mitigating dam failure through dam inspection programs, rehabilitation, and repair, in addition to preventing and preparing for emergencies. This report provides an overview of dam safety and associated activities in the United States, highlighting the federal role in dam safety. The primary federal agencies involved in these activities include the Federal Emergency Management Agency (FEMA), the U.S. Army Corps of Engineers (USACE), and the Bureau of Reclamation (Reclamation). The report also discusses potential issues for Congress, such as the federal role for nonfederal dam safety; federal funding for dam safety programs, rehabilitation, and repair; and public awareness of dam safety risks. The report does not discuss in detail emergency response from a dam incident, dam building and removal policies, or state dam safety programs. <2. Safety of Dams in the United States> Dam safety generally focuses on preventing dam failure and incidents episodes that, without intervention, likely would have resulted in dam failure. Challenges to dam safety include aging and inadequately constructed dams, frequent or severe floods (for instance, due to climate change), misoperation of dams, and dam security. The risks associated with dam misoperation and failure also may increase as populations and development encroach upstream and downstream of some dams. Safe operation and proper maintenance of dams and associated structures is fundamental for dam safety. In addition, routine inspections by dam owners and regulators determine a dam's hazard potential (see " Hazard Potential " below), condition (see " Condition Assessment " below), and possible needs for rehabilitation and repair. <2.1. Dams by the Numbers> The NID, a database of dams in the United States, is maintained by USACE. For the purposes of inclusion in the NID, a dam is defined as any artificial barrier that has the ability to impound water, wastewater, or any liquid-borne material, for the purpose of storage or control of water that (1) is at least 25 feet in height with a storage capacity of more than 15 acre-feet, (2) is greater than 6 feet in height with a storage capacity of at least 50 acre-feet, or (3) poses a significant threat to human life or property should it fail (i.e., high or significant hazard dams). Thousands of dams do not meet these criteria; therefore, they are not included in the NID. The most common type of dam is an earthen dam (see Figure 1 ), which is made from natural soil or rock or from mining waste materials. Other dams include concrete dams, tailings dams (i.e., dams that store mining byproducts), overflow dams (i.e., dams regulating downstream flow), and dikes (i.e., dams constructed at a low point of a reservoir of water). This report does not cover levees, which are manmade structures designed to control water movement along a landscape. The nation's dams were constructed for various purposes: recreation, flood control, ecological (e.g., fisheries management), irrigation and water supply, hydroelectric, mining, navigation, and others (see Figure 2 ). Dams may serve multiple purposes. Dams were built to engineering and construction standards and regulations corresponding to the time of their construction. Over half of the dams with age reported in the NID were built over fifty years ago. Some dams, including older dams, may not meet current dam safety standards, which have evolved as scientific data and engineering have improved over time. <2.2. Dam Failures and Incidents> Dam failures and incidents episodes that, without intervention, likely would have resulted in dam failure may occur for various reasons. Potential causes include floods that may exceed design capacity; faulty design or construction; misoperation or inadequate operation plans; overtopping, with water spilling over the top of the dam; foundation defects, including settlement and slope instability; cracking caused by movements, including seismic activity; inadequate maintenance and upkeep; and piping, when seepage through a dam forms holes in the dam (see Figure 3 ). Engineers and organizations have documented dam failure in an ad hoc manner for decades. Some report over 1,600 dam failures resulting in approximately 3,500 casualties in the United States since the middle of the 19 th century, although these numbers are difficult to confirm. Many failures are of spillways and small dams, which may result in limited flooding and downstream impact compared to large dam failures. Flooding that occurs when a dam is breached may not result in life safety consequences or significant property damage. Still, some dam failures have resulted in notable disasters in the United States. Between 2000 and 2019, states reported 294 failures and 537 nonfailure dam safety incidents. Recent events including the evacuation of approximately 200,000 people in California in 2017 due to structural deficiencies of the spillway at Oroville Dam have led to increased attention on the condition of dams and the federal role in dam safety. From 2015 to 2018, extreme storms (including Hurricane Matthew) and subsequent flooding resulted in over 100 dam breaches in North Carolina and South Carolina. Floods resulting from hurricanes in 2017 also filled reservoirs of dams to record levels in some regions: for example, USACE's Addicks and Barker Dams in the Houston, TX, area; the Puerto Rico Electric Power Authority's Guajataca Dam in Puerto Rico; and USACE's Herbert Hoover Dike in Florida. The March 2006 failure of the private Kaloko Dam in Hawaii killed seven people, and the 2003 failure of the Upper Peninsula Power Company's Silver Lake Dam in Michigan caused more than $100 million in damage. <2.3. Hazard Potential> Federal guidelines set out a hazard potential rating to quantify the potential harm associated with a dam's failure or misoperation. As described in Table 1 , the three hazard ratings (low, significant, and high) do not indicate the likelihood of failure; instead, the ratings reflect the amount and type of damage that a failure would cause. Figure 4 depicts the number of dams listed in the NID classified as high hazard in each state; 65% of dams in the NID are classified as low hazard. From 2000 to 2018, thousands of dams were reclassified increasing the number of high hazard dams from 9,921 to 15,629. According to FEMA, the primary factor increasing dams' hazard potential is hazard creep development upstream and downstream of a dam, especially in the dam failure inundation zone (i.e., downstream areas that would be inundated by water from a possible dam failure). Reclassification from low hazard potential to high or significant hazard potential may trigger more stringent requirements by regulatory agencies, such as increased spillway capacity, structural improvements, more frequent inspections, and creating or updating an emergency action plan (EAP). Some of these requirements may be process and procedure based, and others may require structural changes for existing facilities. <2.4. Condition Assessment> The NID includes condition assessments assessments of relative dam deficiencies determined from inspections as reported by federal and state agencies (see Table 2 ). Of the 15,629 high hazard potential dams in the 2018 NID, 63% had satisfactory or fair condition assessment, 15% had a poor or unsatisfactory condition assessment, and 22% were not rated. For dams rated as poor and unsatisfactory, federal agencies and state regulatory agencies may take actions to reduce risk, such as reservoir drawdowns, and may convey updated risk and response procedures to stakeholders. <2.5. Mitigating Risk> In the context of dam safety, risk is comprised of three parts: the likelihood of a triggering event (e.g., flood or earthquake), the likelihood of a dam safety deficiency resulting in adverse structural response (e.g., dam failure or spillway damage), and the magnitude of consequences resulting from the adverse event (e.g., loss of life or economic damages). Preventing dam failure involves proper location, design, and construction of structures, and regular technical inspections, O&M, and rehabilitation and repair of existing structures. Preparing and responding to dam safety concerns may involve community development planning, emergency preparation, and stakeholder awareness. Dam safety policies may address risk by focusing on preventing dam failure while preparing for the consequences if failure occurs. <2.5.1. Rehabilitation and Repair> Rehabilitation typically consists of bringing a dam up to current safety standards (e.g., increasing spillway capacity, installing modern gates, addressing major structural deficiencies), and repair addresses damage to a structure. Rehabilitation and repair are different from day-to-day O&M. According to a 2019 study by ASDSO, the combined total cost to rehabilitate the nonfederal and federal dams in the NID would exceed $70 billion. The study projected that the cost to rehabilitate high hazard potential dams in the NID would be approximately $3 billion for federal dams and $19 billion for nonfederal dams. Some stakeholders project that funding requirements for dam safety rehabilitation and repair will continue to grow as infrastructure ages, risk awareness progresses, and design standards evolve. <2.5.2. Preparedness> Dam safety processes and products such as emergency action plans (EAPs) and inundation maps may support informed decisionmaking to reduce the risk and consequences of dam failures and incidents. An EAP is a formal document that identifies potential emergency conditions at a dam and specifies preplanned actions to minimize property damage and loss of life. EAPs identify the actions and responsibilities of different parties in the event of an emergency, such as the procedures to issue early warning and notification messages to emergency management authorities. EAPs also contain inundation maps to show emergency management authorities the critical areas for action in case of an emergency (see Figure 5 for a map illustration of potential inundation areas due to a dam failure). Many agencies that are responsible for dam oversight require or encourage dam owners to develop EAPs and often oversee emergency response simulations (i.e., tabletop exercises) and field exercises. Requirements for EAPs often focus on high hazard dams. In 2018, the percentage of high hazard potential dams in the United States with EAPs was 74% for federally owned dams and 80% for state-regulated dams. Federal agencies have developed tools to assist dam owners and regulators, along with emergency managers and communities, to prepare, monitor, and respond to dam failures and incidents. FEMA's RiskMAP program provides flood maps, tools to assess the risk from flooding, and planning and outreach support to communities for flood risk mitigation. A RiskMAP project may incorporate the potential risk of dam failure or incidents. FEMA's Decision Support System for Water Infrastructure Security (DSS-WISE) Lite allows states to conduct dam failure simulations and human consequence assessments. Using DSS-WISE Lite, FEMA conducted emergency dam-break flood simulation and inundation mapping of 36 dams in Puerto Rico during the response to Hurricane Maria in 2017. DamWatch is a web-based monitoring and informational tool for 11,800 nonfederal flood control dams built with assistance from the U.S. Department of Agriculture. When these dams experience a critical event (e.g., threatening storm systems), essential personnel are alerted via an electronic medium and can implement EAPs if necessary. The U.S. Geological Survey's ShakeCast is a post-earthquake awareness application that notifies responsible parties of dams about the occurrence of a potentially damaging earthquake and its potential impact at dam locations. The responsible parties may use the information to prioritize response, inspection, rehabilitation, and repair of potentially affected dams. <3. Federal Role and Resources for Dam Safety> In addition to owning dams, the federal government is involved in multiple areas of dam safety through legislative and executive actions. Following USACE's publication of the NID in 1975 as authorized by P.L. 92-367, the Interagency Committee on Dam Safety established by President Jimmy Carter through Executive Order 12148 released safety guidelines for dams regulated by federal agencies in 1979. In 1996, the National Dam Safety Program Act (Section 215 of the Water Resources Development Act of 1996; P.L. 104-303 ) established the National Dam Safety Program, the nation's principal dam safety program, under the direction of FEMA. Congress has reauthorized the NDSP four times and enacted other dam safety programs and activities related to federal and nonfederal dams. A chronology of selected federal dam safety actions is provided in the box below. <3.1. National Dam Safety Program> The NDSP is a federal program established to facilitate collaboration among the various federal agencies, states, and owners with responsibility for dam safety. The NDSP also provides dam safety information resources and training, conducts research and outreach, and supports state dam safety programs with grant assistance. The NDSP does not mandate uniform standards across dam safety programs. Figure 6 shows authorization of appropriations levels for the NDSP and appropriations for the program, including grant funding distributed to states. <3.1.1. Advisory Bodies of the National Dam Safety Program> The National Dam Safety Review Board (NDSRB) advises FEMA's director on dam safety issues, including the allocation of grants to state dam safety programs. The board consists of five representatives appointed from federal agencies, five state dam safety officials, and one representative from the private sector. The Interagency Committee on Dam Safety (ICODS) serves as a forum for coordination of federal efforts to promote dam safety. ICODS is chaired by FEMA and includes representatives from the Federal Energy Regulatory Commission (FERC); the International Boundary and Water Commission; the Nuclear Regulatory Commission (NRC); the Tennessee Valley Authority; and the Departments of Agriculture, Defense, Energy, the Interior (DOI), and Labor (DOL). <3.1.2. Assistance to State Dam Safety Programs> Every state (except Alabama) has established a regulatory program for dam safety, as has Puerto Rico. Collectively, these programs have regulatory authority for 69% of the NID dams. State dam safety programs typically include safety evaluations of existing dams, review of plans and specifications for dam construction and major repair work, periodic inspections of construction work on new and existing dams, reviews and approval of EAPs, and activities with local officials and dam owners for emergency preparedness. Funding levels and a lack of state statutory authorities may limit the activities of some state dam safety programs. For example, the Model State Dam Safety Program , a guideline for developing state dam safety programs, recommends one full-time employee (FTE) for every 20 dams regulated by the agency. As of 2019, one state California meets this target, with 75 employees and 1,246 regulated dams. Most state dam safety programs reportedly have from two to seven FTEs. In addition, some states Alabama, Florida, Indiana, Iowa, Kentucky, Vermont, and Wyoming do not have the authority to require dam owners of high hazard dams to develop EAPs. The National Dam Safety Program Act, as amended (Section 215 of the Water Resources Development Act of 1996; P.L. 104-303 ; 33 U.S.C. 467f et seq.), authorizes state assistance programs under the NDSP. Two such programs are discussed below (see " FEMA High Hazard Dam Rehabilitation Grant Program " for information about FEMA's dam rehabilitation program initiated in FY2019). Grant A ssistance to State Dam Safety Programs . States working toward or meeting minimal requirements as established by the National Dam Safety Program Act are eligible for assistance grants. The objective of these grants is to improve state programs using the Model State Dam Safety Program as a guide. Grant assistance is allocated to state programs via a formula: one-third of funds are distributed equally among states participating in the matching grant program and two-thirds of funds are distributed in proportion to the number of state-regulated dams in the NID for each participating state. Grant funding may be used for training, dam inspections, dam safety awareness workshops and outreach materials, identification of dams in need of repair or removal, development and testing of EAPs, permitting activities, and improved coordination with state emergency preparedness officials. For some state dam safety programs, the grant funds support the salaries of FTEs that conduct these activities. This money is not available for rehabilitation and repair activities. In FY2019, FEMA distributed $6.8 million in dam safety program grants to 49 states and Puerto Rico (ranging from $48,000 to $465,000 per state). Training for State Inspectors . At the request of states, FEMA provides technical training to dam safety inspectors. The training program is available to all states by request, regardless of state participation in the matching grant program. <3.1.3. Progress of the National Dam Safety Program> At the end of each odd-numbered fiscal year, FEMA is to submit to Congress a report describing the NDSP's status, federal agencies' progress at implementing the Federal Guidelines for Dam Safety , progress achieved in dam safety by states participating in the program, and any recommendations for legislation or other actions (33 U.S.C. 467h). Federal agencies and states provide FEMA with annual program performance assessments on key metrics such as inspections, rehabilitation and repair activities, EAPs, staffing, and budgets. USACE provides summaries and analysis of NID data (e.g., inspections and EAPs) to FEMA. Some of the metrics for the dam safety program, such as the percentage of state-regulated high hazard potential dams with EAPs and condition assessments, have shown improvement. The percentage of these dams with EAPs increased from 35% in 1999 to 80% in 2018, and condition assessments of these dams increased from 41% in 2009 to 85% in 2018. The percentage of state-regulated high hazard potential dams inspected has remained relatively stable during the same period between 85% to 100% dams inspected based on inspection schedules. <3.2. Federally Owned Dams> The major federal water resource management agencies, USACE and Reclamation, own 42% of federal dams, including many large dams ( Figure 7 ). The remaining federal dams typically are smaller dams owned by other agencies, including land management agencies (e.g., Fish and Wildlife Service and the Forest Service), the Department of Defense, and the Bureau of Indian Affairs, among others. The federal government is responsible for maintaining dam safety of federally owned dams by performing maintenance, inspections, rehabilitation, and repair work. No single agency regulates all federally owned dams; rather, each federal dam is regulated according to the policies and guidance of the individual federal agency that owns the dam. The Federal Guidelines for Dam Safety provides basic guidance for federal agencies' dam safety programs. <3.2.1. Inspections, Rehabilitation, and Repair> The Federal Guidelines for Dam Safety recommends that agencies formally inspect each dam that they own at least once every five years; however, some agencies require more frequent inspections and base the frequency of inspections on the dam's hazard potential. Inspections may result in an update of the dam's hazard potential and condition assessment (see Figure 8 for the status of hazard potential and condition assessments of federal dams). Inspections typically are funded through agency O&M budgets. After identifying dam safety deficiencies, federal agencies may undertake risk reduction measures or rehabilitation and repair activities. Agencies may not have funding available to immediately undertake all nonurgent rehabilitation and repair; rather, they generally prioritize their rehabilitation and repair investments based on various forms of assessment and schedule these activities in conjunction with the budget process. At some agencies, dam rehabilitation and repair needs must compete for funding with other construction projects (e.g., buildings and levees). Federal agencies traditionally approached dam safety through a deterministic, standards-based approach by mainly considering structural integrity to withstand maximum probable floods and maximum credible earthquakes. Many agencies with large dam portfolios (e.g., Reclamation and USACE) have since moved from this solely standards-based approach for their dam safety programs to a portfolio risk management approach to dam safety, including evaluating all modes of failure (e.g., seepage of water and sediment through a dam) and prioritizing rehabilitation and repair efforts. The following sections provide more information on specific policies at these agencies. <3.2.1.1. U.S. Army Corps of Engineers> USACE implements a dam safety program consisting of inspections and risk analyses for USACE operated dams, and performs risk reduction measures or project modifications to address dam safety risks. USACE uses a Dam Safety Action Classification System (DSAC) based on the probability of failure and incremental risk (see Table 3 ). Congress provides funding for USACE's various dam safety activities through the Investigations, O&M, and Construction accounts. The Inventory of Dams line item in the Investigations account provides funding for the maintenance and publication of the NID. The O&M account provides funding for routine O&M of USACE dams and for NDSP activities, including assessments of USACE dams. The Construction account provides funding for nonroutine dam safety activities (e.g., dam safety rehabilitation and repair modifications). The Dam Safety and Seepage/Stability Correction Program conducts nonroutine dam safety evaluations and studies of extremely high-risk or very high-risk dams (DSAC 1 and DSAC 2). Under the program, an issue evaluation study may evaluate high-risk dams, dam safety incidents, and unsatisfactory performance, and then provide determinations for modification or reclassification. If recommended, a dam safety modification study would further investigate dam deficiencies and propose alternatives to reduce risks to tolerable levels; a dam safety modification report is issued if USACE recommends a modification. USACE funds construction of dam safety modifications through project-specific line items in the Construction account. Modification of USACE-constructed dams for safety purposes may be cost shared with nonfederal project sponsors using two cost-sharing authorities: major rehabilitation and dam safety assurance. USACE schedules modifications under all of these programs based on funding availability. Major rehabilitation is for significant, costly, one-time structural rehabilitation or major replacement work. Major rehabilitation applies to dam safety repairs associated with typical degradation of dams over time. Nonfederal sponsors are to pay the standard cost share based on authorized purposes. USACE does not provide support under major rehabilitation for facilities that were turned over to local project sponsors for O&M after they were constructed by USACE. Dam safety assurance cost sharing may apply to all dams built by USACE, regardless of the entity performing O&M. Modifications are based on new hydrologic or seismic data or changes in state-of-the-art design or construction criteria that are deemed necessary for safety purposes. Application of the authority provided by Section 1203 of the Water Resources Development Act of 1986 ( P.L. 99-662 ; 33 U.S.C. 467n) reduces a sponsor's responsibility to 15% of its agreed nonfederal cost share. In 2015, the Government Accountability Office (GAO) examined cost sharing for USACE dam safety repairs. GAO recommended policy clarification for the usage of the "state-of-the-art" provision and improved communication with nonfederal sponsors. Section 1139 of the Water Infrastructure Improvements for the Nation Act (WIIN Act; P.L. 114-322 ) mandated the issuance of guidance on the state-of-the-art provision, and in March 2019, USACE began to implement a new policy that allows for the state-of-the-art provision across its dam portfolio. Prior to the guidance, USACE applied the authority in January 2019 to lower the nonfederal cost share of repairing the Harland County Dam in Nebraska by approximately $2.1 million (about half of the original amount owed). Recent USACE dam safety construction projects have had costs ranging from $10 million to $1.8 billion; most cost in the hundreds of millions of dollars. In FY2018, USACE funded $268 million in work on 10 dam safety construction projects at DSAC 1 and DSAC 2 dams, and funded dam safety studies at 39 projects on DSAC 2 and DSAC 3 dams. In FY2019, USACE estimated a backlog of $20 billion to address DSAC 1 and DSAC 2 dam safety concerns. <3.2.1.2. Bureau of Reclamation> Reclamation's dam safety program, authorized by Reclamation Safety of Dams Act of 1978, as amended ( P.L. 95-578 ; 43 U.S.C. 506 et seq.), provides for inspection and repairs to qualifying projects at Reclamation dams. Reclamation conducts dam safety inspections through the Safety Evaluation of Existing Dams (SEED) program using Dam Safety Priority Ratings (DSPR; see Table 3 ). Corrective actions, if necessary, are carried out through the Initiate Safety of Dams Corrective Action (ISCA) program. With ISCA appropriations, Reclamation funds modifications on priority structures based on an evolving identification of risks and needs. The Reclamation Safety of Dams Act Amendments of 1984 ( P.L. 98-404 ) requires a 15% cost share from sponsors for dam safety modifications when modifications are based on new hydrologic or seismic data or changes in state-of-the-art design or construction criteria that are deemed necessary for safety purposes. In 2015, P.L. 114-113 amended the Reclamation Safety of Dams Act to increase Reclamation's authority, before needing congressional authorization to approve a modification project, from $1.25 million to $20 million. The act also authorized the Secretary of the Interior to develop additional project benefits, through the construction of new or supplementary works on a project in conjunction with dam safety modifications, if such additional benefits are deemed necessary and in the interests of the United States and the project. Nonfederal and federal funding participants must agree to a cost share related to the additional project benefits. In FY2019, Congress appropriated $71 million for ISCA, which funded 18 dam safety modifications. FY2019 funding also included $20.3 million for SEED and $1.3 million for the Dam Safety Program. As of FY2019, Reclamation estimated that the current portfolio of dam safety modification projects through FY2030 would cost between $1.4 billion to $1.8 billion. The Commissioner of Reclamation also serves as the Department of the Interior's (DOI's) coordinator for dam safety and advises the Secretary of the Interior on program development and operation of the dam safety programs within DOI. In this role, Reclamation provides training to other DOI agencies with dam safety programs and responsibilities, and Reclamation's dam safety officer represents DOI on the ICODS. <3.3. Federal Oversight of Nonfederal Dams> Some federal agencies are involved in dam safety activities of nonfederal dams; these activities may be regulatory or consist of voluntary coordination (see box on "Nonfederal Dams on Federal Lands"). Congress has enacted legislation to regulate hydropower projects, certain mining activities, and nuclear facilities and materials. These largely nonfederal facilities and activities may utilize dams for certain purposes. States also may have jurisdiction or ownership over these facilities, activities, and associated dams, and therefore may oversee dam safety in coordination with applicable federal regulations. <3.3.1. Regulation of Hydropower Dams> Under the Federal Power Act (16 U.S.C. 791a-828c), FERC has the authority to issue licenses for the construction and operation of hydroelectric projects, among other things. Many of these projects involve dams, some of which may be owned by a state or local government. According to FERC, approximately 3,036 dams are regulated by FERC's dam safety program. Of these, 1,374 are nonfederal dams listed in the 2018 NID; 791 nonfederal dams are classified as high hazard, with 144 in California, 87 in New York, and 72 in Michigan. Before FERC can issue a license, FERC reviews and approves the designs and specifications of dams and other structures for the hydropower project. Each license is for a stated number of years (generally 30-50 years), and must undergo a relicensing process at the end of the license. Along with nonfederal hydropower licensing, FERC is responsible for dam inspection during and after construction. FERC staff inspect regulated dams at regular intervals, and the owners of certain dams require more thorough inspections. According to 18 C.F.R. 12, every five years, an independent consulting engineer, approved by FERC, must inspect and evaluate projects with dams higher than 32.8 feet, or with a total storage capacity of more than 2,000 acre-feet. These inspections are to include a detailed review of the design, construction, performance, and current condition assessment of the entire project. Inspections are to include examinations of dam safety deficiencies, project construction and operation, and safety concerns related to natural hazards. Should an inspection identify a deficiency, FERC would require the project owner to submit a plan and schedule to remediate the deficiency. FERC then is to review, approve, and monitor the corrective actions until the licensees have addressed the deficiency. If a finding is highly critical, FERC has the authority to require risk-reduction measures immediately; these measures often include reservoir drawdowns. Following the spillway incident in 2017 at Oroville Dam, CA, California's Department of Water Resources engaged an independent forensic team to develop findings and opinions on the causes of the incident. FERC also convened an after-action panel to evaluate FERC's dam safety program at Oroville focusing on the original design, construction, and operations, including the five-year safety review process. Both the after-action panel and the forensic team released reports in 2018 that raised questions about the thoroughness of FERC's oversight of dam safety. Among other findings, the panel's report concluded that the established FERC inspection process, if properly implemented, would address most issues that could result in a failure; however, the panel's report stated that several failures occurred in the last decade because certain technical details, such as spillway components and original design, were overlooked and not addressed in the inspection or by the owner. For example, both reports highlighted inspectors' limited attention to spillways compared to more attention for main dams. After the Oroville incident, a FERC-led initiative to examine dam structures comparable to those at Oroville Dam identified 27 dam spillways at FERC-licensed facilities with varying degrees of safety concerns; FERC officials stated they are working with dam licensees to address the deficiencies. A 2018 GAO review also found that FERC had been prioritizing individual dam inspections and responses to urgent dam safety incidents, but had not conducted portfolio-wide risk analyses. FERC told GAO in January 2019 that it had begun developing a risk-assessment program to assess safety risks across the inventory of regulated dams and to help guide safety decisions. In addition, FERC produced draft guidelines in 2016 for risk-informed decisionmaking, with a similar risk management approach as USACE and Reclamation. FERC has allowed dam owners, generally those with a portfolio of dams, to pilot risk-informed decisionmaking using the draft guidelines for their inspections and prioritizing rehabilitation and repairs instead of using the current deterministic, standards-based approach. <3.3.2. Regulation of Dams Related to Mining> At mining sites, dams may be constructed for water supply, water treatment, sediment control, or the disposal of mining byproducts and waste (i.e., tailings dams). Under the Federal Mine Safety and Health Act of 1977, as amended (P.L. 91-173; 30 U.S.C. 801 et seq.), the Department of Labor's Mine Safety and Health Administration (MSHA) regulates private dams used in or resulting from mining. According to MSHA, approximately 1,640 dams are in its inventory. Of these, 447 are in the 2018 NID, with 220 classified as high hazard. As a regulator, MSHA develops standards and conducts reviews, inspections, and investigations to ensure mine operators comply with those standards. According to agency policies, MSHA is to inspect each surface mine and associated dams at least two times a year and each underground mine and associated dams at least four times a year. Under Title V of the Surface Mining Control and Reclamation Act of 1977, as amended (SMCRA; P.L. 95-87 ; 30 U.S.C. 1251-1279), DOI's Office of Surface Mining Reclamation and Enforcement (OSMRE) administers the federal government's responsibility to regulate active coal mines to minimize environmental impacts during mining and to reclaim affected lands and waters after mining. OSMRE regulations require private companies to demonstrate that dams are in accordance with federal standards (30 C.F.R. 715.18). According to the 2018 DOI Annual Report on Dam Safety, OSMRE regulates 69 dams at coal mines under OSMRE's federal and Indian lands regulatory authority. Twenty four states have primary regulation authority (i.e., primacy) for dams under SMCRA authority: for primacy, states must meet the requirements of SMCRA and be no less effective than the federal regulations. If the dam is noncompliant with the approved design at any time during construction or the life of the dam's operation, OSMRE or an approved state regulatory program is to instruct the permittee to correct the deficiency immediately or cease operations. <3.3.3. Regulation of Dams Related to Nuclear Facilities and Materials> The Nuclear Regulatory Commission (NRC) was established by the Energy Reorganization Act of 1974 (42 U.S.C. 5801 et seq.) as an independent federal agency to regulate and license nuclear facilities and the use of nuclear materials as authorized by the Atomic Energy Act of 1954, as amended (P.L. 83-703). Among its regulatory licensing responsibilities pertaining to dams, NRC regulates uranium mill tailings dams, storage water pond dams at in situ leach (ISL) uranium recovery facilities, and dams integral to the operation of other licensed facilities that may pose a radiological safety-related hazard should they fail. Currently, NRC directly regulates eight dams. If NRC shares regulatory authority with another federal agency (e.g., FERC, USACE, Reclamation), NRC will defer regulatory oversight of the dam to the other federal agency. Under NRC's authority to delegate regulatory authority, states may regulate dams associated with nuclear activities based on agreements with NRC (i.e., agreement state programs). <3.4. Federal Support for Nonfederal Dams> Nonfederal dam owners generally are responsible for investing in the safety, rehabilitation, and repair of their dams. In 2019, ASDSO estimated that $65.9 billion was needed to rehabilitate nonfederal dams; of that amount, $18.7 billion was needed for high hazard nonfederal dams. Twenty-three states provide a limited amount of assistance for these activities through a grant or low-interest revolving loan program. Some federal programs may specifically provide limited assistance to nonfederal dams; these programs are described below. In addition, more general federal programs, such as the Community Development Block Grant Program, offer broader funding opportunities for which dam rehabilitation and repair may qualify under certain criteria. <3.4.1. FEMA High Hazard Dam Rehabilitation Grant Program> The WIIN Act authorized FEMA to administer a high hazard dam rehabilitation grant program, which would provide funding assistance for the repair, removal, or rehabilitation of nonfederal high hazard potential dams. Congress authorized the program to provide technical, planning, design, and construction assistance in the form of grants to nonfederal sponsors. Nonfederal sponsors such as state governments or nonprofit organizations may submit applications to FEMA on behalf of eligible dams and then distribute any grant funding received from FEMA to these dams. Eligible dams must be in a state with a dam safety program, be classified as high hazard, have developed a state-approved EAP, fail to meet the state's minimum dam safety standards, and pose an unacceptable risk to the public. Participating dams also must comply with certain federal programs and laws (e.g., flood insurance programs, the Robert T. Stafford Disaster Relief and Emergency Assistance Act), have or develop hazard mitigation and floodplain management plans, and commit to provide O&M for 50 years following completion of the rehabilitation activity. The WIIN Act authorized appropriations of $10 million annually for FY2017 and FY2018, $25 million for FY2019, $40 million for FY2020, and $60 million annually for FY2021 through FY2026 for the High Hazard Dam Rehabilitation Grant Program (see Figure 9 ). FEMA is to distribute grant money to nonfederal sponsors based on the following formula: one-third of the total funding is to be distributed equally among the nonfederal sponsors that applied for funds, and two-thirds of the total is to be distributed among the nonfederal sponsors proportional to the number of eligible high hazard dams represented by nonfederal sponsors. Individual grants to nonfederal sponsors are not to exceed 12.5% of total program funds or $7.5 million, whichever is less. Grant assistance must be accompanied by a nonfederal cost share of no less than 35%. Congress appropriated $10 million in FY2019 for FEMA's High Hazard Dam Rehabilitation Grant Program under the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), enacted on February 15, 2019. FEMA released a notice of funding opportunity on May 22, 2019, for proposals to be submitted by nonfederal sponsors by July 8, 2019. In FY2019, 26 nonfederal sponsors were awarded grants ranging from $153,000 to $1,250,000 to provide technical, planning, design, and construction assistance for rehabilitation of eligible high hazard potential dams. <3.4.2. NRCS Small Watershed Rehabilitation Program> The Natural Resources Conservation Service (NRCS), within the U.S. Department of Agriculture, provides assistance for selected watershed activities generally related to managing water on or affecting agricultural or rural areas. The Watershed Protection and Flood Prevention Act (P.L. 83-566) and the Flood Control Act of 1944 (P.L. 78-534) provide the authority for NRCS to construct dams through the Watershed and Flood Prevention Operations program. By the end of 2019, more than half of the 11,847 watershed dams constructed with assistance from NRCS will have reached the end of their designed life spans. Congress created a rehabilitation program, known as the Small Watershed Rehabilitation Program, in Section 313 of the Grain Standards and Warehouse Improvement Act of 2000 ( P.L. 106-472 ; 16 U.S.C. 1012). Under this authority, watershed dams constructed with assistance from NRCS are eligible for assistance from the Small Watershed Rehabilitation Program. The rehabilitation program is intended to extend the approved service life of the dams and bring them into compliance with applicable safety and performance standards or to decommission the dams so they no longer pose a threat to life and property. From 2000 to 2018, the program authorized the rehabilitation of 288 dams. NRCS may provide 65% of the total rehabilitation costs; this may include up to 100% of the actual construction cost and no O&M costs. The Small Watershed Rehabilitation Program has discretionary funding authority of up to $85 million annually. Since FY2000, Congress has appropriated more than $700 million for rehabilitation projects. The Small Watershed Rehabilitation Program has received an average annual appropriation of $11.2 million over the last five years, including $10 million in FY2019. <3.4.3. USACE Rehabilitation and Inspection Program> USACE's Rehabilitation and Inspection Program (RIP, or the P.L. 84-99 program) is used mainly for levees, but may provide federal support for selected nonfederal dams that meet certain criteria (e.g., the reservoir behind the dam has storage capacity for a 200-year flood event, otherwise referred to as a flood event having 0.5% chance of occurring in any given year). RIP may provide assistance for flood control works if a facility is damaged by floods, storms, or seismic activity. To be eligible for RIP assistance, damaged flood control works must be active in RIP (i.e., subject to regular inspections) and in a minimally acceptable condition at the time of damage. As of 2017, USACE considered 33 nonfederal dams as "active" in RIP. Because annual appropriations for USACE's Flood Control and Coastal Emergencies account are limited primarily to flood preparedness activities, USACE generally uses supplemental appropriations for major repairs through RIP. <4. Issues for Congress> Congress may consider oversight and legislation relating to dam safety in the larger framework of infrastructure improvements and risk management, or as an exclusive area of interest. Congress may deliberate the federal role for dam safety, especially as most of the dams in the NID are nonfederal. Further, Congress may evaluate the level and allocation of appropriations to federal dam safety programs, project modifications for federal dams, and financial assistance for nonfederal dam safety programs and nonfederal dams. In addition, Congress may maintain or amend policies for disclosure of dam safety information when considering the federal role in both providing dam safety risk and response information to the public (including those living downstream of dams) while also maintaining security of these structures. <4.1. Federal Role> Since the 1970s, the federal government has developed and overseen national dam safety standards and has provided technical assistance for the design, construction, and O&M of dams. These activities, as well as the enhancement of federal agencies' dam safety programs, have improved certain dam safety metrics; nonetheless, deficiencies in federal and state programs may have contributed to recent incidents (e.g., the 2017 spillway incident at Oroville Dam, California). Some federal agencies have received criticism of their dam safety programs. For example, in 2014, the Department of Defense (DOD) Inspector General found that DOD did not have a policy requiring installations to implement a dam safety inspection program consistent with the Federal Guidelines for Dam Safety . Since the findings, some service branches of DOD reported developing new dam safety policies including the creation of a dam safety program for the U.S. Marine Corps. Congress may consider other oversight activities similar to, for example, direction requiring USACE, Reclamation, and FERC to brief the Senate Committee on Appropriations on efforts to incorporate lessons learned from Oroville into dam inspection protocols across all three agencies and their state partners. Although incidents and reviews may result in recommending improvements to federal dam safety programs, some agencies report financial and other limitations to revising or expanding their dam safety programs. Congress may consider these obstacles, as identified in its oversight activities, in determining whether new authorities or appropriations are needed. Some stakeholders argue that the federal government should continue its activities in maintaining and regulating dams owned by federal agencies and nonfederal dams under federal regulatory authority, while state dam safety programs should retain responsibility for state-regulated dams by following the guidelines of the Model State Dam Safety Program . However, some stakeholders, such as the Association of State Floodplain Managers and ASDSO, advocate for a larger federal role in nonfederal dam safety. They argue that many state dam safety programs and nonfederal dam owners have limited resources and authorities to inspect, conduct O&M, rehabilitate, and repair nonfederal dams. However, land use and zoning are considered nonfederal responsibilities, and some may argue against encroaching on state and local sovereignty and against the potential growth of the federal government's role. Dam removal is a potential policy alternative to rehabilitation and repair of high hazard dams. A dam-removal policy incentive would likely require, for example, evaluation of the current level of use of the dam, whether some or all of its functions could be economically replaced by nonstructural measures, and whether O&M, rehabilitation, and repair are feasible (e.g., the dam owner is absent or repairs are too costly). Congress has previously considered incentives to encourage states to remove dams deemed unnecessary or infeasible to rehabilitate. For instance, Congress authorized dam removal as an activity under FEMA's High Hazard Dam Rehabilitation Grant Program and authorized USACE to study the structural integrity and possible modification or removal for certain dams located in Vermont. When considering dam removal for dam safety purposes, policymakers also may weigh removal costs and the loss of recognized benefits from the dam. <4.2. Federal Funding> Individual dam O&M, rehabilitation, and repair can range in cost from thousands to hundreds of millions of dollars. The responsibility for these expenses lies with dam owners; however, many nonfederal dam owners are not willing or able to fund these costs. As of 2019, ASDSO estimated that rehabilitation and repair of nonfederal high hazard dams in the NID would cost approximately $18.7 billion (overall rehabilitation and repair for nonfederal dams in the NID were estimated at $65.9 billion). Some, such as ASDSO and American Society of Civil Engineers, call for increased federal funding to rehabilitate and repair these dams. They note that upfront federal investment in rehabilitation and repair may prevent loss of lives and large federal outlays in emergency spending if a high hazard dam were to fail. Twenty-three states have created a state-funded grant or low-interest revolving loan program to assist dam owners with repairs. ASDSO states that the programs seem to vary significantly in the scope and reach of the financial assistance available. Congress authorized the " FEMA High Hazard Dam Rehabilitation Grant Program " in the WIIN Act, and subsequently provided appropriations of $10 million to the program in Division A (Department of Homeland Security Appropriations Act, 2019) of the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ). For FY2020, the House Committee on Appropriations recommended no money for the grant program, while the Senate Committee on Appropriations recommended $10 million. Congress may consider the tradeoffs in focusing federal resources on federal dams versus nonfederal dams. While federal agencies report owning only 3% of dams in the NID, many of these dams are considered large dams that can affect large populations and may require costly investments in dam safety. In FY2019, USACE estimated a backlog of $20 billion to address DSAC 1 and DSAC 2 dam safety concerns. USACE has stated that investments in dam rehabilitation and repair above recent levels of appropriations would help alleviate risks and the likelihood of a major dam incident. Reclamation estimates that the current portfolio of dam safety modification projects for Reclamation-owned dams would cost $1.4 billion to $1.8 billion through FY2030. To address this backlog, Congress has considered authorizing mandatory funding from the Reclamation Fund to provide for dam O&M, rehabilitation, and repair, so the funding would not be subject to the appropriations process. While some Members of Congress and stakeholders support this proposal, such as the Western States Water Council, other Members of Congress argue that increasing mandatory funding would remove congressional oversight and control of the Reclamation Fund and result in increases in spending and budget deficits, among other things. Agencies with portfolios of smaller dams (e.g., Forest Service, Fish and Wildlife Service, National Park Service) report that their biggest challenge for dam safety is lack of resources, especially when dam safety is competing against other facility projects (e.g., buildings, levees). The Fish and Wildlife Service suggested in the FY2016-FY2017 National Dam Safety Program Report that downgrading small impoundments from the definition of a dam would alleviate some financial burdens. The agency reasoned that small impoundments that narrowly qualify as dams based on height and/or storage volume obligate the owners and regulators to perform dam safety functions with little likelihood of providing significant dam safety benefits or any genuine risk reduction. Congress may consider continuing current spending levels for dam safety. Under current funding, some metrics for the NDSP, such as the percentage of dams with EAPs and condition assessments, have shown improvement (see " Progress of the National Dam Safety Program "). Similar metrics have improved for some federal agencies that own dams, and certain federal dam safety programs have implemented or are beginning to implement risk-based dam safety approaches to managing their dam portfolios (e.g., USACE and Reclamation). Some stakeholders (e.g., a committee convened by ASDSO, the Association of State Floodplain Managers) have recommended alternative funding structures to congressional appropriations, such as a federal low interest, revolving loan program or financial credit for disaster assistance. For example, Congress has previously authorized a Water Infrastructure Finance and Innovation Act (WIFIA) program, creating a new mechanism credit assistance including direct loans and loan guarantees for USACE to provide assistance for water resource projects (e.g., flood control and storm damage reduction). Congress may consider amending WIFIA to include making rehabilitation and repair of nonfederal dams eligible for credit assistance, or for establishing a new low-interest loan guarantee program. Although Congress authorized secured and direct loans when it enacted WIFIA in 2014, Congress has not provided appropriations to USACE to implement the programs as of FY2019. Similarly, Congress would need to provide both the authority and appropriations for these financial incentives for dam safety programs. <4.3. Risk Awareness> According to some advocacy groups, many Americans are unaware that they live downstream of a dam. Further, if they are aware, the public may not know if a dam is deficient, has an EAP, or could cause destruction if it failed. A lack of public awareness may stem from a lack of access to certain dam safety information, the public's confidence in dam integrity, or other reasons. Dam safety processes and products (such as inspections, EAPs, and inundation maps) are intended to support decisionmaking and enhance community resilience. Some of the information and resulting products may not be readily available to all community members and stakeholders because access to dam safety information is generally restricted from public access. The September 11, 2001, terrorist attacks drew attention to the security of many facilities, including the nation's water supply and water quality infrastructure, including dams. Damage or destruction of a dam by a malicious attack (e.g., terrorist attack, cyberattack) could disrupt the delivery of water resource services, threaten public health and the environment, or result in catastrophic flooding and loss of life. As a consequence of the September 11, 2001, terrorist attacks, current federal policy and practices restrict public access to most information related to the condition assessment of dams and consequences of dam or component failure. For example, according to USACE, dams in the NID meet the definition of critical infrastructure as defined by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 ( P.L. 107-56 ). Vulnerability assessments of critical infrastructure are restricted from public access. Currently USACE considers condition assessments as a type of vulnerability assessment; therefore, dam condition assessments contained in the NID are restricted only to approved government users. However, FEMA reported that following a 2017 recommendation from the NDSRB, USACE is considering making condition assessments of NID dams unrestricted for public access. Congress may consider reevaluating the appropriate amount of information to share (e.g., inundation scenarios from dam failure) to address public safety concerns and what amount and type of information not to share to address concerns about malicious use of that information. There are tradeoffs involved in sharing certain types of data. For example, sharing inundation mapping data with the public may raise awareness of the potential risk of living downstream of a dam, but misinterpretation of that information could cause unnecessary alarm in downstream communities. Currently, inundation mapping data generally are shared with emergency managers and responders rather than with the public at large. Some argue that disclosure to these officials is sufficient, as it provides the information to the officials who bear responsibilities for emergency response. In addition to managing information flow to the public to address risk, Congress might consider the risk of individuals or groups using the information for malicious purposes; namely, the concerns originally raised following the September 11, 2001, terrorist attacks.

Dams provide various services, including flood control, hydroelectric power, recreation, navigation, and water supply, but they require maintenance, and sometimes rehabilitation and repair, to ensure public and economic safety. Dam failure or incidents can endanger lives and property, as well as result in loss of services provided by the dam. Federal government agencies reported owning 3% of the more than 90,000 dams listed in the National Inventory of Dams (NID), including some of the largest dams in the United States. The majority of NID-listed dams are owned by private entities, nonfederal governments, and public utilities. Although states have regulatory authority for over 69% of NID-listed dams, the federal government plays a key role in dam safety policies for both federal and nonfederal dams. Congress has expressed interest in dam safety over several decades, often prompted by critical events such as the 2017 near failure of Oroville Dam's spillway in California. Dam failures in the 1970s that resulted in the loss of life and billions of dollars of property damage spurred Congress and the executive branch to establish the NID, the National Dam Safety Program (NDSP), and other federal activities. These programs and activities have increased safety inspections, emergency planning, rehabilitation, and repair. Since the late 1990s, some federal agency dam safety programs have shifted from a standards-based approach to a risk-management approach. A risk-management approach seeks to mitigate failure of dams and related structures through inspection programs, risk reduction measures, and rehabilitation and repair, and it prioritizes structures whose failure would pose the greatest threat to life and property. Responsibility for dam safety is distributed among federal agencies, nonfederal agencies, and private dam owners. The Federal Emergency Management Agency's (FEMA's) NDSP facilitates collaboration among these stakeholders. The National Dam Safety Program Act, as amended (Section 215 of the Water Resources Development Act of 1996; P.L. 104-303 ; 33 U.S.C. §§467f et seq.), authorizes the NDSP at $13.4 million annually. In FY2019, Congress appropriated $9.2 million for the program, which provided training and $6.8 million in state grants, among other activities. The federal government is directly responsible for maintaining the safety of federally owned dams. The U.S. Army Corps of Engineers (USACE) and the Department of the Interior's Bureau of Reclamation own 42% of federal dams, including many large dams. The remaining federal dams are owned by the Forest Service, Bureau of Land Management, Fish and Wildlife Service, Department of Defense, Bureau of Indian Affairs, Tennessee Valley Authority, Department of Energy, and International Boundary and Water Commission. Congress has provided various authorities for these agencies to conduct dam safety activities, rehabilitation, and repair. Congress also has enacted legislation authorizing the federal government to regulate or rehabilitate and repair certain nonfederal dams. A number of federal agencies regulate dams associated with hydropower projects, mining activities, and nuclear facilities and materials. Selected nonfederal dams may be eligible for rehabilitation and repair assistance from the Natural Resources Conservation Service, USACE, and FEMA. For example, in 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act; P.L. 114-322 ) authorized FEMA to administer a high hazard dam rehabilitation grant program to provide funding assistance for the repair, removal, or rehabilitation of certain nonfederal dams. Congress may consider how to address the structural integrity of dam infrastructure and mitigate the risk of dam safety incidents, either within a broader infrastructure investment effort or as an exclusive area of interest. Congress may reexamine the federal role for dam safety, while considering that most of the nation's dams are nonfederal. Congress may reevaluate the level and allocation of appropriations to federal dam safety programs, rehabilitation and repair for federal dams, and financial assistance for nonfederal dam safety programs and dams. In addition, Congress may maintain or amend policies for disclosure of dam safety information when considering the federal role in both providing dam safety risk and response information to the public while also maintaining security of these structures.

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<1. Introduction> This report provides analysis of relevant background information and considerations for Congress associated with ongoing Department of Defense (DOD) efforts to obtain enterprise-wide cloud computing services through the Joint Enterprise Defense Infrastructure (JEDI) Cloud acquisition program. In September 2017, then-Deputy Secretary of Defense (DSD) Patrick Shanahan issued a memorandum calling for the accelerated adoption of a DOD enterprise-wide cloud services solution as a key component of ongoing DOD modernization efforts. DOD views this adoption process as a two part effort: in the first phase, DOD is seeking to acquire a cloud services solution accessible to the entirety of the Department that can support Unclassified, Secret, and Top Secret requirements, focusing on commercially available cloud service solutions, through the JEDI Cloud acquisition program. In the second phase, DOD seeks to transition selected existing data and applications maintained by the military departments and agencies to the cloud. <2. Background> <2.1. What Is Cloud Computing?> Broadly speaking, cloud computing refers to the practice of remotely storing and accessing information and software programs on demand through the internet, instead of storing data on a computer's hard drive or accessing it through an organization's intranet. It relies on a cloud infrastructure , a collection of hardware and software that may include components such as servers and a network. This infrastructure can be deployed privately to a select user group, publicly through subscription-based commercial services available to the general public, or through hybrid deployments that combine aspects of both private and public cloud infrastructure. Cloud computing capabilities are delivered to end users through three main service models: Software as a Service (SaaS) , which provides end users with access to software applications hosted and managed by the cloud computing provider (such as Dropbox, Slack, or Google web-based applications); Platform as a Service (PaaS) , which provides end users with the ability to construct and distribute web-based software applications through a common interface hosted and managed by the cloud computing provider (such as Google App Engine, Amazon Web Services Elastic Beanstalk, Microsoft Azure, and Oracle Cloud); and Infrastructure as a Service (IaaS) , which provides end users with remote access to infrastructure components such as servers, virtual machines, and storage maintained by the cloud computing provider (such as Amazon Elastic Compute Cloud, Google Compute Engine, and Microsoft Azure). Many major cloud vendors, such as Microsoft and Amazon, are increasingly offering products and services that combine aspects of these service models. Cost, efficiency, accessibility, agility of improvements, security, and reliability are all considerations in public and private sector decisions about cloud service adoption. For a more in-depth discussion of these factors and cloud computing characteristics, deployment models, and service models, see CRS Report R42887, Overview and Issues for Implementation of the Federal Cloud Computing Initiative: Implications for Federal Information Technology Reform Management , by Patricia Moloney Figliola and Eric A. Fischer. <2.2. What Is the Current Status of DOD's Adoption of Cloud Services?> Since the establishment of the Federal Cloud Computing Initiative (FCCI) in 2009, the federal government including DOD has actively worked to shift portions of its information technology (IT) needs to cloud-based services through strategies such as "Cloud First," which required federal agencies to prioritize the use of cloud-based solutions whenever a secure, reliable, and cost-effective option existed. This move was intended in part to reduce the total investment by the federal government in physical information technology (IT) infrastructure through actions such as reducing or eliminating data storage at agency-owned and operated data centers as well as capitalizing on other advantages of cloud adoption. DOD efforts to acquire cloud services have been ongoing; however, DOD has described its current cloud services use as "decentralized" and "disparate," creating "additional layers of complexity" that impede shared access to common applications and data across the Department. As of mid-2018, DOD reported maintaining more than 500 public and private cloud infrastructures that support Unclassified and Secret requirements. DOD has also acknowledged that its prior lack of "clear guidance on cloud computing, adoption, and migration," as well as acquisition guidance that allowed DOD components to independently pursue the procurement of cloud-based services, has led to "disjointed implementations with limited capability, siloed data, and inefficient acquisitions that cannot take advantage of economies of scale." <2.3. What Is DOD's Current Cloud Strategy?> DOD publicly released its current "Cloud Strategy" in February 2019. As part of its cloud strategy, DOD identifies the need to adopt cloud computing services across the Department as a priority, and articulates its intent to develop a "multi-cloud, multi-vendor ecosystem composed of a General Purpose and [multiple] Fit For Purpose" (see Figure 1 ) clouds. DOD anticipates that the JEDI Cloud acquisition program will ultimately lead to a foundational enterprise-wide "General Purpose" cloud suitable for the majority of DOD systems and applications, enabling DOD to offer IaaS and PaaS at all classification levels. "Fit For Purpose" clouds, on the other hand, are envisioned as task-specific "commercial solution[s]" such as the ongoing Defense Enterprise Office Solutions (DEOS) SaaS acquisition program that will create a cloud-based replacement for certain DOD software-based applications such as email and instant messaging services or "on-premises cloud solution[s]," such as DISA's milCloud 2.0, which provides IaaS, to be used in limited situations where the "General Purpose" cloud cannot adequately support mission needs." <2.4. What Acquisition Policies Apply to DOD Procurement of Cloud Services?> While the Federal Acquisition Regulation (FAR) does not explicitly provide acquisition guidance for cloud computing services, certain sections (e.g., FAR Part 39, Acquisition of Information Technology or FAR Part 12, Acquisition of Commercial Items ) may apply depending on the specific acquisition strategy for a particular contract. Certain other government-wide acquisition policies for cloud services, such as the Federal Risk and Authorization Management Program (FedRAMP) security assessment process, apply. DOD-specific policies for acquiring cloud services are prescribed in part by Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 239.76, which states that DOD must generally acquire cloud services using commercial terms and conditions such as license agreements, end user license agreements, terms of service, or other similar legal instruments consistent with federal law and DOD's needs. A contract to acquire cloud services may generally only be awarded to a provider with provisional Defense Information Security Agency (DISA) authorization to provide such services, consistent with the current version of the DOD Cloud Computing Security Requirements Guide (SRG). To maintain legal jurisdiction over information and data accessed via a cloud services solution, all data stored and processed by or for DOD must reside in a facility under the exclusive legal jurisdiction of the United States meaning that cloud computing service providers are generally required to store government data that is not physically located on DOD premises at locations within the United States or outlying areas of the United States. All cloud services must have an Authorization to Operate (ATO), an official decision made by a senior official that explicitly accepts any associated operational risks (i.e., risks to organizational operations or assets; individuals; other organizations; or the United States). An ATO is based on the implementation of an agreed-upon set of security controls. The 2014 DOD Memorandum Updated Guidance on the Acquisition and Use of Commercial Cloud Computing Services authorized the direct acquisition of cloud services by DOD components, and provided additional guidance for the acquisition of commercial cloud services. <3. The JEDI Cloud Program> <3.1. Why Does DOD Require the JEDI Cloud?> In the unclassified summary of the 2018 National Defense Strategy (NDS), the Department articulates the need for significant DOD investment in key technology capabilities such as "cyber defense, resilience, and the continued integration of cyber capabilities into the full spectrum of military operations," as well as "military application of autonomy, artificial intelligence, and machine learning" in order to maintain military superiority against near-peer adversaries such as China and Russia. The Department views the cloud computing and data storage capabilities to be acquired through the JEDI Cloud procurement as providing "foundational technologies" for these investments. The Joint Chiefs of Staff has also stated that "efforts for accelerating [cloud adoption] are critical in creating a global, resilient, and secure information environment that enables warfighting and mission command." DOD Chief Information Officer (CIO) Dana Deasy has further contended that the Department requires an enterprise-wide cloud "that allows for data-driven decision making [and] enables DOD to take advantage of our applications and data resources," in part to provide worldwide support for DOD operations. In recent public statements DOD CIO Deasy, as well as Lt. Gen. Bradford J. Shwedo, Director for Command, Control, Communications and Computers/Cyber of the J6 Command, Control, Communications, and Computers (C4) and Cyber Directorate of the Joint Staff, have also emphasized that delays in pursuing the capabilities included in the JEDI Cloud procurement may adversely affect ongoing Department activities, such as the recently established Joint Artificial Intelligence Center, which seeks to accelerate the delivery of artificial intelligence-enabled capabilities to DOD. <3.2. Who Has Responsibility for the JEDI Cloud Program Within DOD?> Initially, the Cloud Executive Steering Group (CESG) oversaw DOD's cloud adoption initiative. The CESG, established in September 2017, reported directly to the Deputy Secretary of Defense (DSD). The CESG was originally chaired by Ellen Lord, then the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)). At first, the CESG included the Director of the Strategic Capabilities Office (SCO), the Managing Partner of the Defense Innovation Unit Experimental (DIUx, now known as the Defense Innovation Unit, or DIU), the Director of the Defense Digital Service (DDS), and the Executive Director of the Defense Innovation Board (DIB) as voting members (see Table 1 ). The DDS Director was tasked with leading phase one of DOD's cloud adoption initiative: the JEDI Cloud program. In January 2018, the DSD announced changes to the membership and leadership of the CESG; the Deputy Chief Management Officer (DCMO; Jay Gibson, who was serving as DCMO at the time, would later become DOD's first CMO) would chair the group, with the Director of Cost Assessment and Program Evaluation (CAPE) and the DOD CIO added to the group's members. In June 2018, the DSD announced that the DOD CIO, as the principal staff assistant and senior advisor to the Secretary of Defense for information technology, would oversee all aspects of DOD's cloud adoption initiative, to include the JEDI Cloud acquisition program. The Cloud Computing Program Office (CCPO), which was established by DDS to serve as the program office for the JEDI Cloud program, was also transitioned to the Office of the CIO at that time. <3.3. What Is the Current Status of the JEDI Cloud Contract?> A Request for Information (RFI) for the JEDI Cloud program was issued in October 2017; the Department held an industry day event and issued a draft Request for Proposal (RFP) in early March 2018, with a second draft RFP issued in April 2018. The final JEDI RFP was issued on July 26, 2018, and closed on October 9, 2018. In early April 2019, DOD announced that the Department had completed an initial downselect from four qualified proposals submitted by IBM, Amazon Web Services, Microsoft, and Oracle America. Amazon Web Services and Microsoft remain in contention for the contract. The Department is in the final stages of evaluating proposals, and originally anticipated announcing a contract award decision in August 2019. However, Secretary of Defense Dr. Mark T. Esper is reportedly currently reviewing the JEDI Cloud program, which may delay the award. DOD requested $61.9 million in funding for the JEDI Cloud acquisition program for Fiscal Year (FY) 2020. <3.4. How Is the JEDI Cloud Contract Structured?> Through the JEDI Cloud contract, DOD intends to conduct a full and open competition that will result in a single award Indefinite Delivery/Indefinite Quantity (ID/IQ) firm-fixed price contract for commercial items (i.e., IaaS and PaaS). DOD wants the JEDI Cloud to provide worldwide cloud computing services including in austere environments comparable to those made available through commercial cloud services. Accordingly, the Department has specified that an offeror does not need to maintain dedicated or exclusive infrastructure for unclassified services. However, offerors must comply with the JEDI Cloud Cyber Security Plan, and must provide dedicated, exclusive infrastructure for classified services. DOD is further requiring any successful offeror to provide rapid deployment of new commercially available cloud-related services to JEDI Cloud users, and expects ongoing parity with public commercial prices. DOD indicated that the minimum guaranteed award is $1 million. The contract is expected to have a maximum ceiling of $10 billion across a potential 10-year period of performance. Under an ID/IQ contract, the government is only required to purchase the minimum amount specified in the contract, and may ultimately choose not to reach the contract ceiling. The contract period of performance is structured as a two-year base ordering period, with three additional option periods (two three-year options and one two-year option), for a potential total of 10 years (see Table 1 ). <3.5. What Is the Source Selection Process for the JEDI Cloud Contract?> DOD indicated that it will award the JEDI Cloud contract to the offeror whose proposal meets specified requirements and represents the best value to the government, based on a two-step evaluation process. In the first step, offerors were evaluated against seven performance-based criteria (see Figure 2 for a full listing).3 Proposals were deemed acceptable or unacceptable for each individual sub-factor as considered sequentially: a judgement of unacceptable immediately disqualified a proposal from further consideration. For example, performance sub-factor 1.1, "Elastic Usage," requires offerors to provide summary data for the months of January and February 2018 in order to demonstrate that additional traffic generated by unclassified usage of the JEDI Cloud would not represent a majority of a proposed solution's commercially available network, computational, and storage capacity. Performance sub-factor 1.2, "High Availability and Failover," in part requires offerors to have no fewer than three existing physical data centers at least 150 miles apart within the United States or outlying areas of the United States. If a proposal received a mark of "acceptable" for each sub-factor, it proceeded to the second phase of the source selection process, where it was then evaluated against five additional technical factors, together with submitted price proposals, to determine a "competitive range" of offerors. Qualifying offerors within the competitive range were next evaluated against two additional factors: the offeror's approach to meeting small business participation goals and a demonstration of the proposed solution's capabilities. <4. Reactions from Observers and Congress> <4.1. How Has Industry Reacted?> DOD received more than 1,500 comments in response to its draft RFPs. Companies including Amazon Web Services, Google, IBM, and Microsoft initially expressed interest in competing for the JEDI Cloud contract. However, DOD's acquisition strategy also sparked resistance from those who opposed DOD's intent to award the contract to a single company. This concern led some industry associations to publicly contest a single award, arguing that it would be inconsistent with broader federal cloud computing implementation guidance, and could unfairly restrict future competition for DOD cloud services. For example, the trade group ITAPS (IT Alliance for Public Sector) sent a letter to the House and Senate Armed Services committees stating in part that the deployment of a single cloud conflicts with established best practices and industry trends in the commercial marketplace, as well as current law and regulation, which calls for the award of multiple task or delivery order contracts.... Further, the speed of adoption of innovative commercial solutions, like cloud, is facilitated by the use of these best practices. In October 2018, Google announced that it would not be submitting a bid for the contract, citing possible conflict with its corporate principles, along with DOD's plans to award the contract to a single vendor, among its reasons for withdrawing. <4.1.1. GAO Bid Protests and U.S. Court of Federal Claims Case> Oracle America and IBM both filed pre-award bid protests with the Government Accountability Office (GAO) against the JEDI Cloud solicitation; GAO denied Oracle America's protests on November 14, 2018, and dismissed IBM's protests on December 11, 2018. Subsequently, Oracle America filed a bid protest lawsuit with the U.S. Court of Federal Claims. In filings associated with its bid protest lawsuit, Oracle America in part alleged that (1) the performance-based criteria include in the first step of the contract source selection process were "unduly restrictive and arbitrary" and (2) the JEDI Cloud acquisition process was unfairly skewed in favor of Amazon Web Services through potential organizational conflicts of interest associated with three former DOD employees, each of whom was involved to greater or lesser degrees in the early development of the program. Two of these former DOD employees were subsequently employed by Amazon Web Services. These claims attracted significant media and congressional attention. DOD investigations determined that Amazon Web Services had no unmitigated organizational conflicts of interest, and established that the actions of the individuals identified by Oracle America did not negatively impact the procurement or grant Amazon Web Services an unfair competitive advantage. However, the investigations did identify individual violations of ethical standards established by FAR Part 3.101-1, which directs government procurement activities to be "conducted in a manner above reproach," and for government employees to strictly "avoid any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships." These findings were reportedly referred to the DOD Inspector General for further review. The U.S. Court of Federal Claims ruled against Oracle America in a July 12, 2019, decision, finding in part that sub-factor 1.2 of the sequentially considered performance-based criteria included in the Department's source selection process was "enforceable," and noting that as Oracle America admitted that its services did not "meet that criteria at the time of proposal submission, [the Court] conclude[s] that it cannot demonstrate prejudice as a result of other possible errors in the procurement process ." <4.2. How Has DOD Responded to Industry Concerns?> <4.2.1. Potential for Restriction of Future Competition> DOD officials have repeatedly described JEDI Cloud as a test model for DOD's future transition of legacy information technology systems to the cloud and have stressed that it is not intended to be a final solution. DOD CIO Dana Deasy has also highlighted the Department's lack of experience in deploying an enterprise-wide cloud solution, arguing that "starting with a number of firms while at the same time trying to build out an enterprise capability" would "double or triple" the technical complexity of the program. In the Department's May 2018 report to Congress, DOD indicated that the JEDI Cloud contract would include multiple mechanisms to maximize DOD's flexibilities going forward the initial base ordering period is limited to 2 years, which will allow for sufficient time to validate the operational capabilities of JEDI Cloud and the DOD enterprise-wide approach. Option periods ... will only be exercised if doing so is the most advantageous method for fulfilling the DOD's requirements when considering the market conditions at the time of option exercise. As detailed in the JEDI Cloud RFP, offerors submitting a proposal to DOD were required to provide detailed transition and data portability plans, to include the complete set of processes and procedures necessary to extract all relevant data (such as system and network configurations, activity logs, source code, etc.) from the JEDI Cloud environment and systematically migrate to another cloud environment. <4.2.2. Use of a Single-Award Contract> Section 2304a of Title 10, U.S. Code establishes a preference for making multiple awards for task or delivery order contracts, and separately prohibits DOD from awarding task or delivery order contracts exceeding $112 million (including all option periods) to a single source unless the head of the agency determines in writing that one or more of four specified circumstances apply. DOD detailed the rationale for using a single-award ID/IQ contract for the JEDI Cloud procurement, pursuant to 10 U.S.C.2304a(d)(4) and the provision's implementing FAR requirements, noting that while the FAR establishes a general preference for multiple award ID/IQ contracts, the FAR also establishes that a contracting officer must not use a multiple award approach if one or more of six conditions apply. Accordingly, the JEDI Cloud contracting officer determined that more favorable terms and conditions, including pricing, would be provided through a single award; the expected higher cost of administering multiple contracts "outweigh[ed] the expected benefits of making multiple awards" with a DOD-estimated additional cost of $500 million associated with administering multiple contracts; and multiple awards would not be in the best interests of DOD in this particular instance, as a multi-cloud environment could potentially "create seams between clouds that increase security risks frustrate DOD's attempts to consolidate and pool data [and could] exponentially increase the technical complexity require to realize the benefit of cloud technology." Together with the JEDI Cloud RFP, the Department also released its determination pursuant to 10 U.S.C. 2304a(d)(3), which prohibits DOD from awarding large task or delivery order contracts to a single source unless a senior official determines if at least one of four exceptions to the prohibition is present, that the JEDI Cloud contract provides only for firm-fixed price task orders or delivery orders for services for which prices are established in the contract for the specified tasks to be performed. However, the JEDI Cloud contract will also contain pricing related clauses intended to allow the Department to benefit from future marketplace competition driving commercial sector cloud services pricing downward, and to provide DOD with access to new cloud services as they become available to the commercial market the contract automatically lower DOD's prices when the contractor's public commercial prices are lowered. The lower unit price is fixed. [T]o achieve commercial parity over time, the contract contemplates adding new or improved cloud services to the contract. The new services clause requires approval for the addition of new services and includes mechanisms to ensure that the fixed unit price for the new service cannot be higher than the price that is publicly available in the commercial marketplace in the continental United States. This same clause requires that, if a service is eliminated from the Contractor's publicly available commercial catalog, the Contractor shall offer replacement service(s) at a price no higher than, the service being eliminated. As with any other cloud offering, once the new service is added to the catalog, the unit price is fixed and cannot be changed without contracting officer approval. The U.S. Court of Federal Claims questioned DOD's use of the 10 U.S.C. 2304a(d)(3) exception for firm fixed-price task or delivery orders in its determination in tandem with the JEDI Cloud contract's price adjustment clauses, noting that "prices for new, additional services to be identified and priced in the future, even if they may be capped in some cases, are not, by definition, fixed or established at the time of contracting." <4.3. What Actions Has Congress Taken?> <4.3.1. Legislative Action in the 115th Congress> <4.3.1.1. Authorizations> Section 1064 of P.L. 115-232 , the John S. McCain National Defense Authorization Act (NDAA) for FY2019, required the DOD CIO to conduct activities supporting DOD's cloud adoption initiative: developing an approach to rapidly acquire advanced network capabilities, including software-defined networking, on-demand bandwidth, and aggregated cloud access gateways, through commercial service providers; and conducting an analysis of existing systems and applications that would be migrated to the JEDI Cloud environment. Section 1064 required the DOD CIO to submit a report on the current status and anticipated implementation of DOD's cloud adoption initiative, and limited the use of authorized FY2019 funds for DOD's cloud adoption until the required report's submission. The Department submitted the required report in January 2019. Section 1064 further required DOD to complete an assessment to determine whether an information system or application is already, or can and would be cloud-hosted, prior to approving any new system or application for development or modernization. Finally, and pointedly, Section 1064 requires the Deputy Secretary of Defense to "ensure that the acquisition approach of the Department [for the JEDI Cloud procurement] continues to follow the [FAR] with respect to competition." In the conference report accompanying the FY2019 NDAA ( H.Rept. 115-874 ), the conferees emphasize the importance of modernizing networks by adopting advancing [sic] commercial capabilities to achieve DOD's cloud transition and enterprise efficiency goals. The conferees encourage the Department to continue to ensure that cloud technologies are technically suitable, appropriately tested for security and reliability, and integrated with other DOD information technology efforts so as to optimize effective and efficient procurement of such technologies and services and their performance in support of DOD missions. Finally, the conferees note that although transparency and information sharing by the Department on the Cloud Initiative has slightly improved, it continues to be insufficient for conducting congressional oversight. The conferees expect the Department to improve communication with Congress on this issue and will consider additional legislation if an improvement is not seen. <4.3.1.2. Appropriations> Section 8137 of P.L. 115-245 , which provided FY2019 DOD appropriations, prevented the obligation or expenditure of FY2019 funds to "migrate data and applications to the proposed [JEDI] ... cloud computing services" until 90 days after the Secretary of Defense submitted (1) a plan to establish a DOD-wide budget accounting system for funds requested and expended for cloud services, as well as funds requested and expended to migrate to a cloud environment; and (2) a detailed description of DOD's strategy to implement enterprise-wide cloud computing to the congressional defense committees. The Department submitted the required report in January 2019. <4.3.2. Proposed Legislative Action in the 116th Congress> <4.3.2.1. Authorizations> The House Armed Services Committee report ( H.Rept. 116-120 ) accompanying the House-passed FY2020 NDAA ( H.R. 2500 ), includes the committee's commendation for DOD's cloud strategy Cloud infrastructure, such as [JEDI], allows users to access information from anywhere at any time, effectively removing the need for the user to be in the same physical location as the hardware that stores the data. The ability of cloud infrastructure to scale ensures that the Department efficiently manages and modernizes its information technology needs and demands. The committee endorses the Department's strategy and concept for a flexible enterprise cloud architecture that enshrines the need and value for both general purpose and fit-for-purpose cloud solutions through a multi-cloud, multi-vendor approach. Section 1035 of S. 1790 , the Senate-passed FY2020 NDAA, would specify that the DOD CIO and the DOD Chief Data Officer, in consultation with the J6 Command, Control, Communications, and Computers (C4) and Cyber Directorate of the Joint Staff and the DOD CMO, must develop and issue DOD-wide policy and implementing instructions regarding the transition of data and applications to the cloud. Such a policy would be required to "dramatically improve support to operational missions and management processes, including by the use of artificial intelligence and machine learning technologies." In its "Items of Special Interest" for Title XVI ("Strategic Programs, Cyber, and Intelligence Matters"), the Senate Armed Services Committee report ( S.Rept. 116-48 ) for the FY2020 NDAA notes the committee's understanding for the "potential of commercial clouds to provide cost-effective, state-of-the-art capabilities," but highlights the committee's view that tDOD must be able to "conduct cybersecurity testing" for commercial cloud products and services, "including threat-realistic cyberattacks, to assess the cybersecurity of the Department's data and the cyber defense response to the attacks." The report directs the Secretary of Defense to provide a related briefing to the House and Senate Armed Services Committees, and recommends the inclusion of information regarding independent cyber assessments for commercially provided infrastructure in Director of Operational Test and Evaluation annual reports. <4.3.2.2. Appropriations> The House Appropriations Committee report ( H.Rept. 116-84 ) accompanying H.R. 2968 , the House-passed FY2020 Department of Defense appropriations act, highlights the committee's skepticism of DOD's pursuit of a "single vendor contract strategy" for the JEDI Cloud procurement The Committee continues to be concerned with this approach given the rapid pace of innovation in the industry and that this approach may lock the [DOD] into a single provider for potentially as long as ten years. Since the [DOD] adopted its single vendor strategy in 2017, other federal agencies have decided to pursue a multiple vendor cloud strategy as recommended by the [OMB] "Cloud Smart" strategy the Committee believes the [DOD] is deviating from established OMB policy and industry best practices, and may be failing to implement a strategy that lowers costs and fully supports data innovation for the warfighter. Accordingly, the House Appropriations Committee report would direct that no funds may be obligated or expended to migrate data and applications to the JEDI Cloud until the DOD CIO provides a report to the congressional defense committees expanding on the Department's plans to transition to a "multi-cloud, multi-vendor" environment. The DOD CIO would be directed to provide a listing of anticipated contracting opportunities for the acquisition of commercial cloud services by the Department over the next two years, to include specified elements such as planned contract type and structure; whether the procurement is anticipated to be conducted as a full and open competition or as a sole source award; the estimated timeframe for the release of related solicitations; and the estimated maximum contract value and period of performance, including option periods. The DOD CIO would also be directed to submit quarterly reports on the implementation of its cloud adoption and implementation strategy to the House and Senate Appropriations Committees, beginning 30 days after the enactment of a FY2020 defense appropriations act. <4.3.3. Other Congressional Actions> Various Members of Congress have also individually and collectively advocated for the Department to take certain actions relating to the JEDI Cloud procurement. For example, some Members have urged DOD to delay or postpone awarding the JEDI Cloud contract to accommodate an alternate acquisition strategy, or the conclusion of the DOD Inspector General's investigation into the potential violations of ethical standards by former DOD employees. Other Members have supported DOD's acquisition strategy, advocating for the Department to award the JEDI Cloud contract as soon as possible. <5. Considerations for Congress> Significant attention has focused on DOD's intent to award the JEDI Cloud contract to a single company. Some observers contend that an initial single award appears to contradict broader federal cloud computing implementation guidance and industry best practices that stress the importance of multi-cloud solutions. Other experts point to the implementation approaches identified by DOD's Cloud Strategy as an indication that the Department expects the JEDI Cloud to serve certain enterprise-wide functions, performing as one component of a broader multi-cloud, multi-vendor system. Some observers, however, have concluded that the JEDI Cloud requirements are misaligned with DOD's Cloud Strategy, and have urged the Department to rescind and revise the JEDI Cloud RFP. Those opposed to DOD's use of a single-award contract for the JEDI Cloud program have suggested that a single-award contract could potentially restrict future competition for enterprise-wide DOD IaaS and PaaS cloud services. Supporters of DOD's approach argue that the JEDI Cloud program's requirement for offerors to develop platform-agnostic applications and data schema suggests that the Department will be well equipped to migrate from any service environment developed under the JEDI Cloud contract to another such environment. Potential considerations for Congress concerning the ongoing JEDI Cloud acquisition process, as well as any follow-on efforts, include the following issues. <5.1. Oversight of Option Exercise for the JEDI Cloud Contract> As DOD has indicated that it believes the initial two-year base ordering period is sufficient time to validate the JEDI Cloud test model, Congress may consider directing DOD to provide detailed rationale and justification for any extension of the JEDI Cloud contract prior to the exercise of contract options. At the time of option exercise, Congress may also consider directing the Department to report on any notable lessons learned or challenges experienced in the execution of the JEDI Cloud contract. As emphasized in the conference report accompanying the FY2019 NDAA ( H.Rept. 115-874 ), Congress may also wish to monitor the extent to which the Department has "improved communication with Congress" to enable sufficient congressional oversight of the JEDI Cloud program and DOD's cloud adoption initiative. <5.2. Procurement Integrity> The U.S. Court of Federal Claims decision agreed with the Department's finding that the actions of the individuals identified by Oracle America in its bid protest lawsuit did not negatively impact the procurement or grant Amazon Web Services an unfair competitive advantage. However, the individual violations of ethical standards for federal employees involved in the acquisition of goods and services for the U.S. government which generated the appearance of unresolved conflicts of interest identified by DOD in the course of its investigations delayed the JEDI Cloud procurement process. The FAR directs government procurement activities to be "conducted in a manner above reproach," and for government employees to strictly "avoid even the appearance of a conflict of interest." Congress may accordingly consider directing DOD to examine the current emphasis on ethical conduct and the Procurement Integrity Act in education, training, and qualification requirements for designated acquisition positions as well as considering the need to include equivalent training for DOD servicemembers and civilian employees outside of the defense acquisition workforce who may provide technical expertise or other support for procurement programs and determine what, if any, changes should be made to associated curriculum and certification requirements.

In September 2017, the Deputy Secretary of Defense issued a memorandum calling for the accelerated adoption of a Department of Defense (DOD) enterprise-wide cloud services solution as a fundamental component of ongoing DOD modernization efforts. As a component of this effort, DOD is seeking to acquire a cloud services solution accessible to the entirety of the Department that can support Unclassified, Secret, and Top Secret requirements, focusing on commercially available cloud service solutions, through the Joint Enterprise Defense Infrastructure (JEDI) Cloud acquisition program. DOD intends to conduct a full and open competition that is expected to result in a single award Indefinite Delivery/Indefinite Quantity firm-fixed price contract for commercial items. DOD has indicated that the minimum guaranteed award is $1 million, and that the initial period of performance is two years. The contract is expected to have a maximum ceiling of $10 billion across a potential 10-year period of performance. DOD is in the final stages of evaluating proposals, with Amazon Web Services and Microsoft remaining in contention for the contract. The Department originally expected to award the contract in August 2019. However, Secretary of Defense Dr. Mark T. Esper is reportedly currently reviewing the JEDI Cloud program, which may delay the award. Significant industry and congressional attention has been focused on DOD's intent to award the JEDI Cloud contract to a single company. Oracle America filed multiple pre-award bid protests with the Government Accountability Office, which were denied. Oracle America then filed a bid protest lawsuit with the U.S. Court of Federal Claims; the court ruled against Oracle in a July 12, 2019, decision. In filings associated with its bid protests, Oracle America alleged in part that the JEDI Cloud acquisition process was unfairly skewed in favor of Amazon Web Services through potential organizational conflicts of interest associated with three former DOD employees, each of whom was involved to greater or lesser degrees in the early development of the program. DOD investigations determined that Amazon Web Services had no conflicts of interest and established that the actions of the individuals identified by Oracle America did not negatively impact the procurement or grant Amazon Web Services an unfair competitive advantage. However, the investigations did identify individual violations of ethical standards established by the Federal Acquisition Regulation. Some industry observers contend that an initial single award appears to contradict broader federal cloud computing implementation guidance and industry best practices that stress the importance of multi-cloud solutions. Others point to the implementation approaches identified by DOD's 2019 Cloud Strategy as evidence that the Department expects the JEDI Cloud to serve certain enterprise-wide functions, performing as one component of a broader multi-cloud, multi-vendor system. Opponents of DOD's use of a single-award contract for the JEDI Cloud program have suggested that this tactic could restrict future competition for enterprise-wide DOD cloud services. Supporters of DOD's approach argue that the JEDI Cloud program's requirement for offerors to develop applications and data schema easily transferable to different platforms suggests that the Department may be equipped to migrate from any service environment developed under the JEDI Cloud contract to another such environment. Several Members of Congress have engaged the Administration to express their views regarding the JEDI Cloud acquisition program and pending contract award. The 116 th Congress is considering related authorization and appropriations legislation that could shape future implementation of the program ( H.R. 2740 , H.R. 2500 , and S. 1790 ).

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<1. Introduction> Congress established the National Wild and Scenic Rivers System (NWSRS) in 1968 through the Wild and Scenic Rivers Act (WSRA). The WSRA established a policy of preserving designated free-flowing rivers for the benefit and enjoyment of present and future generations. It also complemented the then-current national policy of constructing dams and other structures that altered flow along many rivers. Designated rivers usually are referred to as wild and scenic rivers (WSRs). The WSRA established three classes of WSRs, reflecting the characteristics of a river at the time of designation and affecting the type and amount of development that may be allowed afterward: W ild rivers are free from impoundments (dams, diversions, and so forth) and generally inaccessible except by trail. The watersheds are primitive, and the shorelines are essentially undeveloped. Scenic rivers are free from impoundments and in generally undeveloped areas but are accessible in places by roads. Recreational rivers are readily accessible by road, with some shoreline development, and may have been subject to some impoundment or diversion in the past. At the passage of the WSRA in 1968, Congress initially designated 789 miles in eight rivers as part of the NWSRS and began to expand the system in 1972; since then, every Congress has added rivers. Altogether, the system now includes 226 river units comprising over 13,400 miles in 41 states and the Commonwealth of Puerto Rico. Congress plays an ongoing role in shaping the NWSRS through legislation and oversight. Congress establishes new WSRs within the system, directs the Administration to study potential WSRs, and determines the level of agency funding for WSR administration. For individual WSRs, Congress has made specific provisions concerning river management, land acquisition and use in river corridors, and other matters. Ongoing issues for Congress include whether to designate additional WSRs, how to address local and federal roles on nonfederal river segments, and more. <2. Designation and Study> Rivers may come into the NWSRS either by congressional designation or by state nomination to the Secretary of the Interior. In some cases, prior to adding a river to the system, Congress first directs in legislation that a study be conducted to determine whether the river area is suitable for wild and scenic designation. Congress also has directed the Secretaries of Agriculture and the Interior to evaluate rivers for inclusion in the NWSRS through agency planning processes. Congress may designate rivers as part of the system without first requiring a study. The Secretary of the Interior or Agriculture, as appropriate, is responsible for conducting authorized studies and reporting to the President on the suitability of a proposed addition. The President in turn submits recommendations to Congress. The act states that the studies are to discuss, among other things, the "outstandingly remarkable values" (ORVs) that make the area worthy or unworthy of addition to the system; current land ownership and use; potential future uses of the land and water that could be affected by addition to the system; the federal agency that would administer the area; the cost of acquiring the land, if applicable; and the extent to which management costs would be shared by state and local agencies. The act also directs the administering agency to determine which river classification wild, scenic, or recreational best fits the designated river segments. However, Congress may preclude the need for these agency determinations by specifying particular classifications in law. Although Congress designates most rivers, the Secretary of the Interior also may add WSRs to the NWSRS through administrative action. A state-nominated river may be added to the national system if the river is designated for protection under state law, approved by the Secretary of the Interior, and permanently administered by a state agency (see " State-Administered Wild and Scenic Rivers " for further information). A minority of wild and scenic river designations have been made in this manner. The WSRA affords rivers designated by Congress for study (known as study rivers ) the same protections as designated rivers (see " Agency Role After Designation ," below). These protections last through the study process and extend to a three-year period following the transmittal of the final study report by the President to Congress. The act does not protect rivers studied through an agency's planning process, although the agency may use other authorities to protect attributes such as free flow or ORVs. <3. Agency Role After Designation> After Congress designates a river segment as a WSR, the segment falls under the jurisdiction of one of the four major federal land management agencies. The agency's role depends on the ownership of the land through which the river flows. If the river flows through federal lands (wholly or in part), the agency of jurisdiction manages the river as part of its overall land management activities. The National Park Service (NPS) acts as the federal administrator for rivers entirely on nonfederal lands. For these rivers, NPS may provide technical and financial assistance to relevant jurisdictions; it also ensures compliance with Section 7 of the WSRA, which prohibits certain water resources projects that would adversely affect the values for which the rivers were established (see " Water Resources Projects: Section 7 ," below). The WSRA authorizes or prohibits certain activities for all WSRs. However, management of WSRs differs based on the lands where individual rivers lie and other factors. Various federal agencies administer rivers in the NWSRS designated by Congress. Typically, Congress specifies that either the Secretary of Agriculture or the Secretary of the Interior administer newly designated WSRs. The designated Secretary then administers the river through one of the four federal land management agencies the Bureau of Land Management (BLM), NPS, or U.S. Fish and Wildlife Service (FWS) within the Department of the Interior or the Forest Service (FS) within the Department of Agriculture. Unless otherwise specified by Congress, rivers administered by the Secretary of the Interior and managed by NPS become part of the National Park System, and those managed by FWS become part of the National Wildlife Refuge System. Following designation, the agency prepares a management plan (often called a comprehensive resource management plan , or CRMP) for the designated segment. The CRMP is to "provide for the protection of the river values" by addressing issues such as development of lands and facilities, user capacities, and other management practices. By law, CRMPs must address resource protection, development of lands and facilities, user capacities, and other management practices necessary or desirable to achieve the purposes of the WSRA. Agencies sometimes provide more specific direction regarding CRMP components. For example, in addition to the components listed, BLM specifies that CRMPs should describe existing resource conditions, including detailed descriptions of ORVs; define the goals for protecting river values and the desired condition of the river; address water quality and instream flow; identify resources requiring compliance with other authorities; identify regulatory authorities of other agencies that relate to river values; and describe a river monitoring strategy. CRMPs generally are to be completed within three fiscal years after the date of a river's designation. There is no statutory requirement that CRMPs be updated. In some river study authorizations, Congress has required the study agency to develop a CRMP in concert with the study process. In some cases, Congress has adopted these CRMPs in the legislation designating the river. Agencies have sometimes developed elements of the CRMP while studying the river, even if not directed by Congress to do so. The agency determines the boundaries of areas along the designated river. The land area included may not exceed an average of 320 acres per mile of river designated (an average quarter-mile-wide corridor of land on each side of the river) or 640 acres per mile in Alaska (an average half-mile-wide corridor of land on each side of the river). <3.1. General Management> Rivers are administered to protect and enhance the values for which the rivers were included in the NWSRS (usually interpreted as being the rivers' ORVs). Congress directed that the agencies give primary emphasis to protecting aesthetic, scenic, historic, archaeological, and scientific features of designated rivers. Congress also directs that other land uses not be limited unless they "substantially interfere with public use and enjoyment of these values." The WSRA prohibits water resource projects, such as dams, if they would have a "direct and adverse effect" on the values for which the river was designated (see " Water Resources Projects: Section 7 " below, for further discussion). Management of lands within wild and scenic corridors varies with the class of the designated river, the values for which the river was included in the system, the managing agency, and land ownership in the river corridor. Generally, agencies manage wild rivers with the highest level of restrictions in terms of development and water resource use, scenic rivers with an intermediate level of restrictions, and recreational rivers with the lowest level of restrictions. <3.2. Minerals> The WSRA withdraws federal lands within the boundaries of wild WSRs from appropriation under the mining and mineral leasing laws. No new mining claims or leases can be granted on these lands. Existing valid claims or leases within the designated WSR boundary remain in effect, and activities may be allowed subject to regulations designed to protect river values (for example, regulations that minimize sediment, discharge, or visual impacts). NPS and FWS generally prohibit mineral development on their lands; thus, the mineral collection provisions of the WSRA generally only affect activity on FS and BLM lands. The WSRA does not withdraw federal lands within the boundaries of scenic or recreational WSRs from the mining and mineral leasing laws. Filing of new claims and leases is permitted to the extent allowed by other laws and policies governing the land. Existing valid claims or leases within the designated WSR boundary remain in effect, and activities may be allowed, subject to regulations that minimize surface disturbance, water sedimentation, pollution, and visual impairment. Reasonable access to mining claims and mineral leases is permitted. <3.3. Water Resources Projects: Section 7> Section 7 of the WSRA prohibits federally licensed or assisted water resources projects, such as dams and reservoirs, that would have a "direct and adverse" effect on the values for which the river was established. Outside the designated segments (such as upstream, downstream, or on a tributary), the WSRA prohibits projects that would "invade or unreasonably diminish" the segment's fish, wildlife, scenic, or recreational resources. The WSRA also explicitly prohibits the Federal Energy Regulatory Commission from licensing any new dam, water conduit, reservoir, powerhouse, transmission line, or other project on or directly affecting a designated river segment. These prohibitions often are referred to as Section 7 or Section 7(a ) prohibitions. Each managing agency is responsible for determining the impact of a proposed federal or federally assisted water resources project on rivers it administers. NPS is responsible for the implementation of Section 7 on partnership WSRs (see " Partnership Wild and Scenic Rivers "), regardless of the degree to which the agency shares other management functions, and on state-managed WSRs. The determination usually focuses on impacts to identified ORVs and free-flowing condition; it may include analysis of impacts to water quality, upland conditions (such as vegetation and soils), or other values. The baseline for evaluating impacts is the resource condition on the date of designation. If conditions have improved since that date, some agencies specify that Section 7 determinations be based upon the improved condition. <4. WSRs on Federal Lands> In addition to the statutory direction discussed above, management of WSRs on federal lands differs based on the statutory management criteria for each agency's lands. FS and BLM manage their lands for a sustained yield of multiple uses. NPS manages the National Park System under a dual mission: to preserve unique resources and to provide for their enjoyment by the public. FWS manages the National Wildlife Refuge System (NWRS) under a dominant mission to conserve plants and animals for the benefit of future and present generations. These varying missions shape the management decisions the federal land management agencies make regarding WSRs on their lands. <4.1. Forest Service and Bureau of Land Management> WSRs managed by FS and BLM are subject to the provisions of the WSRA and any provisions under which the agencies administer the national forests (for FS) or public lands (for BLM). FS and BLM manage their lands for a sustained yield of multiple uses, including (but not limited to) grazing, timber harvesting, energy and mineral development, fish and wildlife habitat, and recreation. Thus, FS and BLM management of WSRs addresses how lands in or surrounding the WSR corridor may be used. As discussed above, management also varies with the class of the designated river and the values for which it was included in the system. In accordance with the WSRA, FS and BLM create CRMPs for each river after designation; these plans establish management objectives for the river. Agency guidance (such as policy manuals and handbooks) may specify that certain activities be governed by the CRMP. For example, FS policy states that activities such as insect, disease, and invasive species treatment; transportation systems (such as roads, trails, and airfields); and recreation (among others) be managed in accordance with the CRMP for each river. In other cases, the agencies have given directions regarding various activities for their WSRs more broadly. Both agencies do not generally allow timber harvesting, road building, and structures and improvements (such as campgrounds, boat launches, and administrative sites) in wild river corridors. Both agencies allow more development in scenic and recreational rivers corridors. FS prohibits motorized travel in wild river corridors. BLM discourages new rights-of-way and utility corridors in all WSR areas. Both agencies allow for continued grazing and wildfire management, including through prescribed fire, in WSR areas. FS and BLM manage wildfire, pests, insects, and disease in ways compatible with adjacent lands outside the river corridor. <4.2. Fish and Wildlife Service> Rivers managed by the Secretary of the Interior through FWS become part of the NWRS. FWS manages the NWRS under a dominant mission to conserve plants and animals for the benefit of future and present generations. WSRs managed by FWS are subject to the provisions of the WSRA and any provisions under which the NWRS is administered. In the case of any conflict between these authorities, the more restrictive provisions apply. FWS does not otherwise have specific policy or other guidance regarding management of WSRs. <4.3. National Park Service> Rivers managed by the Secretary of the Interior through NPS become part of the National Park System. NPS manages the National Park System under a dual mission: to preserve unique resources and to provide for their enjoyment by the public. NPS-managed WSRs are subject to the provisions of the WSRA and any provisions under which the National Park System and the specific units are administered. In the case of any conflict between these authorities, the more restrictive provisions apply. <5. Wild and Scenic Rivers on Nonfederal Lands> WSRs need not flow entirely through federal land. WSRs on nonfederal lands differ based on whether they were designated by Congress or through an administrative process. WSRs designated by Congress may flow wholly through nonfederal land or may have segments on nonfederal land. WSRs on nonfederal land managed at the state, county, or other nonfederal level, and usually congressionally designated, are referred to colloquially as partnership wild and scenic rivers (or partnership WSRs). WSRs also may be designated through an administrative process. States may apply to the Secretary of the Interior for inclusion of a state-protected river in the NWSRS. The relevant state administers WSRs added to the system in this way. These WSRs, as well as those that contain both federal and nonfederal land, generally are not referred to as partnership WSRs. <5.1. Partnership Wild and Scenic Rivers> The WSRA does not define the term partnership WSRs ; rather, it is an umbrella term used to refer to WSRs with certain similar features. NPS administers all WSRs with these features. In general terms, common features of partnership WSRs are as follows: Lands are not federally owned, and federal ownership is not authorized in legislation. The river management plan is created at the local level and often locally approved prior to designation. NPS may provide technical assistance. A local organization, often open or broadly participatory in nature (called a council , committee , or other term), oversees implementation of the management plan. These organizations may receive technical assistance from NPS. Overall administration is the responsibility of NPS, but land use and management are governed by authorities at the relevant nonfederal level (e.g., township zoning ordinances). Costs of managing and protecting the WSR are shared but generally include some federal support (see " Funding ," below). Partnership WSRs usually are congressionally designated, although exceptions exist. For example, NPS refers to the Westfield River as a partnership WSR, but its designation occurred through state nomination. The WSRA does not describe these features, aside from local jurisdiction over land use. These features have been codified in individual river study legislation or designating legislation or have developed locally during the study or designation process. Because the WSRA does not define the term partnership WSRs , not all partnership WSRs have all of these characteristics and not all WSRs with some of these characteristics are referred to in this way. As with WSRs generally, Congress typically designates partnership WSRs following a congressionally authorized study. Studies on partnership WSRs often are similar to studies of WSRs generally, including identifying ORVs meriting protection (see " Designation "), though Congress sometimes specifies matters studies must address. Partnership WSR studies also may identify existing forms of protection in the river corridor, such as local zoning laws, and additional options to confer protection within local jurisdictions (such as laws regarding vegetative cutting, sand and gravel removal, placement of new structures and septic systems, and others). In some cases, local governments have chosen to strengthen land use requirements during a WSR study (for example, by passing certain zoning ordinances) to demonstrate the adequacy of local protections prior to requesting congressional designation. Congress has prohibited condemnation in WSR corridors in urban areas with adequate zoning ordinances; therefore, strengthened land use requirements may protect against condemnation in certain areas, strengthen the case for designation, or contribute to other goals. During the WSR study, stakeholders may develop a river management plan, sometimes using NPS technical assistance and funding. Congress may identify such plans as satisfying the CRMP requirements of the WSRA in designating legislation. Although not required under the WSRA, NPS administers all partnership WSRs. Congress sometimes has specified which relevant local jurisdictions, such as states and towns, manage designated partnership WSRs through cooperative agreements. To date, locally based river management councils or committees have been formed on each partnership river specifically for this purpose. Congress may specify the role of management councils or similar local organizations in individual river designating legislation, in written agreements authorized by the river's designating legislation, or both. A WSR designation on nonfederal land does not transfer ownership to the federal government; relevant local authorities and jurisdictions continue to govern land use and management of these rivers. After designation, partnership WSRs are managed according to the established CRMP. Local jurisdictions (e.g., the relevant county, township, or city, as appropriate) generally make laws that implement the CRMP, such as land use restrictions and zoning laws, and carry out management actions. The WSRA authorizes federal agencies to enter into cooperative agreements with state and local governments for administering a river area, and NPS may provide technical or financial assistance for managing river resources. NPS remains responsible for implementing Section 7 reviews of proposed water resources projects (see " Water Resources Projects: Section 7 "). <5.2. State-Administered Wild and Scenic Rivers> Although Congress designates most rivers, the Secretary of the Interior also can add WSRs to the NWSRS by administrative action. A state desiring WSR designation for a river on nonfederal lands must establish permanent river protections compatible with the WSRA. The state may then apply to the Secretary of the Interior to approve inclusion of the river in the NWSRS. The Secretary of the Interior typically directs NPS to evaluate whether the provisions of the WSRA have been fulfilled including whether adequate protections are in place, whether the river is in free-flowing condition, and whether it possesses at least one ORV. If the NPS determines that the application meets the requirements and the Secretary of the Interior concurs, the river is added to the NWSRS. Rivers designated administratively have protections identical to rivers designated by Congress. The WSRA precludes federal management of such rivers; thus, state or local agencies manage WSRAs designated this way. (Although these rivers sometimes are called state-administered rivers, they need not necessarily be administered by states.) The federal government may not provide funding for state-administered WSRs and may not condemn or acquire lands in the river corridor. NPS reviews proposed water resource projects (see " Water Resources Projects: Section 7 "). <5.3. Segments on Nonfederal Lands> Congress may designate WSRs with segments on federal and nonfederal land (for example, Congress could designate a river that begins on FS lands and flows onto private lands). Management of nonfederal segments of these rivers varies, depending on what provisions Congress includes in designating legislation. For example, Congress may specify that nonfederal segments are to be managed by state, county, local, or other nonfederal elements. Some of these rivers are managed through cooperative agreements; in other cases, Congress has specified objectives for nonfederal elements. In still other cases, Congress has not specified how nonfederal areas are to be managed. <6. Funding> For rivers administered by the four federal land management agencies, Congress provides funds for operations and maintenance through annual congressional appropriations for the relevant agencies. Each agency approaches river management differently in its budget. Rivers administered exclusively by states typically do not receive federal funding for river administration. The WSRA authorizes federal agencies to assist states and their political subdivisions (such as counties, townships, and others), landowners, organizations, or individuals in planning, protecting, and managing WSRs; this provision includes financial and technical assistance, except in the case of administratively designated WSRs. NPS administers partnership WSRs and provides technical and financial assistance to manage these rivers. <6.1. National Park Service> Funding for WSRs administered by the NPS depends on the designated river's location. NPS WSRs that are part of another National Park System unit are funded through appropriations for that individual unit. A few WSRs are stand-alone units of the National Park System and receive their own line-item appropriations. The National Park Service budget also contains separate line items for the partnership WSRs. Funding for WSRs listed individually in the NPS budget, as well as for overall program administration over the past five years, appears in Table 1 . <6.2. Bureau of Land Management, Forest Service, and Fish and Wildlife Service> BLM lists the total annual amount enacted for WSRs in the "Cross-Cutting Programs" section of its budget justification, shown below in Table 2 . FS, in its "Recreation, Heritage, and Wilderness" budget activity, includes a combined line item for management of wild and scenic rivers and wilderness areas; it does not report a distinct figure for WSRs. Similarly, FWS does not report a distinct figure for WSRs but incorporates WSR funding into its broader "National Wildlife Refuge System" budget activity. <7. Issues for Congress> WSR designation has been controversial in some cases, especially for WSRs containing nonfederal lands. Initially, Congress primarily designated rivers on federal land and rivers on nonfederal land were primarily added to the NWSRS through the state nomination authority. However, the state nomination authority has not been used since 2004, and Congress has designated all WSRs (on federal and nonfederal land) since that time. Congress also has increasingly authorized river studies on nonfederal lands. With this increase in congressional studies and designations of nonfederal lands, concern has centered on local control of relevant lands, including potential for federal acquisition of newly designated lands. The potential use of condemnation authority to acquire lands on partnership WSRs has been particularly contentious. The WSRA limits the federal government's condemnation powers for some but not all river areas. According to the Interagency Wild and Scenic Rivers Council, the federal government has rarely used condemnation authority in respect to WSRs, and nearly all uses of condemnation occurred in the early years of the WSRA. Congress has sometimes prohibited the use of condemnation in designating legislation for individual river segments. Opinions regarding the balance of federal and local control over partnership WSRs have varied. Some stakeholders contend that the current partnership WSR model is successful. Others have expressed concern that provisions of WSR designation legislation for example, that partnership WSRs are to be administered as part of the National Park System unless otherwise specified may lead to an undesirable loss of local control. Still other observers have expressed concern that local laws may not adequately protect partnership WSRs. As discussed previously, the attributes of each partnership WSR are created separately by individual designating laws or by local and federal agency choices before or after designation as opposed to stemming from a defined category in the WSRA. Thus, it may be unclear whether these concerns are broadly applicable. Congress and NPS have used varying methods to address concerns about local versus federal control of partnership WSRs and about adequate levels of protection for partnership WSRs, either in individual designating legislation or in agency action prior to or after designation. In contrast to the partnership WSR model, the state-nominated process for designating WSRs consists of a fixed set of provisions. The process affords rivers the same protection as congressionally designated WSRs but precludes federal management or land acquisition (including by condemnation), and the state must demonstrate that adequate legal protections are in place prior to designation. Some have observed that Congress intended the state nomination authority to be the primary means for nonfederal river segments to be included in the system and that Congress envisioned the states taking a prominent role in developing the NWSRS. Prior to the 2000s, most nonfederal river segments were designated under the state nomination authority. However, this designation method has not been used since 2004; costs of designation and management at the state level, and state and local politics, may have contributed to this decline. Congress may consider whether it is preferable to encourage use of the state-nominated process, which includes a set of fixed provisions, or to continue to establish partnership WSRs though individual designating statutes, whose provisions vary.

Congress established the National Wild and Scenic Rivers System (NWSRS) in 1968 through the Wild and Scenic Rivers Act (WSRA; P.L. 90-542) to preserve free-flowing rivers for the benefit and enjoyment of present and future generations and to complement the then-current national policy of constructing dams and other river structures that altered flow. Designated rivers usually are referred to as wild and scenic rivers (WSRs). The WSRA established three classes of WSRs—wild, scenic, and recreational—reflecting the characteristics of the rivers at the time of designation and affecting the type and amount of subsequently allowable development. The system now includes 226 river units comprising over 13,400 miles in 41 states and the Commonwealth of Puerto Rico. WSRs may come into the NWSRS either by congressional designation or by state nomination to the Secretary of the Interior. WSRs may be located on federal lands, nonfederal lands, or a combination of both. Some WSRs on nonfederal land are referred to as partnership wild and scenic rivers (or partnership WSRs). The WSRA does not define this term; it is an umbrella term used to describe WSRs with generally similar characteristics, such as nonfederal management and land ownership, but partnership WSRs can vary. WSRs on nonfederal land also may be added to the NWSRS through an administrative process, wherein states may apply to the Secretary of the Interior for inclusion of a state-protected river. Rivers added to the system through state nomination, or rivers designated by Congress that run through both federal and nonfederal lands, generally are not referred to as partnership WSRs. In the case of congressionally designated rivers, Congress may first direct in legislation that a study be conducted to determine whether the river area is suitable for wild and scenic designation. Congress generally specifies in the designating legislation that either the Secretary of Agriculture or the Secretary of the Interior administer the WSR. If the designated WSR contains federal land, the Secretary then manages the river through the federal land management agency of jurisdiction—the Bureau of Land Management, the National Park Service (NPS), or the Fish and Wildlife Service within the Department of the Interior or the Forest Service within the U.S. Department of Agriculture. The relevant local jurisdiction manages partnership WSRs and state-nominated WSRs, with certain administrative functions carried out at the federal level. WSRs are administered to protect and enhance the values for which the rivers were included in the system and to preserve the rivers' free-flowing condition. The agency, or the relevant local jurisdiction for WSRs on nonfederal land, prepares a comprehensive resource management plan (CRMP) to guide management. The WSRA prohibits federally licensed or assisted water resources projects that would have a "direct and adverse" effect on the values for which a river was established and prohibits the Federal Energy Regulatory Commission from licensing projects on or directly affecting a designated river segment. The agency of jurisdiction enforces this provision; on partnership WSRs and state-nominated WSRs, NPS enforces this provision. In addition to the provisions of the WSRA, management of WSRs on federal lands differs based on the statutory management criteria for each agency's lands. Each federal land management agency specifies policies regarding river management at varying levels of detail. Agencies typically provide the most protection to wild rivers. For congressionally designated rivers on federal lands, Congress provides funds for operations and maintenance through annual appropriations for the relevant agencies. Agencies sometimes provide funding separately for individual rivers or provide funding through broader budget activities, not specific to an individual river. Rivers added to the NWSRS through state nomination typically do not receive federal funding. However, partnership WSRs receive funding through NPS. The WSRA authorizes federal agencies to provide technical assistance to states and their political subdivisions (such as counties, townships, and others), landowners, organizations, or individuals in planning, protecting, and managing WSRs. Designation of wild and scenic rivers has been controversial in some cases, especially for WSRs containing nonfederal lands. Initially following enactment of the WSRA, Congress designated rivers primarily on federal land. Over the past 20 years, Congress has designated or authorized for study an increasing number of partnership WSRs. Opinions regarding the balance of federal and local control over partnership WSRs have varied. Some have observed that Congress intended the state nomination authority to be the primary means for rivers on nonfederal lands to be included in the system, but this designation method has not been used in recent years. Congress may consider whether it is preferable to encourage use of the state-nominated process, which includes a set of fixed provisions, or to continue to establish partnership WSRs through individual designating statutes, whose provisions vary.

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<1. Introduction> The U.S. farm sector is vast and varied. It encompasses production activities related to traditional field crops (such as corn, soybeans, wheat, and cotton) and livestock and poultry products (including meat, dairy, and eggs), as well as fruits, tree nuts, and vegetables. In addition, U.S. agricultural output includes greenhouse and nursery products, forest products, custom work, machine hire, and other farm-related activities. The intensity and economic importance of each of these activities, as well as their underlying market structure and production processes, vary regionally based on the agro-climatic setting, market conditions, and other factors. As a result, farm income and rural economic conditions may vary substantially across the United States. Annual U.S. net farm income is the single most-watched indicator of farm sector well-being, as it captures and reflects the entirety of economic activity across the range of production processes, input expenses, and marketing conditions that have prevailed during a specific time period (see box "Measuring Farm Profitability" for a definition of net farm income ). When national net farm income is reported together with a measure of the national farm debt-to-asset ratio, the two summary statistics provide a quick and widely referenced indicator of the economic well-being of the national farm economy. <2. USDA's February 2020 Farm Income Forecast> In the first of three official U.S. farm income outlook releases scheduled for 2020 (see box "ERS's Annual Farm Income Forecasts" below), the U.S. Department of Agriculture's (USDA) Economic Research Service (ERS) projects that U.S. net farm income will rise 3.3% year-over-year in 2020 to $96.7 billion, up $3.1 billion from last year ( Figure 1 and Table A-1 ). The February forecast of $96.7 billion is 6.3% above the 10-year average of $89.9 billion (in nominal dollars) but is well below 2013's record high of $123.7 billion. In contrast, net cash income (calculated on a cash-flow basis) is projected lower in 2020 (down 10.8% from 2019) at $109.6 billion 4.7% below the 10-year average of $115.0 billion. The divergence in year-to-year changes between the two measures of net income is due to their different treatment of harvested crops. Net farm income includes a crop's value after harvest even if it remains in on-farm storage. In contrast, net cash income includes a crop's value only when it is sold. Thus, crops placed in on-farm storage are included in net farm income but not net cash income. In 2018, U.S. farmers harvested a record soybean crop and the third-largest corn crop on record. That same year the U.S.-China trade dispute emerged as an impediment to trade and contributed to a widespread drop in soybean prices. However, the Administration assured producers that the trade dispute was temporary and would soon be resolved in their favor. As a result, many producers of soybeans and other crops held on to their crops in the hopes of capturing higher prices after the trade dispute was resolved. However, by mid-2019 there was no end in sight to the trade dispute, and farmer cash flows necessitated selling from on-farm inventories to meet household and farm operation needs. As a result, the net cash farm income forecast for 2019 included $14.7 billion in sales from on-farm crop inventories, whereas the 2020 forecast includes a much smaller amount ($0.5 billion) in sales from on-farm inventories. This difference accounts for much of the decline in the 2020 net cash farm income projection. <2.1. Highlights> When adjusted for inflation and represented in 2019 dollars ( Figure 2 ), both the net farm income and net cash income for 2019 are projected to be above their average values since 1940 of $88.2 billion and $101 billion, respectively. For historical perspective, both net cash income and net farm income achieved record nominal highs in 2013 but fell to recent lows in 2016 ( Figure 1 ) before trending higher during 2017-2019. Government farm subsidies are projected at $15 billion in 2020 down nearly 37% from 2019 but still the second-highest since 2006 ( Figure 12 ). In 2019, support from traditional farm programs was bolstered by large direct government payments in response to trade retaliation under the trade dispute with China. Direct government payments of $23.6 billion in 2019 represented 25.2% of net farm income the largest share since a 27.6% share in 2006. The share of net farm income from government sources in 2020 is projected to decline to 15.5% ( Figure 11 ). Farm asset values and debt levels are projected to reach record levels in 2020 asset values at $3.1 trillion (+1.3% year-over-year) and farm debt at $425.3 billion (+2.3%) pushing the projected debt-to-asset ratio up to 13.5%, the highest level since 2003 ( Figure 19 ). For the 2019-2020 marketing year for crops and the 2020 calendar year for livestock, USDA forecasts a mixed outlook for major commodity prices: Corn, soybeans, sorghum, oats, rice, hogs, and milk will be up slightly from 2019, while prices for barley, cotton, wheat, choice steers, broilers, and eggs are expected to be lower ( Table A-4 ). Abundant domestic and international supplies of grains and oilseeds contributed to a fifth-straight year of relatively weak commodity prices in 2019 ( Figure A-1 through Figure A-4 , and Table A-4 ). However, the commodity price projections for 2020 are subject to substantial uncertainty associated with as-yet-unknown domestic production and international commodity market developments. Three major factors dominated U.S. agricultural markets during 2019 and have contributed to uncertainty over the supply, demand, and price prospects for most major commodities heading into 2020: surplus stocks, wet weather, and international trade disputes. First, large corn and soybean stocks kept pressure on commodity prices throughout the grain and feed complex in 2019 ( Figure 3 ). Second, adverse weather conditions during the spring planting and fall harvesting periods contributed to market uncertainty regarding the size of the 2019 corn and soybean crops. Third, the U.S.-China trade dispute led to declines in U.S. exports to China a major market for U.S. agricultural products and added to market uncertainty. In particular, the United States was displaced by Brazil as the world's preeminent exporter of soybeans to China. Weather conditions and planting prospects for 2020 are unknown this early in the year. Also, despite the signing of a Phase I trade agreement with China on January 15, 2020, it is unclear how soon if at all the United States may resume normal trade with China or how international demand may evolve heading in 2020. <2.2. USDA Projects Corn, Soybean, and Wheat Stocks Lower in 2019> Corn and soybeans are the two largest U.S. commercial crops in terms of both value and acreage. For the past several years, U.S. corn and soybean crops have experienced strong growth in both productivity and output, thus helping to build stockpiles at the end of several successive marketing years through the 2018 season. In 2018, U.S. farmers produced a record U.S. soybean harvest of 4.4 billion bushels and record-ending stocks (909 million bushels or a 22.9% stocks-to-use ratio) that year ( Figure 3 ). The record soybean harvest in 2018, combined with the sudden loss of the Chinese soybean market, kept downward pressure on U.S. soybean prices. Despite a smaller crop and lower stocks in 2019, the reduction in volume of U.S. soybean exports to China has prevented a major price recovery. Similarly, several consecutive years of bumper U.S. corn crops have built domestic corn supplies. U.S. corn ending stocks in 2019 are projected down slightly to 1.8 billion bushels after three consecutive years of above 2-billion-bushel ending stock totals. U.S. wheat and cotton supplies are also expected to decline relative to use levels in 2019 but remain high relative to the historical average thus limiting price recovery. <2.3. Livestock Outlook for 2020> Because the livestock sectors (particularly dairy and cattle but hogs and poultry to a lesser degree) have longer biological lags and often require large capital investments up front, they are slower to adjust to changing market conditions than is the crop sector. As a result, USDA projects livestock and dairy production and prices an extra year into the future (compared with the crop sector) through 2020, and market participants consider this expanded outlook when deciding their market interactions (e.g., buy, sell, expand herd sizes). <2.3.1. Background on the U.S. Cattle-Beef Sector> During the 2007-2014 period, high feed and forage prices plus widespread drought in the Southern Plains the largest U.S. cattle production region resulted in an 8% contraction of the U.S. cattle inventory. Reduced beef supplies led to higher producer and consumer prices and record profitability among cow-calf producers in 2014. This was coupled with a subsequent improvement in forage conditions, all of which helped to trigger the slow rebuilding phase in the cattle cycle that started in 2014 ( Figure 4 ). The expansion continued through 2019 despite weakening profitability, primarily due to the lag in the biological response to the strong market price signals of late 2014. However, the cattle expansion appears to show the first signs of contraction in USDA's January 2020 U.S. cattle inventory report. The estimated cattle and calf population was down slightly from a year earlier at 94.4 million (compared with 94.8 million in January 2019). A factor working against continued expansion in cattle numbers is that producers are now producing more beef with fewer cattle as a result of heavier weights for marketed cattle. <2.3.2. Robust Production Growth Projected Across the Livestock Sector> Similar to the cattle sector, U.S. hog and poultry flocks have been growing in recent years, but unlike cattle they are expected to continue to expand in 2020. USDA projects production of beef (+1.2%), pork (+4.5%), broilers (+4.3%), and eggs (+1.8%) to expand robustly through 2020. A key uncertainty for the meat-producing sector is whether demand will expand rapidly enough to absorb the continued growth in output or whether surplus production will begin to pressure prices lower. USDA projects that combined domestic and export demand for 2020 will flatten for red meat (+0.0%) but expand for poultry (+3.9%). <2.3.3. Livestock-Price-to-Feed-Cost Ratios Signal Lower Profitability Outlook> The changing conditions for the U.S. livestock sector may be tracked by the evolution of the ratios of livestock output prices to feed costs ( Figure 5 ). A higher ratio suggests greater profitability for producers. The cattle-, hog-, and broiler-to-feed ratios have all exhibited significant volatility during the 2017-2019 period but in general have trended downward during 2018 and 2019, suggesting eroding profitability. The milk-to-feed price ratio has trended upward since mid-2018 into 2020. This result varies widely across the United States. Many marginally profitable cattle, hog, broiler, and milk producers face continued financial difficulties. Continued strong production growth of between 1% and 5% for red meat and poultry suggests that prices are vulnerable to weakness in demand. USDA projects that the price increase for hogs will slow in 2020, up 2.2% after 4.4% growth in 2019 ( Table A-4 ). Similarly, U.S. milk production is projected to continue growing in 2020 (+1.7%). Despite this production growth, USDA projects U.S. milk prices up slightly in 2020 (+1.3%). <2.4. Gross Cash Income Highlights> Projected farm-sector revenue sources in 2020 include crop revenues (46% of sector revenues), livestock receipts (43%), government payments (3%), and other farm-related income (7%), including crop insurance indemnities, machine hire, and custom work. Total farm sector gross cash income for 2020 is projected down (-0.3%) to $430.9 billion, driven by declines in both direct government payments (-36.6%) and other farm-related income (-8.0%). Cash receipts from crop receipts (+1.0%) and livestock product (+4.6%) are up a combined (+4.6%) ( Figure 6 ). <2.4.1. Crop Receipts> Total crop sales peaked in 2012 at $231.6 billion when a nationwide drought pushed commodity prices to record or near-record levels. In 2020, crop sales are projected at $198.6 billion, up 1.0% from 2019 ( Figure 7 and Figure 8 ). Projections for 2020 and percentage changes from 2019 include Feed crops corn, barley, oats, sorghum, and hay: $60.1 billion (+2.0%); Oil crops soybeans, peanuts, and other oilseeds: $36.8 billion (-2.3%); Fruits and nuts: $31.0 billion (+6.3%); Vegetables and melons: $20.1 billion (-1.8%); Food grains wheat and rice: $11.3 billion (+1.4%); Cotton: $7.1 billion (+2.1%); and Other including tobacco, sugar, greenhouse, and nursery: $31.2 billion (-0.6%). <2.4.2. Livestock Receipts> The livestock sector includes cattle, hogs, sheep, poultry and eggs, dairy, and other minor activities. Cash receipts for the livestock sector grew steadily from 2009 to 2014, when it peaked at a record $212.3 billion. However, the sector turned downward in 2015 (-10.7%) and again in 2016 (-14.1%), driven largely by projected year-over-year price declines across major livestock categories ( Table A-4 , Figure 9 , and Figure 10 ). In 2017, livestock sector cash receipts recovered with year-to-year growth of 8.1% to $175.6 billion. Cash receipts increased slightly in 2018 (+0.5%) and 2019 (+0.6%). In 2020, cash receipts are projected up strongly (+4.6%) for the sector at $185.8 billion as increased cattle, hogs, and dairy sales offset declines in poultry. Projections for 2020 (and percentage changes from 2019) include Cattle and calf sales: $69.0 billion (+1.6%), Poultry and egg sales: $40.1 billion (+1.7%), Dairy sales: $42.5 billion (+5.2%), Hog sales: $27.1 billion (+18.4%), and Miscellaneous livestock: $7.1 billion (+2.0%). <2.4.3. Government Payments> Historically, direct government farm program payments have included Direct payments (decoupled payments based on historical planted acres); Price-contingent payments (both coupled and decoupled program outlays linked to market conditions); Conservation payments (including the Conservation Reserve Program and other environmental-based outlays); Ad hoc and emergency disaster assistance payments (including emergency supplemental crop and livestock disaster payments and market loss assistance payments for relief of low commodity prices); and Other miscellaneous outlays, including payments under ad hoc programs initiated by the Administration such as the Market Facilitation Program (MFP) or the cotton ginning cost-share programs but also legislatively authorized programs such as the biomass crop assistance program, peanut quota buyout, milk income loss, tobacco transition, and other miscellaneous programs. Projected government payments of $15.0 billion in 2020, if realized, would represent a 36.6% decline from 2019 but would still be the second-largest since 2006. The $23.6 billion in federal payments in 2019 was the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005 ( Figure 12 and Table A-1 ). The surge in federal subsidies in 2019 was driven by large "trade-damage" payments made under the MFP initiated by USDA in response to the U.S.-China trade dispute. MFP payments (reported to be $14.6 billion) in 2019 include outlays from the 2018 MFP program that were not received by producers until 2019, as well as payments under the first and second tranches of the 2019 MFP program. In 2020, MFP payments are projected to decline to $3.7 billion representing the third and final tranche of payments from the 2019 MFP program. No new MFP program has been announced for 2020 by the Administration. USDA permanent disaster assistance is projected higher year-over-year in 2020 at $2.5 billion (+14.2%). Most of the $2.5 billion comes from a new, temporary program, the Wildfire and Hurricane Indemnity Program Plus, enacted through the Disaster Relief Act of 2019 ( P.L. 116-20 ). Payments under the Price Loss Coverage program are projected at $3.9 billion in 2020, up from $1.9 billion in 2019. In contrast, Agricultural Risk Coverage outlays are projected to decline to $39 million, down from $641 million in 2019 (see "Price Contingent" in Figure 12 ). Conservation programs include all conservation programs operated by USDA's Farm Service Agency and the Natural Resources Conservation Service that provide direct payments to producers. Estimated conservation payments of $4.2 billion are forecast for 2020, up (+4.4%) from $4.0 billion in 2019. Total government payments of $15.0 billion represents a 3.5% share of projected gross cash income of $432.2 billion in 2020 ( Figure 6 ). In contrast, government payments are expected to represent 15.5% of the projected net cash income of $109.6 billion ( Figure 11 ). The government share of net farm income reached a peak of 65.2% in 1984 during the height of the farm crisis of the 1980s. The importance of government payments as a percentage of net farm income varies nationally by crop and livestock sector and by region. <2.4.4. Dairy Margin Coverage Program Outlook> The 2018 farm bill ( P.L. 115-334 ) made several changes to the previous Margin Protection Program (MPP) for dairy, including a new name the Dairy Margin Coverage (DMC) program and expanded margin coverage choices from the original range of $4.00-$8.00 per hundredweight (cwt.). Under the 2018 farm bill, as a cushion against low milk prices, producers have the option of buying coverage to insure a margin between the national farm price of milk and the cost of feed up to a threshold of $9.50/cwt. on the first 5 million pounds of milk coverage. The DMC margin differs from the USDA-reported milk-to-feed ratio (shown in Figure 5 ) but reflects the same market forces. In August 2019, the formula-based milk-to-feed margin used to determine government payments rose to $9.85/cwt., thus exceeding the newly instituted $9.50/cwt. payment threshold ( Figure 13 ) and decreasing the likelihood of DMC payments in the near future. Since then, the DMC margin continued its rise to $12.21 in November 2019. These increases in the DMC margin decrease the likelihood that DMC payments will be available during the first half of 2020. Despite these price movements, USDA projects that the DMC program will make $637 million in payments in 2020, up from $279 million in 2019. <2.5. Production Expenses> Total production expenses for 2020 for the U.S. agricultural sector are projected to be up by $10.4 billion (+3.0%) from 2019 in nominal dollars at $354.7 billion ( Figure 14 ). Production expenses peaked in both nominal and inflation-adjusted dollars in 2014 then declined for five consecutive years in inflation-adjusted dollars but are projected to turn up again in 2020. Production expenses affect crop and livestock farms differently. The principal expenses for livestock farms are feed costs, purchases of feeder animals and poultry, and hired labor. In contrast, fuel, seed, pesticides, interest, and fertilizer costs are major crop production expenses. USDA projects that all expense categories with the exception of interest rates will be up in 2020 ( Figure 15 ). But how have production expenses moved relative to revenues? A comparison of the indexes of prices paid (an indicator of expenses) versus prices received (an indicator of revenues) reveals that the prices received index generally declined from 2014 through 2016, rebounded in 2017, then trended lower through 2019 ( Figure 16 ). Farm input prices (as reflected by the prices paid index) showed a similar pattern but with a smaller decline from their 2014 peak and have climbed steadily since mid-2016, suggesting that farm sector profit margins have been squeezed since 2016. <3. Farm Asset Values and Debt> A measure of the farm sector's financial well-being is net worth as measured by farm assets minus farm debt. A summary statistic that captures this relationship is the debt-to-asset ratio. The U.S. farm income and asset-value situation and outlook suggest a slowly eroding financial situation heading into 2020 for the agriculture sector as a whole. Considerable uncertainty clouds the economic outlook for the sector, reflecting the mixed outlook for prices and market conditions, an increasing dependency on international markets to absorb domestic surpluses, and an increasing dependency on federal support to offset lost trade opportunities due to ongoing trade disputes. Farm asset values (see box "Measuring Farm Wealth: The Debt-to-Asset Ratio" below for details) which reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments are projected to be up 1.3% in 2020 to a nominal $3.1 trillion ( Table A-3 ). The projected rise in asset value is due to increases in both real estate values (+1.5%) and non-real-estate values (+0.6%). Real estate is projected to account for 83% of total farm sector asset value. Inflation-adjusted farm asset values (using 2019 dollars) are projected lower in 2020 (-0.6%). In inflation-adjusted terms, farm asset values peaked in 2014 ( Figure 17 ). Crop land values are closely linked to commodity prices. The leveling off of crop land values since 2015 reflects stagnant commodity prices ( Figure 18 ). Total farm debt is forecast to rise to a record $425.3 billion in 2020 (+2.3%) ( Table A-3 ). Farm equity or net worth, defined as asset value minus debt is projected to be up slightly (+1.1%) at $2.7 trillion in 2020 ( Table A-3 ). The farm debt-to-asset ratio is forecast up in 2020 at 13.6%, the highest level since 2003 but still relatively low by historical standards ( Figure 19 ). If realized, this would be the eighth consecutive year of increase in the debt-to-asset ratio. <4. Average Farm Household Income> A farm can have both an on-farm and an off-farm component to its income statement and balance sheet of assets and debt. Thus, the well-being of farm operator households is not equivalent to the financial performance of the farm sector or of farm businesses because of the inclusion of nonfarm investments, jobs, and other links to the nonfarm economy. Average farm household income (sum of on- and off-farm income) is projected at $118,908 in 2020 ( Table A-2 ), down 1.5% from 2019 and 11.4% below the record of $134,165 in 2014. About 18% ($20,926) of total farm household income in 2020 is projected to be from farm production activities, while the overwhelming majority, at 82% ($97,982), is earned off the farm (including financial investments). The share of farm income derived from off-farm sources had increased steadily for decades but peaked at about 95% in 2000 ( Figure 20 ). Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. <4.1. Total vs. Farm Household Average Income> Since the late 1990s, farm household incomes have surged ahead of average U.S. household incomes ( Figure 21 ). In 2018 (the last year for which comparable data were available), the average farm household income of $112,211 was about 25% higher than the average U.S. household income of $90,021 ( Table A-2 ). <4.1.1. Appendix. Supporting Charts and Tables> Figure A-1 to Figure A-4 present USDA data on monthly farm prices received for several major farm commodities corn, soybeans, wheat, upland cotton, rice, milk, cattle, hogs, and chickens. The data are presented in an indexed format where monthly price data for year 2010 = 100 to facilitate comparisons. USDA Farm Income Data Tables Table A-1 to Table A-3 present aggregate farm income variables that summarize the financial situation of U.S. agriculture. In addition, Table A-4 presents the annual average farm price received for several major commodities, including the USDA forecast for the 2019-2020 marketing year for major program crops and 2020-2021 for livestock products.

This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of February 5, 2020) to describe the U.S. farm economic outlook for 2020. Two major indicators of U.S. farm well-being are net farm income and net cash income. Net farm income represents an accrual of the value of all goods and serviced produced on the farm during the year—similar in concept to gross domestic product. In contrast, net cash income uses a cash flow concept to measure farm well-being: Only cash transactions for the year are included. Thus, crop production is recorded as net farm income immediately after harvest, whereas net cash income records a crop's value only after it has been sold in the marketplace. According to USDA's Economic Research Service (ERS), national net farm income is forecast at $96.7 billion in 2020, up $3.1 billion (+3.3%) from 2019. The forecast rise in 2020 net farm income stands in contrast with a projected decline of over $10.8 billion in net cash income (-9.0%). Last year's (2019) net cash income forecast included $14.7 billion in sales of on-farm crop inventories, which helped to inflate the 2019 net cash income value to $120.4 billion. The 2020 net cash income forecast includes a much smaller amount ($0.5 billion) in sales from on-farm inventories, thus contributing to the decline from 2019. Government direct support payments to the agricultural sector are expected to continue to play an important role in farm income projections. USDA projects $15 billion in farm support outlays for 2020, including the $3.7 billion of 2019 Market Facilitation Program (MFP) payments—the third and final tranche of payments under the $14.5 billion program. If realized, the 2020 government payments of $15 billion would represent a 36.6% decline from 2019 but would still be the second largest since 2006. The $23.6 billion in federal payments in 2019 was the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005. The surge in federal subsidies in 2019 was driven by large payments (estimated at $14.3 billion) under the MFP initiated by USDA in response to the U.S.-China trade dispute. The Administration has not announced a new MFP for 2020. Weather conditions and planting prospects for 2020 are unknown this early in the year. Commodity prices are under pressure from abundant global supplies and uncertain export prospects. Despite the signing of a Phase I trade agreement with China on January 15, 2020, it is unclear how soon—if at all—the United States may resume normal trade with China or how international demand may evolve in 2020. Farm asset value in 2020 is projected up year-to-year at $3.1 trillion (+1.3%). Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. Another critical measure of the farm sector's well-being is aggregate farm debt, which is projected to be at a record $425.3 billion in 2020—up 2.3% from 2019. Both the debt-to-asset and the debt-to-equity ratios have risen for eight consecutive years, potentially suggesting a continued slow erosion of the U.S. farm sector's financial situation. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of February 5, 2020) to describe the U.S. farm economic outlook for 2020. Two major indicators of U.S. farm well-being are net farm income and net cash income. Net farm income represents an accrual of the value of all goods and serviced produced on the farm during the year—similar in concept to gross domestic product. In contrast, net cash income uses a cash flow concept to measure farm well-being: Only cash transactions for the year are included. Thus, crop production is recorded as net farm income immediately after harvest, whereas net cash income records a crop's value only after it has been sold in the marketplace. According to USDA's Economic Research Service (ERS), national net farm income is forecast at $96.7 billion in 2020, up $3.1 billion (+3.3%) from 2019. The forecast rise in 2020 net farm income stands in contrast with a projected decline of over $10.8 billion in net cash income (-9.0%). Last year's (2019) net cash income forecast included $14.7 billion in sales of on-farm crop inventories, which helped to inflate the 2019 net cash income value to $120.4 billion. The 2020 net cash income forecast includes a much smaller amount ($0.5 billion) in sales from on-farm inventories, thus contributing to the decline from 2019. Government direct support payments to the agricultural sector are expected to continue to play an important role in farm income projections. USDA projects $15 billion in farm support outlays for 2020, including the $3.7 billion of 2019 Market Facilitation Program (MFP) payments—the third and final tranche of payments under the $14.5 billion program. If realized, the 2020 government payments of $15 billion would represent a 36.6% decline from 2019 but would still be the second largest since 2006. The $23.6 billion in federal payments in 2019 was the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005. The surge in federal subsidies in 2019 was driven by large payments (estimated at $14.3 billion) under the MFP initiated by USDA in response to the U.S.-China trade dispute. The Administration has not announced a new MFP for 2020. Weather conditions and planting prospects for 2020 are unknown this early in the year. Commodity prices are under pressure from abundant global supplies and uncertain export prospects. Despite the signing of a Phase I trade agreement with China on January 15, 2020, it is unclear how soon—if at all—the United States may resume normal trade with China or how international demand may evolve in 2020. Farm asset value in 2020 is projected up year-to-year at $3.1 trillion (+1.3%). Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. Another critical measure of the farm sector's well-being is aggregate farm debt, which is projected to be at a record $425.3 billion in 2020—up 2.3% from 2019. Both the debt-to-asset and the debt-to-equity ratios have risen for eight consecutive years, potentially suggesting a continued slow erosion of the U.S. farm sector's financial situation. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations.

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<1. Introduction> On May 23, 2019, Secretary of Agriculture Sonny Perdue announced that USDA would undertake a second round of trade aid in 2019 to assist farmers in response to trade damage from continued tariff retaliation and trade disruptions. Partial details of the new initiative were announced on July 25, 2019. Final program details such as calculation of the individual commodity-specific payment rates used in the formulation of the county-level payment rates for non-specialty crops were released on August 23, 2019. The 2019 trade aid package builds on the 2018 trade aid package in that it is based on the same legislative authority: Section 5 of the Commodity Credit Corporation (CCC) Charter Act of 1948 (P.L. 80-806; 15 U.S.C. 714 et seq. ), as amended. Specifically, the President has authorized USDA to provide up to $16 billion in new funding for the 2019 initiative. This new funding authority is in addition to the $12 billion in funding authority that was announced for the previous 2018 trade aid package. The 2019 trade aid package is to be implemented using the same three trade assistance programs that were used under the 2018 trade aid package a Market Facilitation Program (MFP), a Food Purchase and Distribution Program (FPDP), and an Agricultural Trade Promotion (ATP) program but at generally higher funding levels ( Table 1 ), except for ATP. Also similar to the 2018 initiative, the 2019 trade aid package funding authority corresponds with USDA's estimate of the trade damage to the U.S. agricultural sector from retaliatory tariffs imposed on U.S. agricultural goods in response to previous U.S. trade actions and other trade disruptions in 2019. The 2019 programs are intended to assist agricultural producers while the Administration works to resolve the ongoing trade disputes with certain foreign nations, most notably China. This report describes the new trade aid package authorized for 2019, including its constituent parts, and identifies distinguishing differences from the 2018 trade aid package. An appendix provides additional details on USDA's implementation of the FPDP and ATP programs and on the evolution of USDA's formulation of the MFP payment rates under the 2018 and 2019 MFP programs. <2. 2019 Trade Aid Package Components> Under the 2019 trade aid package, USDA is to use up to $16 billion to fund three programs to assist producers of affected commodities in 2019: 1. A Market Facilitation Program , administered by USDA's Farm Service Agency (FSA), to provide up to $14.5 billion in direct payments to producers of USDA-specified eligible commodities (described below). 2. A Food Purchase and Distribution Program , administered through USDA's Agricultural Marketing Service (AMS), to use $1.4 billion to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk for distribution by the Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals. 3. An Agricultural Trade Promotion Program , administered by USDA's Foreign Agriculture Service (FAS), to use $100 million to assist in developing new export markets on behalf of U.S. agricultural producers. Some important differences between the 2018 and 2019 trade aid packages include the following: The 2019 package includes an expanded funding commitment of up to $16 billion versus $12 billion under the previous package. The 2019 package includes an expanded list of eligible commodities (41 eligible commodities in 2019 versus 9 in 2018). The MFP payment formula for 2019 is modified for non-specialty crops (field crops) to be a single county payment rate rather than commodity-specific rates. This is done to minimize influencing producer crop choices and avoid large payment-rate discrepancies across commodities. MFP payments for non-specialty crops in 2019 are to be based on planted acres, not harvested production as in 2018. This change would avoid having MFP payments reduced by the lower yields that are expected across major growing regions due to the widespread wet spring and delayed plantings. The 2019 package includes 1. expanded payment limits per individual per commodity group ($250,000 versus $125,000 for 2018 MFP payments); 2. an expanded maximum combined payment limit across commodity groups ($500,000 versus $375,000); and 3. adjusted gross income (AGI) eligibility criteria based on the average AGI for 2015, 2016, and 2017. AGI criteria used to assess eligibility for 2018 MFP payments were based on AGI for 2013, 2014, and 2015. Initially, 2018 MFP payment recipients were subject to an AGI limit of $900,000 for eligibility. However, the 2019 Supplemental Appropriations for Disaster Relief Act ( P.L. 116-20 ) included a provision that retroactively eliminated the AGI threshold if at least 75% of a farm's AGI came from farming operations. This expanded AGI interpretation is retained for 2019 MFP payments but based on the different three-year period described above. <2.1. Market Facilitation Program> The MFP program is authorized to make direct payments to producers of eligible commodities. Eligible producers must submit application forms as part of the signup for the MFP program. Signup runs from Monday, July 29, through Friday, December 6, 2019. Program information including MFP application forms (CCC-913), program eligibility requirements, commodity coverage, and county-level payment rates is available at USDA's MFP program website. Key program details are summarized below. <2.1.1. Payment Qualifications> Producers of MFP-eligible commodities (listed below) may apply for MFP payments, provided that they also have an ownership interest in the commodity and are actively engaged in the farming operation; have an average AGI for tax years 2015, 2016, and 2017 of less than $900,000 per year or an AGI in excess of $900,000 with at least 75% of AGI derived from farming, ranching, or forestry-related activities; comply with the provisions of the "Highly Erodible Land and Wetland Conservation" regulations, often called the conservation compliance provisions; and have filed a 2019 acreage report with their county FSA offices. Producers are not required to have purchased crop insurance or coverage under the Noninsured Crop Disaster Assistance Program to be eligible for participation, nor are they required to participate in any other CCC programs. <2.1.2. Covered Commodities and Payment Determination> With respect to 2019 MFP payments, USDA has categorized the eligible commodities into three groups: 1. non-specialty crops (field crops including grains and oilseeds), 2. specialty crops (tree nuts and fruits), and 3. animal products (dairy and hogs). Each of these three commodity groupings has different payment structures. In particular, producers of non-specialty crops will be eligible for a single county payment rate multiplied by their farms' total acres of MFP-eligible non-specialty crops planted in a county in 2019. In contrast, dairy, hogs, and specialty crops will each have a single national payment rate to be multiplied by their production history, inventory, or acres under cultivation in 2019, respectively ( Table 2 ). <2.1.2.1. Non-Specialty Crops> Eligible non-specialty crops include alfalfa hay, barley, canola, corn, crambe, dried beans, dry peas, extra-long-staple cotton, flaxseed, lentils, long- and medium-grain rice, millet, mustard seed, oats, peanuts, rapeseed, rye, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, triticale, upland cotton, and wheat. Unlike 2018, where MFP payment rates were specific for each eligible non-specialty crop, 2019 MFP payment rates are fixed at the county level and do not vary with a producer's mix of crops. This change in payment structure was done to minimize influencing producer crop choices (as the announcement was made before planting was finished) and avoid large payment-rate discrepancies across commodities. Thus, under the 2019 MFP payment format, producers of MFP-eligible non-specialty crops, within a particular county, are to receive MFP payments based on that county's MFP payment rate multiplied by the farms' total plantings to eligible crops in that county in 2019. USDA is requiring that a producer's total MFP-eligible plantings in 2019 may not exceed total 2018 plantings. The MFP payment rate for non-specialty crops is fixed within each county. However, MFP payment rates will vary across counties based on each county's historical average share of eligible crops planted, average planted acres per eligible crop, and average yields of eligible crops. Within this construct, USDA has set minimum and maximum county MFP payment rates of $15 and $150 per acre. Producers who were prevented from planting MFP-eligible crops due to adverse weather but filed prevented-planting claims under crop insurance and planted FSA-certified cover crops (with the potential to be harvested) on the unplanted acres are also eligible for the minimum $15 per acre payment rate. Acres that were never planted in 2019 are not eligible for MFP payments. Acreage of non-specialty crops and cover crops must have been planted by August 1, 2019, to be eligible for MFP payments. <2.1.2.2. Dairy and Hogs> Dairy producers who were in business as of June 1, 2019, are to receive a $0.20 per hundredweight payment on their milk production history as reported for the Dairy Margin Coverage program. Hog producers are to receive a payment of $11 per head based on the number of live hogs owned on a date to be selected by the producer between April 1 and May 15, 2019. <2.1.2.3. Specialty Crops> MFP payments are to also be made to producers of almonds, cranberries, cultivated ginseng, fresh grapes, fresh sweet cherries, hazelnuts, macadamia nuts, pecans, pistachios, and walnuts. Per-acre MFP payment rates will vary across specialty crops ( Table 2 ) based on their 2019 acres of fruit- or nut-bearing plants or, in the case of ginseng, harvested acres in 2019. <2.1.3. MFP Payment Start Dates> Payments are to be made in up to three tranches. The first payment is to consist of the higher of either 50% of a producer's calculated payment or $15 per acre. On August 22, 2019, news media announced that USDA had begun to process the first tranche of MFP payments. USDA announced on November 15, 2019, that the second tranche of payments would go out on November 18, 2019. For producers with overall MFP payment rates equal to $15 per acre, there will be no second or third tranche payment. For producers with payment rates less than $30 per acre but greater than $15 per acre, the second tranche would equal the remaining unpaid balance. For producers with payment rates greater than $30 per acre, the second payment would be up to 75% of a producer's calculated payment (less the portion already received in the first tranche). As of November 25, 2019, USDA reported that $10.2 billion had been paid out under the first and second tranches. The third tranche would depend on USDA's evaluation of market and trade conditions. If deemed necessary, the third and final payment would be for the remainder of a producer's calculated payment and would begin in January 2020. <2.1.4. MFP Payment Limits> MFP payments are limited to a combined $250,000 for each crop year for non-specialty crops per person or legal entity. MFP payments are also limited to a combined $250,000 for dairy and hog producers and a combined $250,000 for specialty crop producers. However, no applicant can receive more than $500,000 across the three commodity groups. MFP payments do not count against other 2018 farm bill payment limitations. There are no criteria in place to calculate whether MFP might duplicate losses covered under revenue support programs such as the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs of the 2018 farm bill. As a result, the same program acres that are eligible for ARC or PLC payments may be eligible for MFP payments. <2.1.5. MFP Payment Distribution by State> Under the 2018 MFP program, payments were skewed toward major soybean producing states particularly states in the Corn Belt as the payments were based on commodity-specific payment rates and soybeans were allocated the largest payment rate at $1.65 per bushel ( Figure 1 ). When combined with a record soybean crop of over 4.5 billion in 2018, U.S. soybean producers received total outlays estimated at about $7 billion (or 82%) of 2018 MFP payments. For the 2019 MFP program, USDA released the MFP county-level payment rates for nearly 3,000 counties in the United States on July 25, 2019. Unlike 2018, when MFP payments centered on soybean-producing regions, the areas with the highest payment rates in 2019 are regions with heavy cotton and sorghum production ( Figure 2 ). Nationally, MFP payment rates range between $15 and $150 per acre. Some 22 counties are to receive the maximum payment five counties each in Alabama, Georgia, and Texas; three counties in Mississippi and Arizona; and one county in New Mexico while nearly 400 counties across the country are to receive the minimum $15 per acre payment. Some economists suggest that cotton acreage likely played a role in higher MFP payments rates in 2019 across southern states. In 2019, cotton acres averaged 52% of all MFP-eligible acres in counties with rates over $100 per acre. Peanut acreage could also play a role in higher payments. <2.2. Food Purchase and Distribution Program> USDA is to use CCC Charter Act authority to implement a 2019 FPDP program, valued at up to $1.4 billion, through AMS. FPDP is to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk, for distribution by USDA's Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals ( Table B-1 ). The premise is that removing products from normal marketing channels helps to reduce supply and thereby increase prices and farm income. <2.3. Agricultural Trade Promotion Program> FAS will administer the ATP under authorities of the CCC. The ATP is to provide cost-share assistance to eligible U.S. organizations for activities such as consumer advertising, public relations, point-of-sale demonstrations, participation in trade fairs and exhibits, market research, and technical assistance to boost exports for U.S. agriculture, food, fish, and forestry products. On July 19, 2019, USDA awarded $100 million to 48 organizations through the ATP to help U.S. farmers and ranchers identify and access new export markets ( Table C-1 ). Many of the 2019 ATP award recipients are among the cooperator organizations that had been awarded funding from the $200 million in 2018 ATP funds. <3. Conclusion> The broad discretionary authority granted to the Secretary under the CCC Charter Act to implement the trade aid package also allows the Secretary to determine how the aid is to be calculated and distributed. In 2018, when the first trade aid package was announced with funding of $12 billion, USDA officials declared that it would be a temporary, one-time response to foreign tariffs imposed on selected U.S. commodities. However, on May 23, 2019, Secretary Perdue announced a second round of trade aid package valued at $16 billion in 2019. USDA's use of CCC authority to initiate and fund agricultural support programs without congressional involvement is not without precedent, but the scope and scale of its use for the two trade aid packages at $28 billion has increased congressional and public interest. Some have suggested that the effects of tariffs and retaliatory tariffs could be long-lasting because they have created uncertainty about U.S. trade policy behavior and have called into question U.S. reliability as a trading partner. Furthermore, the use of CCC authority to mitigate tariff-related losses may establish a precedent for future situations. Some trade economists and market watchers have suggested that annual trade aid packages might continue as long as the trade disputes remain unresolved. Most farm commodity and advocacy groups have been supportive of the trade aid package even as they have called for solutions that restore export activity. However, some stakeholders have questioned the equity of the distribution of 2018 MFP payments and the rationale for determining payments based on "trade damage" rather than a broader "market loss" measure. Some economists have suggested that, even under the 2019 formulation, USDA is overpaying farmers for trade losses and that USDA's calculations failed to fully incorporate last year's record soybean harvest or new trade patterns that have emerged following China's reluctance to buy U.S. soybeans. Due to their price tag ($12 billion in 2018 and $16 billion in 2019) and the coupled nature of the MFP payments to planted acres, there is considerable interest from policymakers, market observers, and trading partners about whether these payments will be fully compliant with World Trade Organization (WTO) commitments. In particular, there is some interest in whether large MFP payments might cause the United States to breach its $19.1 billion annual WTO spending limit on trade-distorting farm subsidies. Appendix A. MFP Payment Formula On August 23, 2019, USDA published the details on the calculation of MFP payment rates for USDA-designated eligible commodities under the 2019 trade aid package including county-level MFP rates for non-specialty crops and national MFP rates for hogs, dairy, and specialty crops. For both the 2018 and the 2019 trade aid packages, USDA defined economic losses due to foreign retaliatory trade actions narrowly in terms of gross trade damages rather than broadly as lost market value. Gross trade damages is defined as the total amount of expected export sales lost to the retaliating trade partner due to the additional tariffs. Gross trade damages were estimated for each of the major farm commodities affected by the retaliatory tariffs. The estimated trade damages were then used to derive both commodity-specific MFP payment rates and FPDP purchase targets for pork (hogs) and milk (dairy). Both the 2018 and 2019 trade aid packages used the same methodology to estimate gross trade damages for USDA-designated commodities. However, the two estimates used different time frames to calculate the trade damages, thus producing different commodity-specific MFP payment rates ( Table A-1 ). The 2018 calculations of gross trade damages compared trade data from 2017 (pre-retaliatory tariffs) with 2018 data (post-retaliatory tariffs). The 2019 calculations used a longer historical time series, extending the "look-back" over a 10-year period from 2009 through 2018 compared with 2019 trade. In a further change from the 2018 methodology, the 2019 MFP payment rates for non-specialty crops combined commodity-specific MFP payments rates at the county level in a formula (weighted by historical county planted acres and yields) to derive a single county-level MFP payment rate rather than separate national commodity-specific rates. Hogs, dairy, and specialty crops retained their national MFP payment rates but at different values due to the longer "look-back" period used to estimate gross trade damages. This appendix section briefly reviews the methodology used to derive the 2018 MFP commodity-specific payment rates. Then it discusses the adaptations made by USDA for 2019 to derive both the county-level payments for non-specialty crops and the national-level payment rates for specialty crops, hogs, and dairy. 2018 MFP Payment-Rate and Payment Methodology USDA calculated a unique national MFP payment rate for each affected commodity (as determined by USDA). A producer's MFP payment calculation involved three steps: First, USDA estimated the level of direct trade-related damage caused by 2018 retaliatory tariffs imposed by Canada, China, the European Union, Mexico, and Turkey to U.S. exports for each affected commodity. Direct trade loss is the difference in expected trade value for each affected commodity with and without the retaliatory tariffs. To measure this, USDA compared U.S. exports for 2017 (the year prior to the imposition of retaliatory tariffs) with 2018 export levels when trade was subject to the retaliatory tariffs. Much of the affected 2018 agricultural production had yet to be harvested and sold at the time the MFP payment rates were calculated. In addition, the final trade effect, with or without retaliatory tariffs, was not observable, and markets had yet to fully adjust to whatever new trade patterns would emerge from the trade dispute. As a result, USDA estimated both export values (with and without retaliatory tariffs) using a global trade model that accounted for the availability of both substitute supplies from export competitors and demand for U.S. agricultural exports from alternate importers. Indirect effects such as any decline in market prices due to record 2018 soybean production and the build-up of domestic stocks, or resultant economy-wide "lost value" for non-producer owners of the affected commodities were not included in the payment calculation. Second, the estimated trade damage for each affected commodity was divided by the crop's production in 2017 to calculate a national commodity-specific, per-unit damage rate. This per-unit damage rate is the commodity-specific MFP payment rate. In the case of both pork and milk, FPDP purchases were subtracted from the estimated trade damage before the per-unit MFP payment rates for hogs and milk were calculated. Finally, a producer's 2018 MFP payment was equal to the commodity-specific MFP payment rate multiplied by the producer's 2018 production for corn, cotton, sorghum, soybeans, wheat, fresh sweet cherries, and shelled almonds. For hog producers, the MFP payment rate was multiplied by a producer-selected hog inventory from July 15 to August 15, 2018. For milk producers, the MFP payment rate was multiplied by the farm's production history as reported for the Margin Protection Program of the 2014 farm bill. 2019 MFP Payment-Rate and Payment Methodology To calculate the 2019 MFP payment rates, USDA made several adaptations to the 2018 methodology. As a result, a producer's MFP payment calculation in 2019 involved an additional fourth step. First, USDA again calculated the level of direct trade-related damage caused by retaliatory tariffs to U.S. exports for each commodity. However, USDA used 2019 retaliatory tariffs (not 2018) that were being imposed by China, the European Union, and Turkey. Canada and Mexico were removed from the calculations, as they were no longer imposing retaliatory tariffs on U.S. agricultural exports. In addition, USDA adjusted the calculation of direct trade damage by using 10 years of historical U.S. export data (2009-2018) rather than a single year. This larger period captured trade losses for certain commodities that experienced fluctuating trade patterns in recent years and where trade levels during the 2017 data period were unrepresentative of historical trade volumes. Second, the estimated trade damage for each affected commodity was divided by the crop's average production during the three-year period 2015-2017 to calculate a national commodity-specific, per-unit damage rate. In the case of both pork and milk, FPDP purchases were subtracted from the estimated trade damage before the per-unit MFP payment rates for hogs and milk were calculated. Third, the commodity-specific damage rates were then used to establish county-level, per-acre payment rates based on historical county data for average planted area and yields of the affected commodities. For each county, USDA multiplied three terms together to estimate the county-level trade damage for each MFP-eligible crop: (1) the three-year (2015-2017) average yield for each crop taken from USDA's Risk Management Agency's (RMA) crop insurance data, (2) the four-year (2015-2018) average planted acres of each crop in the county taken from FSA's database of crop acreage reports and (3) the commodity-specific, per-unit damage rate for each crop (from step two above). Then, for each county, the crop damage estimates were added across all MFP-eligible crops produced in the county to generate an estimate of the county's total trade damages. The county's total trade damage estimate was then divided by total planted acres of MFP-eligible crops within the county. The result is a unique county-level MFP payment rate. Under this formulation, MFP county-level rates will vary across counties based on the average crop mix, the average planted acres per crop, and average crop yields. Finally, a producer's 2019 MFP non-specialty-crop payment is equal to the county-level MFP non-specialty-crop payment rate (for the county where production occurs) multiplied by the total acreage of all non-specialty crops planted in that county by that producer. Thus, the 2019 MFP non-specialty-crop payment is independent of an individual farmer's crop mix (from among MFP-eligible non-specialty crops). In 2019, many producers were prevented from planting acreage due to wet, cool conditions. These acres were not eligible for MFP non-specialty crop payments. However, if a USDA-approved cover crop was planted on the "prevent-plant" acres with the potential to be harvested, then those producers qualified for a $15-per-acre payment on "prevent-plant" acres. USDA suggests that this independence from individual crop choices prevents the county-level MFP payment from distorting producer planting decisions that were ongoing at the time of the initial trade aid package announcement on May 23, 2019. However, planting of an MFP-eligible crop was a requirement for MFP eligibility. Thus, the 2019 MFP payments may be non-commodity-specific outlays, but they are coupled to the planting of an MFP-eligible crop. These distinctions, although subtle, are important considerations for how the resultant outlays may be notified under WTO domestic-support program disciplines. Appendix B. FPDP Implementation The Administration is allocating about $1.4 billion of its 2019 trade aid package to USDA's AMS for purchasing various agricultural commodities and distributing them through domestic nutrition assistance programs ( Table B-1 ). Under the 2019 FPDP program, AMS is to buy affected products in four phases, starting after October 1, 2019, with deliveries beginning in January 2020. The products purchased can be adjusted between phases to accommodate changes due to growing conditions, product availability, market conditions, trade negotiation status, and program capacity. AMS maintains purchase specifications for a variety of commodities based on recipient needs. The products discussed in this plan are to be distributed to states for use in the network of food banks and food pantries that participate in the Emergency Feeding Assistance Program, elderly feeding programs such as the Commodity Supplemental Foods Program, and tribes that operate the Food Distribution Program on Indian Reservations. These outlets are in addition to child nutrition programs such as the National School Lunch Program, which may also benefit from these purchases. Appendix C. ATP Program Implementation USDA announced funding allocations under the ATP program for both the 2018 and 2019 trade aid packages in 2019 ( Table C-1 ). A total of 59 organizations have received $300 million in awards under the two ATP programs, including 57 organization receiving $200 million under the 2018 ATP program and 48 organizations sharing $100 million under the 2019 program.

On May 23, 2019, Secretary of Agriculture Sonny Perdue announced that the U.S. Department of Agriculture (USDA) would undertake a second trade aid package in 2019 valued at up to $16 billion—similar to a trade aid package initiated in 2018 valued at $12 billion—to assist farmers in response to trade damage from continued tariff retaliation and trade disruptions. Under the 2019 trade aid package, USDA will use its authority under the Commodity Credit Corporation (CCC) Charter Act to fund three separate programs to assist agricultural producers in 2019 while the Administration works to resolve the ongoing trade disputes with certain foreign nations, most notably China. The three programs are similar to the 2018 trade aid package but are funded at different levels: 1. The Market Facilitation Program (MFP) for 2019, administered by USDA's Farm Service Agency, is to provide up to $14.5 billion in direct payments to producers of affected commodities (compared with up to $10 billion in 2018). 2. A Food Purchase and Distribution Program , administered through USDA's Agricultural Marketing Service, will use $1.4 billion (compared with $1.2 billion in 2018) to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk, for distribution by USDA's Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals. 3. The Agricultural Trade Promotion Program , administered by USDA's Foreign Agriculture Service, will be provided $100 million ($200 million in 2018) to assist in developing new export markets on behalf of U.S. agricultural producers. The broad discretionary authority granted to the Secretary under the CCC Charter Act to implement the trade aid package also allows the Secretary to determine how the aid is to be calculated and distributed. Some important differences between the 2018 and 2019 trade aid packages include the following. The 2019 package includes an expanded funding commitment of $16 billion versus $12 billion under the 2018 package. The 2019 package focuses on the same three commodity groups—non-specialty crops (grains and oilseeds), specialty crops (nuts and fruit), and animal products (hogs and dairy)—but includes an expanded list of eligible commodities (41 eligible commodities in 2019 compared with nine in 2018). The MFP payment formula for 2019 is modified for non-specialty crops to be a single county payment rate rather than commodity-specific rates that were applied in 2018. This is done to minimize influencing producer crop choices and avoid large payment-rate discrepancies across commodities. MFP payments for non-specialty crops will be based on planted acres in 2019, not harvested production as in 2018. This change will avoid having MFP payments reduced by the lower yields that are expected across major growing regions due to the widespread wet spring and delayed plantings. The 2019 package includes expanded payment limits per individual per commodity group ($250,000 versus $125,000 under the 2018 initiative) and an expanded maximum combined payment limit across commodity groups ($500,000 versus $375,000). It continues the expanded adjusted gross income (AGI) criteria (no restriction if at least 75% of AGI is from farming operations) adopted under the 2019 Supplemental Appropriations for Disaster Relief Act ( P.L. 116-20 ) and applied to 2018 MFP payments retroactively. Payments may be made in up to three tranches, with the second and third tranches dependent on market developments. The first payment started in August and consisted of the higher of either 50% of a producer's calculated payment or $15 per acre. USDA announced on November 15, 2019, that the second tranche of payments would go out on November 18, 2019. The third tranche would depend on USDA's evaluation of market and trade conditions. If deemed necessary, they would occur in January 2020. As of November 25, 2019, USDA had made $10.2 billion in 2019 MFP payments. USDA's use of CCC authority to initiate and fund agricultural support programs without congressional involvement is not without precedent, but the scope and scale of its use for the two trade aid packages—at $28 billion—has increased congressional and public interest. Some have questioned whether MFP payments have established a precedent that might persist as long as trade disputes remain unresolved. Others have questioned the equity of their distribution across commodity sectors and regions. Finally, some economists worry that large MFP payments might contribute to a violation of U.S. trade commitments to the World Trade Organization.

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<1. What Are Digital Assets?> Digital assets are assets issued and transferred using distributed ledger or blockchain technology. They are often referred to as crypto-asset , digital token , or cryptocurrenc y , among other terminology. Digital assets can be securities, currencies, or commodities. Although market participants use different terms to describe them, financial regulators have stated that regardless of what they are called financial activities, services, and market participants must adhere to applicable laws and regulations. In the case of digital assets, depending on their characteristics, this can include securities laws and regulations. One key difference between digital and traditional assets is an asset's ownership and exchanges of ownership. Whereas traditional assets are generally recorded in private ledgers maintained by central intermediaries, digital assets' ownership and exchange are generally recorded on a decentralized digital ledger. <1.1. Digital Assets as Securities> The Securities and Exchange Commission (SEC) is the primary regulator overseeing securities offers, sales, and investment activities, including those involving digital assets. However, not all digital assets are securities. In general, a security is "the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." When a digital asset meets the criteria defining a security, it would be subject to securities regulation. For example, most of the initial coin offerings (ICOs) are securities, but Bitcoin is not a security, mainly because it does not have a central third-party common enterprise. Market intermediaries (e.g., investment advisers, trading platforms, and custodians) involved with digital asset investment, trading, and safekeeping could also be subject to relevant securities regulation. Securities regulations could apply if the intermediaries are directly engaged in the security-based digital asset transactions or if they use digital assets (including non-security-based digital assets) to facilitate securities transactions. This report focuses on digital assets and activities that are subject to securities regulation. It discusses the objectives and policy rationale of securities laws and regulations; SEC initiatives to address specific regulatory challenges arising from certain unique digital asset features that raise questions concerning the adequacy of the existing regulatory framework; and policy issues for congressional and industry consideration in five selected areas: initial coin offerings, stablecoins, digital asset exchange-traded funds, digital asset custody, and digital asset trading. <2. Securities Regulation Background> Securities regulation generally applies to all securities and related intermediaries, whether they are digital or traditional. This section broadly discusses the objectives and policy rationale behind securities laws and regulations. Congress established the SEC and the main framework for capital markets and securities regulation to restore market confidence after the stock market crash of 1929. The regulatory framework's key objectives are to promote disclosure of important market-related information, maintain fair dealing, and protect against fraud. As a result, the existing securities regulatory regime focuses on disclosure-based rules, an antifraud regime, and rules governing securities market participants (e.g., exchanges, broker-dealers, and investment advisors). The SEC's mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. For example, one of the cornerstones of securities regulation the Securities Act of 1933 is often referred to as the "truth in securities" law. As the phrase suggests, disclosures allow investors to make informed judgments about whether to purchase specific securities by ensuring they receive financial and other significant information on securities offered for sale. The SEC does not make investment recommendations. The disclosure-based regulatory philosophy is consistent with Supreme Court Justice Louis Brandeis's famous dictum that "sunlight is said to be the best of disinfectants; electric light the most efficient policeman." The current developments in digital asset trading and fundraising are not the first time securities regulators have had to accommodate new technology. Capital markets infrastructure has experienced continuous innovation since the securities regulatory framework was first formed in the 1930s. For example, securities trading platforms experienced a major revolution in the late 1960s and early 1970s, when trading processes shifted from paper and pen-based manual settlements in isolated markets to electronic platforms, which incorporate new data-processing and communications technologies that link all markets together. Congress responded to these advancements by amending Section 11A of the Securities Exchange Act to establish a national market system. The congressional objectives were to encourage efficient, competitive, fair, and orderly markets that are in the public interest and protect investors. <3. The SEC's Current Regulatory Approach> Although digital assets as a capital market innovation evolved quickly, the SEC to date has not been active in promulgating new digital-asset-specific rules. One rationale for this approach is that, because it is uncertain how the characteristics and use of digital assets will evolve, highly prescriptive regulations could become obsolete, and potentially inefficient. The SEC's current regulatory framework that governs traditional and digital securities include the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. It has also used existing tools and a number of initiatives besides rulemaking to address specific regulatory issues arising from certain unique digital asset features. The SEC's approaches include the following: Innovation office . The SEC created the Strategic Hub for Innovation and Financial Technology (FinHub) in 2018 to engage in financial technology ( fintech ), consolidate and clarify communications, and inform policy research. In 2019, FinHub conducted outreach meetings in multiple cities and published a framework for analyzing whether a digital asset is a security. Enforcement . The SEC has brought enforcement actions against securities token issuers and digital asset traders and asset managers, among others. The SEC established a new Cyber Unit and increased its monitoring of and enforcement actions against illicit cyber-based transactions. No-action letter s . The SEC uses no-action letters to provide relief for digital-asset-related businesses and to signal its regulatory intentions to capital markets. For example, the SEC issued a no-action letter to TurnKey Jet, a business-travel startup, stating that its issued tokens are not securities. This was the SEC's first no-action letter for an ICO. The letter triggered a wave of industry discussions and could set a precedent for future digital asset activities. Solicitation for public input . The SEC released a letter to the industry in March 2019 to solicit public input regarding digital asset custody. The comments may help the SEC understand the challenges the industry faces and assess investor-protection risks. New product approval . The SEC could approve or reject new digital asset products. For example, the SEC has reviewed Bitcoin ETF proposals in recent years and has consistently rejected such proposals as of 2019. <4. Issues Raised by Digital Assets in the Securities Regulation Context> Digital assets and their use in capital markets are a growing presence in the financial services industry's development. They raise policy questions, including whether new digital-asset-related practices have outgrown or are sufficiently overseen by the existing regulatory system; how the regulatory frameworks can achieve a level playing field where the same businesses and risks could be subject to the same regulation; and how to protect investors without hindering innovation. A fundamental understanding of innovative trends and the appropriate timing of the related policy actions are also important for digital asset regulation. In analyzing technological changes, some commentators suggest that society tends to overestimate a technology's effects in the short run and underestimate its effects in the long run. This illustrates the delicate balance between social pressure for change and the appropriate timing for policy responses in the face of innovation. This section explains key examples of digital asset developments and use cases, focusing on policy issues and legislative proposals in the securities regulation context. The most salient digital asset-related policy issues include regulatory oversight and investor protection. Regulatory O versight . Digital asset issuers and investors face a steep learning curve in comprehending the regulatory landscape and determining how or if securities laws apply to them. It may not always be clear whether a digital asset is a security subject to SEC regulation. Multiple agencies apply different regulatory approaches to digital assets at the federal and state levels. For example, for certain digital assets, the SEC treats them as "securities," the Commodity Futures Trading Commission treats them as "commodities," and the Internal Revenue Service treats them as "property." State regulators oversee digital assets through state money transfer laws, and the Treasury Department's Financial Crimes Enforcement Network monitors digital assets for anti-money laundering purposes. Investor Protection. Digital asset investors which may include less-sophisticated retail investors, who may not be positioned to comprehend or tolerate high risks may be especially vulnerable to new types of fraud and manipulation, leading to questions about investor protection. First, there appears to be high levels of scams and business failures. A 2018 study from Satis Group, a digital asset advisory firm, found that 81% of ICOs were scams and another 11% failed for operational reasons. Second, many digital asset companies offering securities do not comply with SEC registration and disclosure obligations, potentially affecting investors' ability to understand their risk exposures. Third, the high volatility of digital assets' valuations can potentially result in large gains and losses, the risk of which may not be well understood by less-sophisticated investors. Lastly, digital assets operate outside the traditional financial system and thus may not offer common types of transaction protectio ns. For example, banks may have the option to halt or reverse suspicious transactions and associate transactions with the users' identities, but a digital asset transaction is generally irreversible through such intermediaries. <4.1. Initial Coin Offerings> Businesses raise funding from capital markets through securities offerings, such as stocks, bonds, and digital assets. ICOs are a new fundraising mechanism in which projects sell their digital tokens in exchange for fiat currency (e.g., dollars) or cryptocurrency (e.g., Bitcoin). A typical ICO transaction involves the issuer selling new digital "coins" or "crypto tokens" to individual or institutional investors. Investors pay for these tokens with either cryptocurrencies or traditional currencies. ICOs are often compared with initial public offerings (IPOs) of the traditional financial world because both are methods by which companies acquire funding. The main difference is that ICO investors receive digital assets in the form of virtual tokens or the promise of future tokens, unlike IPO investors who receive an equity stake representing company ownership. These coins or tokens are new digital currencies each company creates and sells to the public. Coin purchasers could redeem the coins for goods or services from crypto enterprises or hold them as investments hoping the coins would increase in value. Although every crypto enterprise is different, they generally make transfers without an intermediary or any geographic limitation. Industry practitioners are increasingly using the term security token offering s (STOs) to describe ICOs. This change of terminology reflects the industry's acceptance that many ICOs are securities offerings and thus subject to securities laws and regulations. Securities laws require all securities offers and sales to either be registered under their provisions (as a public offering) or qualify for an exemption from registration (as a private offering). ICOs can take many forms. They can be listed on national exchanges as public offerings or be issued pursuant to the private securities offering exemptions. Operational and regulatory conditions including investor access, maximum offering amounts, and filing requirements differ depending on the type of offering an ICO selects. Table 1 illustrates examples of ICO fundraising options. ICOs could potentially use all the existing securities offering venues. They have already reportedly been issued under several of the private exemptions (e.g., Regulation D, Regulation Crowdfunding, and Regulation A). Although public offering ICOs are possible, as of year-end 2019, no ICOs have yet issued under this method. The previously discussed policy issues relating to regulatory oversight and investor protection also apply to ICOs. <4.2. Digital Asset "Exchanges"> About 300 platforms are offering digital asset trading and referring to themselves as "exchanges," as of December 2019. A platform that offers trading in digital asset securities and operates as an "exchange" (as defined in the federal securities laws) must register with the SEC as a national securities exchange or obtain exemption. However, many such platforms are registered as money-transmission services (MTSs) instead of SEC-regulated national securities exchanges. MTSs are money transfer or payment operations that are mainly subject to state, rather than federal, regulations. Because MTS regulations were not designed with digital asset trading activities in mind, some argue that they are insufficient in regulating the transfer of digital assets. In addition, these services raise investor-protection concerns because they are not subject to the more rigorous oversight as national securities exchanges. The SEC issued a statement in 2018 clarifying that the online platforms for buying and selling digital assets that qualify as securities could be unlawful. These digital asset trading platforms face problems with fraud and manipulation. Some think applying SEC regulation would help, but others are concerned that regulation could stifle financial innovation. <4.2.1. Digital Asset "Exchanges" Versus National Securities Exchanges> Although current technological advancements may seem to have blurred the terminology used, certain platforms trading digital assets that are securities appear to behave as functional equivalents to national securities exchanges. For example, these platforms bring together buyers and sellers, execute trades, and display prices. However, there are differences, such as the blockchain-enabled trading platforms operating without a central database and the fact that not all digital assets trading on platforms are securities. The general consensus among domestic and international securities regulators regarding digital assets is that regulatory oversight should be balanced with the need to foster financial innovation. However, if digital asset trading platforms are buying and selling securities and fall within the SEC's regulatory regime, then securities regulation's basic objectives should arguably continue to apply. In addition, some international authorities believe that, although digital asset trading platforms may face issues similar to traditional exchanges, regulatory approaches may still need to be adjusted to account for particular operating models that may amplify risks differently. In general, policymakers contending with major financial innovations have historically focused on addressing risk concerns while tailoring their regulatory framework flexibly to accommodate evolving technology. The differences between digital asset "exchanges" and the SEC regulated national securities exchanges could include transparency, fairness, and efficiency. These are principles guiding the national securities exchange regulation, yet they are perceived as lacking for digital asset "exchanges." Many digital asset "exchanges" are reportedly exaggerating their volumes on a routine basis to attract more participation. Investors are perceived to have no idea whether the trading volume and prices reflect real activities or market manipulation. To take the more frequently studied digital asset Bitcoin for example, one study shows that 95% of Bitcoin's trading volume displayed on digital asset price and volume aggregator CoinMarketCap.com is either fake or non-economic in nature. Another widely cited academic study illustrates the scale of potential damage that digital asset market manipulations could create, underlining the investor-protection concerns in the digital asset space. The study argues that a single market manipulator likely fueled half of Bitcoin's 2017 price surge that pushed its price close to $20,000. The activities were reportedly carried out through the largest digital asset "exchange" at that time, Bitfinex, and used a stablecoin called Tether to boost the demand for Bitcoin. For this alleged manipulation, Bitfinex and Tether faced a class complaint seeking a total of $1.4 trillion in damages. Although Bitfinex and Tether rebutted the study, calling it "bogus," they are currently under investigation by federal and state regulators. Given the scale of such issues, some have questioned whether digital asset trading warrants more regulatory safeguards that protect investors and promote more efficient market operations. It is difficult to predict the extent to which an SEC-regulated digital asset national exchange would have mitigated the market manipulations, or if the SEC's regulatory framework is the best fit for addressing all the digital-asset-trading-related policy concerns. Still, digital asset "exchanges" under the current operating environment appear vulnerable to misconduct. The Bitcoin price manipulation study's author, a finance professor with a background in forensics, said that "years from now, people will be surprised to learn investors handed over billions to people they didn't know and who faced little oversight." <4.2.2. Current State of Play> The SEC took its first enforcement action against an unregistered digital asset "exchange" in 2018. The SEC stated that the platform "had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption," but was perceived to have failed to do so. Some of the largest digital asset "exchanges" have developed a system to rate digital assets based on the probability that they could be defined as securities. These "exchanges" reportedly hope that by so doing they could exclude securities-based digital assets from their unregistered trading platforms, thus circumventing SEC securities regulation. This action is part of the digital asset industry's self-regulation discussion that is gaining momentum. For example, an international law firm's 2018 survey showed that the vast majority of the respondents thought the industry should formalize self-regulation and subject that self-regulation to regulatory oversight. Many digital asset trading platforms also reportedly sought to obtain exemptions from the SEC to operate as alternative trading systems (ATS). ATSs are "dark pools" that do not publicly display the size and price of their orders. ATSs face fewer regulatory requirements than national exchanges, but they must register as broker-dealers and meet certain SEC and Financial Industry Regulatory Authority (FINRA) compliance and filing requirements, such as custody, books and records, and regulatory examinations. However, any ATS that transacts more than 5% of the trading volume of any security, which also trade on the national securities exchange system, could face stricter "order display" and "first access" rules that effectively integrate that ATS in part into the national market system. A number of the largest digital asset "exchanges" (e.g., Coinbase, Gemini, Bitstamp, and ItBit) have obtained state-level regulatory licenses (BitLicense) from New York State's Department of Financial Services. The license requirements include certain investor protection, market fraud and manipulation prevention, and illicit activity prevention measures. <4.3. Digital Asset Custody> Custodians provide safekeeping of financial assets. They are financial institutions that do not have legal ownership of assets but are tasked with holding and securing assets, among other administrative functions. The SEC's custody rules impose requirements designed to protect client assets from the possibility of being lost or misappropriated. Custodians are important building blocks for the financial services industry. The custody industry for traditional assets is large and concentrated. In the past 90 years, financial custody has evolved from a system of self-custody to one in which major custodians provide asset custody for client accounts. Today, four banks (BNY Mellon, J.P. Morgan, State Street, and Citigroup) service around $114 trillion of global assets under custody. Digital-asset custody has recently attracted regulatory attention because the SEC custody rules could pose unique challenges for custodians of digital assets. The custody rules were developed for traditional assets, which are easier than digital assets to secure and produce tangible tracks of physical existence or records. Digital assets generally lack physical existence or records produced by intermediaries, as seen in traditional assets such as gold or bank accounts. Common practice in the digital asset industry so far focuses on safeguarding private keys, unique numbers assigned mathematically to digital asset transactions to confirm asset ownership. This practice raises the question of how possession or control of a digital asset should be defined for regulatory purposes. The challenges include but are not limited to, for example, that a digital asset could have multiple private keys or that a single private key does not exist. As such, some believe the digital asset custody definition should go beyond the verification of the keys to incorporate holistic custody views. Regulators are currently evaluating whether custody requirements should be adjusted to account for digital assets' unique operational characteristics. The SEC released a letter to the industry in March 2019 to solicit public input regarding digital asset custody. The SEC summarized a number of policy issues, including the use of distributed ledger technology (DLT) to record ownership, the use of public and private cryptographic key pairings to transfer digital assets, the ability to restore or recover digital assets once lost, the generally anonymous nature of DLT transactions, and the challenges posed to auditors in examining DLT and digital assets. On July 8, 2019, the SEC and FINRA, a self-regulatory organization, issued a joint statement to outline considerations for digital asset securities custody. They acknowledged the challenges of applying custody requirements to digital assets and stated that there are initiatives underway to solicit input from market participants that could help develop new ways to establish "possession or control" for digital asset securities. <4.4. Digital Asset Exchange-Traded Funds> ETFs are pooled investment vehicles that gather and invest money from a variety of investors. ETFs combine features of both mutual funds and stocks and can trade on national exchanges. Some industry practitioners hope that the ETF structure could incorporate digital assets. Individual investors typically buy digital assets, for example, Bitcoins, from other owners or through digital asset trading platforms and other intermediaries. Individual investors currently cannot directly purchase digital assets (e.g., Bitcoins) from the SEC-regulated national securities exchanges. Some have proposed allowing retail investors to buy or sell digital assets on regulated exchanges through the exchange-traded fund (ETF) structure where, instead of directly trading digital assets, the investors would buy or sell publicly traded ETF shares with values linked to underlying digital assets. This section discusses potential Bitcoin ETFs' policy implications for the digital asset industry. <4.4.1. Bitcoin ETF Proposals> As mentioned previously, some digital assets are securities subject to securities laws and regulations. But digital assets could also be structured as securities products, even if the underlying assets are not securities. The proposed Bitcoin ETFs are the most prominent example. Although Bitcoin is not a security, Bitcoin ETFs would be securities products with value linked to the underlying Bitcoins and are subject to securities regulation, including the Investment Company Act of 1940 and Investment Advisers Act of 1940. The digital asset industry has submitted many Bitcoin ETF proposals with the hope of gaining access to more retail investors, but, as of the end of 2019, the SEC has not approved a Bitcoin ETF. The SEC repeatedly stated in its rejections that Bitcoin ETF proposals did not meet standards governing national securities exchanges. Specifically, the SEC stated that the proposals have not met the requirements in Section 6(b)(5) of the Exchange Act that order national exchanges to be "designed to prevent fraudulent and manipulative acts and practices." The agency articulated its rationale in a 2018 staff letter that listed challenges related to a Bitcoin ETF. In addition to market manipulation concerns, major Bitcoin ETF challenges included valuation and pricing, custody, and liquidity. For example, all ETFs must frequently value their portfolio assets. The valuation process determines what investors should pay for the ETF shares and how the ETFs perform. Some worry that the Bitcoin ETFs would not be able to obtain the information necessary to adequately value the digital assets given the high volatility and fragmentation of the markets. Bitcoin ETFs also have supporters. One institutional investor argues that ETFs provide a familiar and convenient way for investors to invest in digital assets, enabling them to participate in digital asset trading and partake in the potential financial gains brought by technological advancements, despite the potential trade-offs with respect to investor protection. In a public statement about a dissenting vote on a disapproved Bitcoin ETF proposal, SEC Commissioner Hester Peirce stated that certain Bitcoin ETF proposals do satisfy the Section 6(b)(5) statutory requirements and that the disapproval may dampen innovation and inhibit institutionalization. <4.5. Stablecoins in Securities Markets> Stablecoins are a type of digital asset designed to maintain a stable value by linking its value to another asset or a basket of assets, typically collateralized by fiat currencies or facilitated by algorithms. The best-known example of a proposed stablecoin is Facebook's Libra proposal (see discussion below). Since it was first announced in mid-2019, Libra has generated many policy concerns, inspired new considerations for comparable use cases from the private and public sectors, and fueled discussions of other global stablecoins. A stablecoin arrangement's individual components are complex, leading to many crosscutting policy discussions. The Financial Stability Board, an international financial authority, characterizes a stablecoin's components as the following: Entities/structures involved in issuing stablecoins; entities/structures that manage assets linked to the coins; infrastructure for transferring coins; market participants/structures facing users (e.g., platforms/exchanges, wallet providers) and the governance structure for the arrangement, including the role and responsibilities of a possible governance body and the underlying stabilisation mechanism used for the stablecoin. Stablecoin-related policy concerns vary; they include, market integrity, investor protection, financial stability, monetary policy, payments, and illicit activity prevention. Some of these concerns are outside of the scope of this report, which focuses on securities regulation. In addition to securities regulators, other regulatory authorities central banks, payment system regulators, and financial crime enforcement entities have been involved in stablecoin monitoring and oversight. <4.5.1. Facebook's Libra Proposal> Facebook's planned stablecoin Libra attracted congressional attention after it was announced on June 18, 2019. At related congressional hearings, Facebook received multiple questions regarding whether Libra is an ETF and how it should be regulated. These questions arose because to create the stablecoin, Libra would be backed by reserve assets, including bank deposits and short-term government securities. New Libra tokens could only be created or destroyed by authorized sellers. Some industry practitioners argue that Libra's proposed operational structure is similar to the creation and redemption process used by ETFs. Facebook acknowledged at the House hearing that Libra uses operational mechanisms that are similar to ETFs, but stated its view that it is still a payment tool and not an investment vehicle. If deemed an ETF, Libra must comply with the SEC's regulatory regime governing securities, investment advisors, and investment companies. SEC approval would be required to launch the project. The SEC is reportedly evaluating whether Libra's structure makes it an ETF. <4.5.2. Stablecoin-Related Legislative Proposals> The House Financial Services committee discussed three stablecoin-related securities proposals at an October 2019 House Committee on Financial Services hearing. The Managed Stablecoins are Securities Act of 2019 ( H.R. 5197 ) proposes to subject stablecoins to securities regulation by amending the statutory definition of the term security to include a new category of securities called "managed stablecoins." The bill would define a managed stablecoin as a digital asset that has either (1) a market value that is determined, in whole or significant part, by reference to the value of a pool or basket of assets that are held, designated, or managed by one or more persons; or (2) holders that are entitled to obtain payment which is determined, in whole or in significant part, on the basis of the value of a pool or basket of assets held, designated, or managed by one or more persons. Because managed stablecoin issuers are generally perceived as not acknowledging their stablecoins as securities, this bill would remove regulatory uncertainty by stating that a managed stablecoin is a security and therefore subject to securities regulation. The second legislative proposal would limit public company executives' ability to own managed stablecoins. This draft proposal incorporates the same "managed stablecoins" definition, but would take a slightly different approach by delisting a public company if its directors and executives either (1) received compensation in managed stablecoin; (2) bought or sold a managed stablecoin; or (3) were affiliated with a person who bought or sold a managed stablecoin after the date of the security's registration. Lastly, the Keep Big Tech Out of Finance Act ( H.R. 4813 ) would prevent large technology firms like Facebook from offering certain financial services or issuing digital assets.

In recent years, financial innovation in capital markets has fostered a new asset class—digital assets—and introduced new forms of fundraising and trading. Digital assets , which include crypto - assets , cryptocurrencies , or digital tokens , among others, are digital representations of value made possible by cryptography and distributed ledger technology. Regardless of the terms used to describe these assets, depending on their characteristics, some digital assets are subject to securities laws and regulations. Securities regulation generally applies to all securities, whether they are digital or traditional. The Securities and Exchange Commission (SEC) is the primary regulator overseeing securities offerings, sales, and investment activities. The SEC's mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The existing securities regulatory regime generally aligns with this mission, and the SEC's digital asset regulation generally follows the same regime. The SEC has used existing authorities to evaluate new product approval, provide individual regulatory relief, and solicit public input for policy solutions more tailored to digital assets. Digital assets have a growing presence in the financial services industry. Their increasing use in capital markets raises policy questions regarding whether changes to existing laws and regulations are warranted and, if so, when such changes should happen, what form they should take, and which agencies should take the lead. The current innovative environment is not the regulatory regime's first encounter with changing technology since its inception in the 1930s. Some technological advancements led to regulatory changes, whereas others were dealt with through the existing regime. The general consensus is that regulatory oversight should be balanced with the need to foster financial innovation, but securities regulation's basic objectives should apply. In addition, some believe that certain digital asset activities that may appear similar to traditional activities nonetheless require adjusted regulatory approaches to account for particular operating models that may amplify risks differently. In general, policymakers contending with major financial innovations have historically focused on addressing risk concerns while tailoring a regulatory framework that was flexible enough to accommodate evolving technology. Current developments that raise policy issues include the following: Initial coin offerings (ICOs) . ICOs as a digital asset fundraising method can be offered in many forms using existing public and private securities offerings channels. Although ICOs may be useful fundraising tools, they raise regulatory oversight and investor protection concerns. Digital asset "exchanges . " Some industry observers perceive digital asset trading platforms as functional equivalents to the SEC-regulated securities exchanges in buying and selling digital assets. But these platforms are not subject to the same level of regulation, suggesting that they may be less transparent and more susceptible to manipulation and fraud. Digital asset custody . Custodians provide safekeeping of financial assets and are important building blocks for the financial services industry. Digital assets present custody-related compliance challenges because custodians face difficulties in recording ownership, recovering lost assets, and providing audits, among other considerations. The SEC is aware of the challenges and is engaging stakeholders to discuss potential issues and solutions. Digital asset exchange-traded funds (ETFs) . ETFs are pooled investment vehicles that gather and invest money from a variety of investors. ETF shares can trade on securities exchanges like a stock. Currently, digital assets themselves are generally not sold on SEC-regulated national exchanges. However, if portfolios of digital assets were made available as ETFs, they may be sold on national exchanges. The SEC has not yet approved any digital asset ETFs because of market manipulation and fraud concerns. Stablecoins in securities markets . Stablecoins are a type of digital asset designed to maintain a stable value by linking its value to another asset or a basket of assets. Issues concerning stablecoins include market integrity, investor protection, payments, financial stability, and illicit activity prevention. Three legislative proposals relating to securities regulation were discussed at a House Committee on Financial Services hearing: the first proposal ( H.R. 5197 ) would subject stablecoins to securities regulation; the second draft proposal would limit public company executives' access to stablecoins; and the third proposal ( H.R. 4813 ) would prevent "Big Tech" firms from offering financial services or issuing digital assets.

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<1. Introduction> The U.S. farm sector is vast and varied. It encompasses production activities related to traditional field crops (such as corn, soybeans, wheat, and cotton) and livestock and poultry products (including meat, dairy, and eggs), as well as fruits, tree nuts, and vegetables. In addition, U.S. agricultural output includes greenhouse and nursery products, forest products, custom work, machine hire, and other farm-related activities. The intensity and economic importance of each of these activities, as well as their underlying market structure and production processes, vary regionally based on the agro-climatic setting, market conditions, and other factors. As a result, farm income and rural economic conditions may vary substantially across the United States. Annual U.S. net farm income is the single most watched indicator of farm sector well-being, as it captures and reflects the entirety of economic activity across the range of production processes, input expenses, and marketing conditions that have prevailed during a specific time period. When national net farm income is reported together with a measure of the national farm debt-to-asset ratio, the two summary statistics provide a quick and widely referenced indicator of the economic well-being of the national farm economy. <2. USDA's November 2019 Farm Income Forecast> In the third of three official U.S. farm income outlook releases scheduled for 2019 (see shaded box below), ERS projects that U.S. net farm income will rise 10.2% in 2019 to $92.5 billion, up $8.5 billion from last year. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+15.0%) at $119.0 billion. The November forecast of $92.5 billion is 6.3% above the 10-year average of $87.0 billion but is well below 2013's record high of $123.7 billion. The November 2019 net farm income forecast represents an increase from both USDA's preliminary March 2019 forecast of $69.4 billion, and the August 2019 forecast of $88.0 billion ( Table A-1 ). The initial March forecast did not anticipate the second round of MFP payments (valued at up to $14.5 billion). The increase in government support in 2019, projected at $22.4 billion and up 64.0% from 2018, is the principal driver behind the rise in net farm income both year-to-year and from the previous two forecasts. Support from traditional farm programs is expected to be bolstered by large direct government payments in response to trade retaliation under the trade war with China. Direct government payments of $22.4 billion in 2019, if realized, would represent 24.2% of net farm income the largest share since a 27.6% share in 2006. <2.1. Highlights> For historical perspective, both net cash income and net farm income achieved record highs in 2013 but fell to recent lows in 2016 ( Figure 1 ) before trending higher in each of the past three years (2017, 2018, and 2019). When adjusted for inflation and represented in 2019 dollars ( Figure 2 ), the net farm income for 2019 is projected to be on par with the average of $86.8 billion for net farm income since 1940. Global demand for U.S. agricultural exports ( Figure 18 ) is projected at $134.5 billion in 2019, down from 2018 (-6.2%), due largely to a decline in sales to China. Farm asset values and debt levels are projected to reach record levels in 2019 asset values at $3.1 trillion (+2.1%) and farm debt at $415.5 billion (+3.4%) pushing the projected debt-to-asset ratio up to 13.5%, the highest level since 2003 ( Figure 23 ). For 2019, USDA forecasts that prices for most major commodities barley, soybeans, sorghum, oats, rice, hogs, and milk will be up slightly from 2018, while cotton, wheat, choice steers, broilers, and eggs are expected to be lower ( Table A-4 ). However, these projections are subject to substantial uncertainty associated with international commodity markets. <2.2. Three Major Factors Dominate the 2019 Farm Income Outlook> Abundant domestic and international supplies of grains and oilseeds contributed to a fifth straight year of relatively weak commodity prices in 2019 ( Figure A-1 through Figure A-4 , and Table A-4 ). Furthermore, prospects for market conditions heading into 2020 remain uncertain. Three major factors have dominated U.S. agricultural markets during 2019, and have contributed to uncertainty over both supply and demand prospects, as well as market prices, heading into 2020. First, large domestic supplies of corn, soybeans, wheat, and cotton were carried over into 2019 ( Figure 3 ). Large corn and soybean stocks have kept pressure on commodity prices throughout the grain and feed complex in 2019. Second, adverse weather conditions during the spring planting and fall harvesting periods have contributed to market uncertainty regarding the size of the 2019 corn and soybean crops. Third, the U.S.-China trade dispute has led to declines in U.S. exports to China a major market for U.S. agricultural products and added to market uncertainty. In particular, the United States lost its dominant role in the world's preeminent market for soybeans China. It is unclear how soon, if at all, the United States may resolve its trade dispute with China or how international demand may evolve heading into 2020. <2.2.1. Large Corn and Soybean Stocks Continue to Dominate Commodity Markets> Corn and soybeans are the two largest U.S. commercial crops in terms of both value and acreage. For the past several years, U.S. corn and soybean crops have experienced strong growth in both productivity and output, thus helping to build stockpiles at the end of the marketing year. In 2018, U.S. farmers produced a record U.S. soybean harvest of 4.5 billion bushels and record ending stocks (913 million bushels or a 23.0% stocks-to-use ratio) that year ( Figure 3 ). The record soybean harvest in 2018, combined with the sudden loss of the Chinese soybean market (as discussed in the " Agricultural Trade Outlook " section of this report), kept downward pressure on U.S. soybean prices. A smaller crop and lower stocks are projected for 2019; however, the reduction in volume of U.S. soybean exports to China has prevented a major price recovery. Similarly, several consecutive years of bumper U.S. corn crops have built domestic corn supplies. U.S. corn ending stocks in 2019 are projected to approach or surpass 2 billion bushels for the fourth consecutive year. U.S. wheat and cotton supplies are also projected to remain high relative to use, thus keeping downward pressure on farm prices. <2.2.2. Poor Weather for Planting, Harvesting U.S. Corn and Soybean Crops> U.S. agricultural production activity got off to a late start in 2019 due to prolonged cool, wet conditions throughout the major growing regions, particularly in states across the eastern Corn Belt and the Dakotas. This resulted in record large "prevented plant" acres (reported at 19.6 million acres by the Farm Service Agency) and delays in the planting of the corn and soybean crops, especially in Illinois, Michigan, Ohio, Wisconsin, and North and South Dakota. Traditionally, 96% of the U.S. corn crop is planted by June 2, but in 2019 67% of the crop had been planted by that date. Similarly, the U.S. soybean crop was planted with substantial delays. By June 16, 77% of the U.S. soybean crop was planted, whereas an average of 93% of the crop has been planted by that date during the past five years. These planting delays have significant implications for crop development because they push both crops' growing cycle into hotter, drier periods of the summer than usual and increase the risk of plant growth being shut off by an early freeze, thus preventing the plants from achieving their maximum yield potential. Then, in the fall, early bouts of cold, wet conditions delayed corn and soybean harvests in the Western Corn Belt and produced high-moisture crops, requiring costly drying prior to storage. Many farmers left crops in the field unharvested due to wet fields or the lack of access to sufficient propane to dry wet crops. As of December 2, 2019, nearly 11% of the corn crop remained unharvested. <2.2.3. Diminished Trade Prospects Contribute to Market Uncertainty> The United States is traditionally one of the world's leading exporters of corn, soybeans, and soybean products vegetable oil and meal. During the recent five-year period from marketing year 2013/2014 to 2017/2018, the United States exported 49% of its soybean production and 15% of its corn crop. Thus, the export outlook for both of these crops is critical to farm sector profitability and regional economic activity across large swaths of the United States as well as in international markets. However, the tariff-related trade dispute between the United States and China (as well as several other major trading partners) has resulted in lower purchases of U.S. agricultural products by China in calendar years 2018 and 2019, and has cast uncertainty over the outlook for the U.S. agricultural sector, including the corn and soybean markets. <2.3. Livestock Outlook for 2019 and 2020> Because the livestock sectors (particularly dairy and cattle, but hogs and poultry to a lesser degree) have longer biological lags and often require large capital investments up front, they are slower to adjust to changing market conditions than is the crop sector. As a result, USDA projects livestock and dairy production and prices an extra year into the future (compared with the crop sector) through 2020, and market participants consider this expanded outlook when deciding their market interactions buy, sell, invest, etc. <2.3.1. Background on the U.S. Cattle-Beef Sector> During the 2007-2014 period, high feed and forage prices plus widespread drought in the Southern Plains the largest U.S. cattle production region resulted in an 8% contraction of the U.S. cattle inventory. Reduced beef supplies led to higher producer and consumer prices and record profitability among cow-calf producers in 2014. This was coupled with then-improved forage conditions, all of which helped to trigger the slow rebuilding phase in the cattle cycle that started in 2014 ( Figure 4 ). The expansion continued through 2018, despite weakening profitability, primarily due to the lag in the biological response to the strong market price signals of late 2014. The cattle expansion appears to have levelled off in 2019, with the estimated cattle and calf population unchanged from a year earlier at 103 million. Another factor working against continued expansion in cattle numbers is that producers are now producing more beef with fewer cattle as a result of heavier weights for marketed cattle. <2.3.2. Robust Production Growth Projected Across the Livestock Sector> Similar to the cattle sector, U.S. hog and poultry flocks have been growing in recent years and are expected to continue to expand in 2019. For 2019, USDA projects production of beef (+0.6%), pork (+5.0%), broilers (+2.7%), and eggs (+2.5%) to expand robustly heading into 2020. This growth in protein production is expected to be followed by continued positive growth rates in 2020: beef (+1.9%), pork (+3.8%), broilers (+1.8%), and eggs (+0.8%). A key uncertainty for the meat-producing sector is whether demand will expand rapidly enough to absorb the continued growth in output or whether surplus production will begin to pressure prices lower. USDA projects that combined domestic and export demand for 2019 will continue to grow for red meat (+6.2%) driven primarily by demand for pork products but flatten for poultry (+0.0%). <2.3.3. Livestock-Price-to-Feed-Cost Ratios Signal Profitability Outlook> The changing conditions for the U.S. livestock sector may be tracked by the evolution of the ratios of livestock output prices to feed costs ( Figure 5 ). A higher ratio suggests greater profitability for producers. The cattle-, hog-, and broiler-to-feed margins have all exhibited significant volatility during the 2017-2019 period. The hog, broiler, and cattle feed ratios have trended downward during 2018 and 2019, suggesting eroding profitability. The milk-to-feed price ratio has trended upward from mid-2018 into 2019. While this result varies widely across the United States, many small or marginally profitable cattle, hog, broiler, and milk producers face continued financial difficulties. Continued production growth of between 1% and 4% for red meat and poultry suggests that prices are vulnerable to weakness in demand. However, USDA projects that the price outlook for cattle, hogs, and poultry is expected to turn upward in 2020 ( Table A-4 ). Similarly, U.S. milk production is projected to continue growing in 2019 (+0.5%) and 2020 (+1.7%). Despite this growth, USDA projects U.S. milk prices up in both 2019 (+14.4%) and 2020 (1.3%). <2.4. Gross Cash Income Highlights> Projected farm-sector revenue sources in 2019 include crop revenues (46% of sector revenues), livestock receipts (41%), government payments (5%), and other farm-related income (8%), including crop insurance indemnities, machine hire, and custom work. Total farm sector gross cash income for 2019 is projected to be up (+3.9%) to $431.0 billion, driven by increases in both direct government payments (+64.0%) and other farm-related income (+18.1%). Cash receipts from crop receipts (+1.0%) and livestock product (+0.1%) are up (+0.6%) in the aggregate ( Figure 6 ). <2.4.1. Crop Receipts> Total crop sales peaked in 2012 at $231.6 billion when a nationwide drought pushed commodity prices to record or near-record levels. In 2019, crop sales are projected at $197.4 billion, up 1.0% from 2018 ( Figure 7 ). Projections for 2019 and percentage changes from 2018 include Feed crops corn, barley, oats, sorghum, and hay: $59.6 billion (+4.5%); Oil crops soybeans, peanuts, and other oilseeds: $37.6 billion (-5.2%); Fruits and nuts: $29.4 billion (+1.3%); Vegetables and melons: $20.4 billion (+10.0%); Food grains wheat and rice: $11.3 billion (-7.2%); Cotton: $7.4 billion (-8.5%); and Other crops including tobacco, sugar, greenhouse, and nursery: $31.3 billion (+3.4%). <2.4.2. Livestock Receipts> The livestock sector includes cattle, hogs, sheep, poultry and eggs, dairy, and other minor activities. Cash receipts for the livestock sector grew steadily from 2009 to 2014, when it peaked at a record $212.3 billion. However, the sector turned downward in 2015 (-10.7%) and again in 2016 (-14.1%), driven largely by projected year-over-year price declines across major livestock categories ( Table A-4 and Figure 9 ). In 2017, livestock sector cash receipts recovered with year-to-year growth of 8.1% to $175.6 billion. In 2018, cash receipts increased slightly (+0.6%). In 2019, cash receipts are projected up slightly (+0.1%) for the sector at $176.8 billion as increased hog and dairy sales offset declines in poultry and cattle. Projections for 2019 (and percentage changes from 2018) include Cattle and calf sales: $66.5 billion (-0.9%); Poultry and egg sales: $40.0 billion (-13.6%); Dairy sales: valued at $39.9 billion (+13.2%); Hog sales: $23.5 billion (+11.2%); and Miscellaneous livestock: valued at $7.0 billion (+2.1%). <2.4.3. Government Payments> Historically, government payments have included Direct payments (decoupled payments based on historical planted acres), Price-contingent payments (program outlays linked to market conditions), Conservation payments (including the Conservation Reserve Program and other environmental-based outlays), Ad hoc and emergency disaster assistance payments (including emergency supplemental crop and livestock disaster payments and market loss assistance payments for relief of low commodity prices), and Other miscellaneous outlays (including market facilitation payments, cotton ginning cost-share, biomass crop assistance program, peanut quota buyout, milk income loss, tobacco transition, and other miscellaneous payments). Projected government payments of $22.4 billion in 2019 would be up 64.0% from 2018 and would be the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005 ( Figure 11 and Table A-1 ). The projected surge in federal subsidies is driven by large "trade-damage" payments made under the MFP initiated by USDA in response to the U.S.-China trade dispute. MFP payments (reported to be $14.3 billion) in 2019 include outlays from the 2018 MFP program that were not received by producers until 2019, as well as expected payments under the first and second tranches of the 2019 MFP program. USDA ad hoc disaster assistance is projected higher year-over-year at $1.7 billion (+90.7%). Most of the $1.7 billion comes from a new, temporary program, the Wildfire and Hurricane Indemnity Program Plus (WHIP+) enacted through the Disaster Relief Act of 2019 ( P.L. 116-20 ). Payments under the Agricultural Risk Coverage and Price Loss Coverage programs are projected lower (-19.0%) in 2019 at a combined $2.6 billion compared with an estimated $3.2 billion in 2018 (see "Price Contingent" in Figure 11 ). Conservation programs include all conservation programs operated by USDA's Farm Service Agency and the Natural Resources Conservation Service that provide direct payments to producers. Estimated conservation payments of $3.5 billion are forecast for 2019, down (-11.3%) from $4.0 billion in 2018. Total government payments of $22.4 billion represents a 5% share of projected gross cash income of $425.3 billion in 2019 ( Figure 6 ). In contrast, government payments are expected to represent 24% of the projected net farm income of $92.5 billion. If realized, this would be the largest share since 2006 ( Figure 12 ). The government share of net farm income reached a peak of 65.2% in 1984 during the height of the farm crisis of the 1980s. The importance of government payments as a percentage of net farm income varies nationally by crop and livestock sector and by region. <2.4.4. Dairy Margin Coverage Program Outlook> The 2018 farm bill ( P.L. 115-334 ) made several changes to the previous Margin Protection Program (MPP), including a new name the Dairy Margin Coverage (DMC) program and expanded margin coverage choices from the original range of $4.00-$8.00 per hundredweight (cwt.). Under the 2018 farm bill, milk producers have the option of covering the milk-to-feed margin up to a threshold of $9.50/cwt. on the first 5 million pounds of milk coverage. The DMC margin differs from the USDA-reported milk-to-feed ratio (shown in Figure 5 ), but reflects the same market forces. As of October 2019, the formula-based milk-to-feed margin used to determine government payments had risen to $10.88/cwt., above the newly instituted $9.50/cwt. payment threshold ( Figure 13 ), thus decreasing the likelihood that DMC payments might be available in the second half of 2019. In total, the DMC program is expected to make $214 million in payments in 2019, down from $250 million under the previous MPP in 2018. <2.5. Production Expenses> Total production expenses for 2019 for the U.S. agricultural sector are projected to be up slightly (+0.2%) from 2018 in nominal dollars at $344.6 billion ( Figure 14 ). Production expenses peaked in both nominal and inflation-adjusted dollars in 2014, then declined for five consecutive years in inflation-adjusted dollars. However, in nominal dollars production expenses are projected to turn upward in 2019. Production expenses affect crop and livestock farms differently. The principal expenses for livestock farms are feed costs, purchases of feeder animals and poultry, and hired labor. Feed costs, labor expenses, and property taxes are all projected up in 2019 ( Figure 15 ). In contrast, fuel, seed, pesticides, interest, and fertilizer costs all major crop production expenses are projected lower. But how have production expenses moved relative to revenues? A comparison of the indexes of prices paid (an indicator of expenses) versus prices received (an indicator of revenues) reveals that the prices received index generally declined from 2014 through 2016, rebounded in 2017, then declined again in 2019 ( Figure 16 ). Farm input prices (as reflected by the prices paid index) showed a similar pattern but with a smaller decline from their 2014 peak and have climbed steadily since mid-2016, suggesting that farm sector profit margins have been squeezed since 2016. <2.5.1. Cash Rental Rates> Renting or leasing land is a way for young or beginning farmers to enter agriculture without incurring debt associated with land purchases. It is also a means for existing farm operations to adjust production more quickly in response to changing market and production conditions while avoiding risks associated with land ownership. The share of rented farmland varies widely by region and production activity. However, for some farms it constitutes an important component of farm operating expenses. Since 2002, about 39% of agricultural land used in U.S. farming operations has been rented. The majority of rented land in farms is rented from nonoperating landlords. Nationally in 2017, 29% of all land in farms was rented from someone other than a farm operator. Some farmland is rented from other farm operations nationally about 8% of all land in farms in 2017 (the most recent year for which data are available) and thus constitutes a source of income for some operator landlords. Total net rent to nonoperator landlords is projected to be down (-1.2%) to $12.7 billion in 2019. Average cash rental rates for 2019 were up (+1.4%) year-over-year ($140 per acre versus $138 in 2018). Farm rental rates are generally set during the preceding fall or in early spring prior to field work. National average rental rates dipped in 2016, but continue to reflect the high crop prices and large net returns of the preceding several years, especially the 2011-2014 period ( Figure 17 ). The national rental rate for cropland peaked at $144 per acre in 2015. <3. Agricultural Trade Outlook> U.S. agricultural exports have been a major contributor to farm income, especially since 2005. As a result, the financial success of the U.S. agricultural sector is strongly linked to international demand for U.S. products. Because of this strong linkage, the downturn in U.S. agricultural exports that started in 2015 ( Figure 18 ) deepened the downturn in farm income that ran from 2013 through 2016 ( Figure 1 ). Since 2018, the U.S. agricultural sector's trade outlook has been vulnerable to several international trade disputes, particularly the ongoing dispute between the United States and China. A return to market-based farm income growth for the U.S. agricultural sector would likely need improved international trade prospects. <3.1. Key U.S. Agricultural Trade Highlights> USDA projects U.S. agricultural exports at $135.5 billion in FY2019, down (-5.5%) from $143.4 billion in FY2018. Export data include processed and unprocessed agricultural products. This aggregate downturn masks larger country-level changes that have occurred as a result of ongoing trade disputes (discussed below). In FY2019, U.S. agricultural imports are projected up at $113.0 billion (+2.7%), and the resultant agricultural trade surplus of $7.0 billion would be the lowest since 2006. A substantial portion of the surge in U.S. agricultural exports that occurred between 2010 and 2014 was due to higher-priced grain and feed shipments, including record oilseed exports to China and growing animal product exports to East Asia. As commodity prices have leveled off, so too have export values (see the commodity price indexes in Figure A-1 and Figure A-2 ). In FY2017, the top three markets for U.S. agricultural exports were China, Canada, and Mexico, in that order. Together, these three countries accounted for 47% of total U.S. agricultural exports during the five-year period FY2013-FY2017 ( Figure 19 ). However, in FY2019 the combined share of U.S. exports taken by China, Canada, and Mexico is projected down to 40% largely due to lower exports to China. The ordering of the top markets in 2019 is projected to be Canada, Mexico, the European Union (EU), Japan, and China, as China is projected to decline as a destination for U.S. agricultural exports. From FY2013 through FY2017, China imported an average of $26.4 billion of U.S. agricultural products. However, USDA reported that China's imports of U.S. agricultural products declined to $20.5 billion in FY2018, and are projected to decline further to $13.6 billion in FY2019 as a result of the U.S.-China trade dispute. The fourth- and fifth-largest U.S. export markets have traditionally been the EU and Japan, which accounted for a combined 17% of U.S. agricultural exports during the FY2014 to FY2018 period. These two markets have shown limited growth in recent years when compared with the rest of the world. However, their combined share is projected to grow slightly to 18% in FY2019 ( Figure 19 ). The "Rest of World" (ROW) component of U.S. agricultural trade South and Central America, the Middle East, Africa, and Southeast Asia has shown strong import growth in recent years. ROW is expected to account for 42% of U.S. agricultural exports in FY2019. ROW import growth is being driven in part by both population and GDP growth but also from shifting trade patterns as some U.S. products previously targeting China have been diverted to new ROW markets. Over the past four decades, U.S. agricultural exports have experienced fairly steady growth in shipments of high-value products including horticultural products, livestock, poultry, and dairy. High-valued exports are forecast at $100.1 billion for a 73.8% share of U.S. agricultural exports in FY2019 ( Figure 20 ). In contrast, bulk commodity shipments (primarily wheat, rice, feed grains, soybeans, cotton, and unmanufactured tobacco) are forecast at a record low 26.2% share of total U.S. agricultural exports in FY2019 at $35.5 billion. This compares with an average share of over 60% during the 1970s and into the 1980s. As grain and oilseed prices decline, so will the bulk value share of U.S. exports. <4. Farm Asset Values and Debt> The U.S. farm income and asset-value situation and outlook suggest a slowly eroding financial situation heading into 2019 for the agriculture sector as a whole. Considerable uncertainty clouds the economic outlook for the sector, reflecting the downward outlook for prices and market conditions, an increasing dependency on international markets to absorb domestic surpluses, and an increasing dependency on federal support to offset lost trade opportunities due to ongoing trade disputes. Farm asset values which reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments are projected to be up 2.3% in 2019 to a nominal $3.1 trillion ( Table A-3 ). In inflation-adjusted terms (using 2018 dollars), farm asset values peaked in 2014 ( Figure 21 ). Nominally higher farm asset values are expected in 2019 due to increases in both real estate values (+2.1%) and nonreal-estate values (+3.4%). Real estate is projected to account for 83% of total farm sector asset value. Crop land values are closely linked to commodity prices. The leveling off of crop land values since 2015 reflects stagnant commodity prices ( Figure 22 ). Total farm debt is forecast to rise to a record $415.5 billion in 2019 (+3.4%) ( Table A-3 ). Farm equity or net worth, defined as asset value minus debt is projected to be up slightly (+2.2%) at $2.7 trillion in 2019 ( Table A-3 ). The farm debt-to-asset ratio is forecast up in 2019 at 13.4%, the highest level since 2003 but still relatively low by historical standards ( Figure 23 ). If realized, this would be the seventh consecutive year of increase in the debt-to-asset ratio. <5. Average Farm Household Income> A farm can have both an on-farm and an off-farm component to its income statement and balance sheet of assets and debt. Thus, the well-being of farm operator households is not equivalent to the financial performance of the farm sector or of farm businesses because of the inclusion of nonfarm investments, jobs, and other links to the nonfarm economy. Average farm household income (sum of on- and off-farm income) is projected at $120,082 in 2019 ( Table A-2 ), up 7.0% from 2018 but 10.5% below the record of $134,165 in 2014. About 20% ($24,106) of total farm household income in 2019 is projected to be from farm production activities, and the remaining 80% ($95,976) is earned off the farm (including financial investments). The share of farm income derived from off-farm sources had increased steadily for decades but peaked at about 95% in 2000 ( Figure 24 ). Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. <5.1. Total vs. Farm Household Average Income> Since the late 1990s, farm household incomes have surged ahead of average U.S. household incomes ( Figure 25 ). In 2018 (the last year for which comparable data were available), the average farm household income of $112,211 was about 25% higher than the average U.S. household income of $90,021 ( Table A-2 ). <5.1.1. Appendix. Supporting Charts and Tables> Figure A-1 to Figure A-4 present USDA data on monthly farm prices received for several major farm commodities corn, soybeans, wheat, upland cotton, rice, milk, cattle, hogs, and chickens. The data are presented in an indexed format where monthly price data for year 2010 = 100 to facilitate comparisons. USDA Farm Income Data Tables Table A-1 to Table A-3 present aggregate farm income variables that summarize the financial situation of U.S. agriculture. In addition, Table A-4 presents the annual average farm price received for several major commodities, including the USDA forecast for the 2019-2020 marketing year.

This report uses the U.S. Department of Agriculture's (USDA's) farm income projections (as of November 27, 2019) and agricultural trade outlook update (as of November 25, 2019) to describe the U.S. farm economic outlook for 2019. According to USDA's Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $92.5 billion in 2019, up $8.5 billion (+10.2%) from last year. The forecast rise in 2019 net farm income is largely the result of a 64.0% increase in government payments to the agricultural sector, with a projected total value of $22.4 billion (highest since 2005). USDA's forecast of outlays for farm support for 2019 includes $14.3 billion in direct payments made under trade assistance programs intended to help offset foreign trade retaliation against U.S. agricultural products, as well as over $8 billion in payments from other farm programs, including the Wildfire and Hurricane Indemnity Program (WHIP). Without this federal support, net farm income would be lower, primarily due to continued weak prices for most major crops. Commodity prices are under pressure from large carry-in stocks from a record soybean and near-record corn harvest in 2018, and diminished export prospects due to the ongoing trade dispute with China. Should these conditions persist into 2020, they would signal the potential for continued dependence on federal programs to sustain farm incomes in 2020. Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018, total agricultural exports were estimated at $143.4 billion (the second-highest export value on record). However, strong competition from major foreign competitors and the ongoing U.S.-China trade dispute are expected to shift trade patterns and lower U.S. agricultural export prospects significantly (-5.5%) to a projected $135.5 billion in 2019. Farm asset value in 2019 is projected up from 2018 at $3.1 trillion (+2.3%). Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. U.S. farmland values are projected to rise 2.1% in 2019, slightly higher than the 1.6% in 2018 but below the 3.0% of 2017. Because they comprise 83% of the U.S. farm sector's asset base, change in farmland values is a critical barometer of the farm sector's financial performance. However, another critical measure of the farm sector's well-being is aggregate farm debt, which is projected to be at a record $415.5 billion in 2019—up 3.5% from 2018. Both the debt-to-asset and the debt-to-equity ratios have risen for seven consecutive years, suggesting a weakening of the U.S. farm sector's financial situation. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. Furthermore, the farm household income advantage over the average U.S. household has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2018 (the last year with comparable data), that advantage was expected to decline to 25%.

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<1. Introduction> This report is a brief summary of House and Senate procedures for reaching agreement on legislation. It discusses the provisions of House Rule XXII and Senate Rule XXVIII as well as other applicable rules, precedents, and practices. The report focuses on the most common and customary procedures. There are many exceptions, complications, and possibilities that are not addressed, and the House and Senate may modify or waive their procedures by unanimous consent or by other means. <2. Acting on the Same Bill> The House and Senate must pass the same bill or joint resolution, and they must reach full and precise agreement on its text before it is submitted to the President for his approval or veto. The same requirements apply to a concurrent resolution and a joint resolution proposing a constitutional amendment, although neither receives presidential action. At some stage of the legislative process, therefore, the House must pass a Senate bill or the Senate must pass a House bill. The simplest way of meeting this requirement is for one house to pass its own bill and send it to the "other body," which then considers and passes it, with or without amendments. Frequently, however, House and Senate committees each develop their own bills on the same subject. In these cases, one house often debates and amends the bill reported by its committee but then amends and passes the corresponding bill that the other chamber has already passed. For example, after the House passes a bill, it frequently takes up a bill on the same subject that it has already received from the Senate. The House then amends the Senate bill by striking out the text passed by the Senate (striking out all after the enacting clause) and replacing it with the text of the House bill it has just passed. The House then passes the amended Senate bill. In this way, the House passes two bills with exactly the same text, but the Senate bill is the one likely to become law because both houses now have passed it, although with different provisions. Much the same thing could happen in the Senate. After considering its own bill, the Senate, by unanimous consent, could take up and pass the House bill after amending it with the text of the Senate-passed bill. Because this action would take unanimous consent in the Senate, however, the Senate might choose instead to begin consideration of the similar House bill. The floor manager could offer as the first amendment to the House bill a full-text substitute consisting of the text of the Senate bill. This process is usually routine, but it can become more complicated. For instance, the Senate may pass one bill on several related matters before the House passes two bills of its own that address the same subjects. After the House passes its two bills, it may take up the one Senate bill and replace the text of that bill with the texts of both of its own bills. In other instances, the House and Senate may confront political and procedural situations that make it convenient for them to include their versions of legislation on one subject as amendments to some third bill on an unrelated subject that serves as a convenient "vehicle." Such arrangements can be necessary because the House and Senate cannot begin the formal process of resolving their policy differences until these differences are embodied as amendments by one house to the version of the same bill as passed by the other. <3. Amendments Between the Houses> After one house passes a bill and the other then passes it with amendments, the House and Senate may attempt to resolve the differences between their positions. When confronted with a major bill, the two houses have historically created a conference committee for this purpose. However, a conference may not be necessary if they can reach an agreement through informal negotiations and an exchange of amendments between the houses. The amendments of one house to a bill from the other may be amended twice as the bill is sent ("messaged") back and forth between the House and Senate. Suppose, for example, that the Senate passes a House bill with amendments. The House can accept (concur in) the Senate amendments, in which case the differences are resolved. Alternatively, the House can amend the Senate amendments (concur in the Senate amendments with amendments). These House amendments are first degree amendments between the houses. The Senate can then accept (concur in) the House amendments to the Senate amendments, which would produce agreement. Or the Senate can concur in the House amendments to the Senate amendments with further Senate amendments, which are amendments in the second degree. At this stage, the House can concur in the most recent Senate amendments, but it cannot propose new House amendments to them because they would be third degree amendments, which are not permitted. (Of course, exactly the same process can occur in reverse if the House passes a Senate bill with amendments.) In both chambers, the prohibition on third degree amendments between the houses can be waived. The House might do this by special rule, suspension of the rules, or unanimous consent. In the Senate, unanimous consent is necessary to agree to an amendment in the third degree, unless the House has already waived the rule, in which case further degrees of amendment are permitted in the Senate. If the House and Senate adamantly defend their last amendments, they can send the bill back and forth several more times. In the unlikely event that neither house retreats from its last position or is willing to discuss a compromise in conference, the bill ultimately dies. It cannot be shuttled back and forth indefinitely. This process rarely results in stalemate, because the two houses either reach agreement or decide to submit their differences to a conference committee. However, an exchange of amendments sometimes takes the place of a conference. Once the two houses pass their versions of the same bill, the members and staff of the House and Senate committees of jurisdiction often meet informally to compare the two versions and discuss a compromise. If they reach an agreement that other concerned Representatives and Senators also accept, the House can, for example, concur in the Senate amendment with a House amendment that embodies the negotiated agreement. If the Senate then accepts (concurs in) this House amendment, the House and Senate have resolved their differences through the informal equivalent of a conference committee. <4. Considering Amendments from the Other House> House amendments to a Senate bill (or House amendments to Senate amendments to a House bill) are privileged for floor action by the Senate. This means there is no debate on whether to take up the House amendment. Instead, a Senator, most often the majority leader, typically requests that a House amendment be laid before the Senate. Motions to dispose of the House amendments such as motions to concur or to concur with amendments are debatable and, therefore, subject to filibusters. It is possible for the majority leader to move that the Senate concur in the House amendment and then propose motions that preempt all other available motions. This is often referred to as "filling the tree" on a motion to concur. If the majority leader can garner the necessary support to end debate on the motion to concur (60 Senators, assuming no vacancies), then both further amendment to the House amendment and extended debate can be avoided. The Senate sometimes arranges to consider a House amendment by unanimous consent. Like the Senate, the House sometimes acts on Senate amendments by unanimous consent. Until the House officially disagrees to Senate amendments to a House bill (or Senate amendments to House amendments to a Senate bill), these amendments are usually not privileged for consideration on the House floor. No motion is in order to concur in the Senate amendments, with or without amendments. When there is little or no controversy, the House often accepts or amends the Senate amendments by unanimous consent. Otherwise, the House can usually do so only through a motion to suspend the rules or under a special rule recommended by the Rules Committee and adopted by the House. A motion that is privileged at this stage is a motion to disagree to the Senate amendments and go to conference, but this motion must be made at the direction of the committee that originally reported the bill to the House. Both houses cannot consider the same bill at the same time, because the House or Senate can act only if it has the "papers." The papers are comprised of the official copy of the bill as passed by the house in which it originated, the official copies of amendments by either house, and the messages by which each house informs the other of the actions it has taken. After one house acts on a bill or amendments from the other, it returns all the papers with an accompanying message describing its action. Thus, the House and Senate always act in sequence as custody of the papers changes hands. <5. Going to Conference> Before a conference committee is created to resolve disagreements between the two houses, the House and Senate must each state disagreement over a bill, either by disagreeing to the amendments of the "other body" or by insisting on its own amendments. So long as one house concurs in the amendments of the other and proposes its own amendments, there is no formal disagreement. But at any point during an exchange of amendments between the House and Senate, either house can propose that they can go to conference instead. The two houses usually decide in one of two ways to establish a conference committee. When the Senate passes a House bill with amendments, for example, it can immediately insist on its amendments and request a conference with the House. The House almost always agrees to the conference, although it need not do so for example, it could simply agree to the Senate amendments instead. At other times, however, when the Senate passes a House bill with amendments, it may merely send back the bill and the amendments in the hope that the House will accept the Senate's amendments, making a conference unnecessary. If the House does not accept the amendments, it can disagree to them and request a conference. The Senate normally then insists on its amendments and agrees to the conference, after which it informs the House and returns the papers. Of course, the equivalent of either sequence of events may occur after the House passes a Senate bill with amendments. Both chambers sometimes agree by unanimous consent to the necessary procedural steps to send a measure to conference. In the House, if there is an objection to the unanimous consent request, then a privileged motion can be made, at the direction of the committee(s) of jurisdiction, to disagree to the Senate amendment (or insist on the House amendment) and request (or agree to) a conference with the Senate. If unanimous consent cannot be reached in the Senate, then a motion can be made to authorize a conference committee, which is subject to debate under regular Senate rules. If a cloture motion to end debate is filed on this motion, however, it matures after just two hours of debate. If three-fifths of the Senate agrees to invoke cloture, then the Senate could immediately vote to approve the motion to authorize a conference. No further debate of the motion would be in order. <6. Appointing and Instructing Conferees> Each house usually appoints its conferees (also known as managers) immediately after deciding to go to conference. The Speaker appoints House conferees. The Senate frequently decides, by unanimous consent, to authorize the presiding officer to appoint "the managers on the part of the Senate." The Senate could also empower the presiding officer to appoint conferees, or appoint conferees directly, through the motion to authorize a conference, discussed above. The chairman and ranking minority member of the committee or subcommittee that reported the bill are almost always conferees. They also play a major part in deciding who else is appointed. The committee or subcommittee leaders usually prepare a list of conferees from their chambers that the Speaker normally accepts and the presiding officer of the Senate always accepts. The party leaders may also become involved in selecting conferees, especially if the bill is particularly important, if it was reported by two or more committees, or if amendments to the bill from the other house touch the jurisdiction of more than one committee. Most conferees are members of the committee that reported the bill. In the case of a bill that involves the jurisdiction of more than one committee, members of each committee are often appointed as conferees with authority only to negotiate an agreement with respect to the subjects or provisions of the bill that fall within the jurisdiction of their committees. Thus, some members may be designated as conferees for purposes of the entire bill while others are appointed only to address a specific section or title. Representatives may also be appointed as conferees for limited purposes when the Senate proposes a nongermane amendment that is within the jurisdiction of another House committee. In addition, the Speaker may appoint other Representatives who, for example, offered important floor amendments. The list of conferees generally reflects the party balance in each house. The House and Senate do not have to appoint the same number of managers, and they frequently do not. House conferees vote as a delegation, as do Senate conferees, and a majority of each delegation must sign the conference report. Thus, three Representatives have the same voting power in conference as 30 Senators. Each house is likely to appoint a larger number of conferees when the bill involves the jurisdiction of more than one of its standing committees. A Representative or Senator may move to instruct the conferees from his or her chamber immediately after that house agrees to go to conference but just before the conferees are appointed. For example, the House can instruct its managers to insist on the House position on a particular amendment, or the Senate can instruct its managers to recede to the House position on another amendment. However, instructions to conferees are never binding; no point of order lies against a conference report that is inconsistent with House or Senate instructions to its conferees. The House can also instruct its conferees if they do not report within 45 calendar days and 25 legislative days after being appointed (or 36 hours after being appointed during the last six days of a session). <7. Conference Rules and Reports> Conference committee meetings are open to the public unless the conferees vote to close them, and the House must vote to authorize its conferees to do so. Both chambers also have guidelines concerning conference meetings, generally encouraging frequent meetings with open discussions, but these guidelines are often waived or in some cases are not procedurally enforceable. Beyond these guidelines, there are virtually no House or Senate rules governing conference meetings. Conferees select their own chairman and usually work without formal rules on quorums, proxies, debate, amendments, and other procedural matters. Conferences are negotiating forums, and the two chambers allow conferees to decide for themselves how best to conduct their negotiations. It is most common that a conference committee holds a single public meeting, sometimes for members to offer opening statements only. However, the House and Senate have important, and roughly the same, rules governing what decisions conferees can make. Conference committees are established to resolve disagreements between the House and Senate over their versions of the same bill. Therefore, the authority of conferees is limited to matters in disagreement. As a general rule, they may not change a provision on which both houses agree, nor may they add anything that is not in one version or the other. Furthermore, conferees are to reach agreements within the "scope" of the differences between the House and Senate positions. For example, if the House appropriates $10 million for some purpose and the Senate amends the bill by increasing the appropriation to $20 million, the conferees exceed their authority if they agree on a number that is less than $10 million or more than $20 million. It is much harder to determine the scope of the differences when they are qualitative, not quantitative. Also, conferees have more latitude under some circumstances than under others. Under a previous practice, when one house would pass a bill and the other would then pass it with a series of separate amendments each making a change in a different provision of the bill these amendments were usually numbered, and it was relatively easy for the conferees to determine the scope of the differences over each amendment. This is generally not true, however, under modern practice when the Senate passes a House bill (or the House passes a Senate bill) with an amendment in the nature of a substitute that totally replaces the text of the bill. In this situation, which arises nearly all of the time, there is only one amendment in conference for example, a Senate substitute for the House version of a bill. The two versions of the bill can take very different approaches to the same subject, making it difficult for the conferees to isolate every point of agreement and disagreement and to identify the scope of each disagreement. Under these circumstances, the conferees may write their own conference substitute, so long as it is a germane modification of the House and Senate versions. If a conference agreement exceeds the scope of the differences or deals with a matter that is not in disagreement, the conference report is subject to a point of order when the House or Senate considers it. The House, however, typically protects a conference report against points of order by adopting a resolution reported by the Rules Committee waiving the applicable rules. The Senate, meanwhile, interprets the authority of its conferees generously, especially when they develop a conference substitute. Furthermore, the Senate can waive its rule with a three-fifths vote of Senators duly chosen and sworn (60 Senators if there are no vacancies). The authority of Senate conferees is further limited by Senate Rule XLIV, paragraph 8. Under this rule, a Senator can raise a point of order against discretionary and mandatory spending provisions of a conference report if they constitute "new directed spending provisions," or what are sometimes called "air drops." Paragraph 8 defines a "new directed spending provision" as follows: any item that consists of a specific provision containing a specific level of funding for any specific account, specific program, specific project, or specific activity, when no specific funding was provided for such specific account, specific program, specific project, or specific activity in the measure originally committed to the conferees by either House. The Senate can waive these restrictions on the content of conference reports by a three-fifths vote of Senators duly chosen and sworn (60 Senators assuming no vacancies). When the conferees reach full agreement, their staffs prepare a conference report that states how they propose to resolve each of the disagreements. Accompanying the report itself is a joint explanatory statement (also known as the statement of managers), which describes the various House and Senate positions and the conferees' recommendations in more detail. A majority of the House managers and a majority of the Senate managers must sign both the conference report and the joint explanatory statement. House rules require that House conferees be given an opportunity to sign the conference agreement at a set time and place. At least one copy of the final conference agreement must be made available for review by House managers with the signature sheets. Each chamber then debates and votes on the conference report in turn. <8. Floor Action on Conference Reports> At the conclusion of a successful conference, the papers usually change hands. The conferees from the house that requested the conference bring the papers into conference and then turn them over to the conferees from the other house. Thus, the house that agreed to the conference normally acts first on the conference report. However, this is a practice that is not required by House or Senate rules. The Senate usually takes up a conference report by unanimous consent, although a Senator can make a nondebatable motion to consider it. The report may be called up at any time after it is filed, but it is not in order to vote on the adoption of a conference report unless it has been available to Members and the general public for at least 48 hours before the vote. (This requirement can be waived by three-fifths of Senators duly chosen and sworn or by joint agreement of the majority and minority leaders in the case of a significant disruption to Senate facilities or to the availability of the internet.) Under Senate rules, a report is considered to be available to the general public if it is posted on a congressional website or on a website controlled by the Library of Congress or the Government Publishing Office. When considered on the Senate floor, a conference report is debatable under normal Senate procedures; it is subject to extended debate unless the time for debate is limited by unanimous consent or cloture or if the Senate is considering the report under expedited procedures established by law (such as the procedures for considering budget resolutions and budget reconciliation measures under the Budget Act). Paragraph 8 of Senate Rule XXVIII states that, if time for debating a conference report is limited (presumably by unanimous consent), that time shall be equally divided between the majority and minority parties, not necessarily between proponents and opponents of the report. A point of order may be made against a conference report at any time that it is pending on the Senate floor (or after all time for debate has expired or has been yielded back if the report is considered under a time agreement). If a point of order is sustained against a conference report on the grounds that conferees exceeded their authority, either by violating the "scope" rule (Rule XXVIII) or the prohibition against "new directed spending provisions" (paragraph 8 of Rule XLIV), then there is a special procedure to strike out the offending portion(s) of the conference recommendation and continue consideration of the rest of the proposed compromise. Under the procedure, a Senator can make a point of order against one or more provisions of a conference report. If the point of order is not waived (see below), the presiding officer rules whether or not the provision is in violation of the rule. If a point of order is raised against more than one provision, the presiding officer may make separate decisions regarding each provision. After all points of order raised under this procedure are disposed of, the Senate proceeds to consider a motion to send to the House, in place of the original conference agreement, a proposal consisting of the text of the conference agreement minus the provisions that were ruled out of order and stricken. Amendments to this motion are not in order, and debate is limited only if it had been limited on the conference report. In short, the terms for consideration of the motion to send to the House the proposal without the offending provisions are the same as those that would have applied to the conference report itself. If the Senate agrees to the motion, the altered conference recommendation is returned to the House in the form of an amendment between the houses. The House then has an opportunity to act on the amendment under the regular House procedures for considering Senate amendments discussed in earlier sections of this report. Senate rules also create a mechanism for waiving these restrictions on conference reports. Senators can move to waive points of order against one or several provisions, or they can make one motion to waive all possible points of order under either Rule XXVIII or Rule XLIV, paragraph 8. If the motion to waive garners the necessary support, the Senate is effectively agreeing to keep the matter that is potentially in violation of the rule in the conference report. In the House, the conference report cannot be considered unless it has been available in the Congressional Record or on the House document repository website for 72 hours. Copies of the report and the statement must also be available to Representatives for at least two hours before they consider it. These availability requirements are sometimes waived by a rule reported by the Rules Committee, and they do not apply during the last six days of a session. Typically, the House calls up a conference report under the terms of a special rule that protects the report against one or more points of order if the Rules Committee reports and the House adopts a resolution waiving the applicable rules. The House debates a conference report under the one-hour rule, with control of the hour equally divided between the two parties. However, if both floor managers support the report, a Representative opposed to it may claim one-third of the time for debate. At the end of the first hour, the House normally votes to order the previous question, which precludes additional debate. If Representatives could make points of order against a report, sometimes the House first considers and agrees to a resolution, recommended by its Rules Committee, that protects the report by waiving the points of order. Conference reports are not amendable. Each report is a compromise proposal for resolving a series of disagreements; the House prevails on some questions, the Senate on others. If the House and Senate were free to amend the report, they might never reach agreement. At the end of debate, therefore, each house votes on whether to agree to the report as a whole. However, the house that considers the report first also has the option of recommitting it to conference. But when one chamber acts on the report, it automatically discharges its conferees. As a result, the other house cannot vote to recommit, because the conference committee has been disbanded. If the House and Senate agree to the conference report, the bill is enrolled (printed on parchment in its final form) and presented to the President for his approval or disapproval. <9. Additional Resources> The report is based upon the original author's interpretation of the rules and published precedents of the two houses and an analysis of the application of these rules and precedents in recent practice (see "Acknowledgements"). Readers may wish to study the provisions of House and Senate rules and examine the applicable precedents especially in the sections on "Senate Bills," "Amendments Between the Houses," and "Conferences Between the Houses" in House Practice: A Guide to the Rules, Precedents and Procedures of the House and the corresponding sections on "Amendments Between Houses" and "Conferences and Conference Reports" in Riddick's Senate Procedure (Senate Document No. 101-28). There is also more detailed information on this subject in CRS Report 98-696, Resolving Legislative Differences in Congress: Conference Committees and Amendments Between the Houses , and CRS Report R41003, Amendments Between the Houses: Procedural Options and Effects .

The House and Senate must pass the same bill or joint resolution in precisely the same form before it can be presented to the President. Once both houses have passed the same measure, they can resolve their differences over the text of that measure either through an exchange of amendments between the houses or through the creation of a conference committee. The House and Senate each have an opportunity to amend the other chamber's amendments to a bill; thus, there can be House amendments to Senate amendments to House amendments to a Senate bill. If either chamber accepts the other's amendments, the legislative process is complete. Alternatively, each house may reach the stage of disagreement at any time by insisting on its own position or by disagreeing to the position of the other chamber. Having decided to disagree, they then typically agree to create a conference committee to propose a single negotiated settlement of all their differences. Conference committees are generally free to conduct their negotiations as they choose, but under the formal rules they are expected to address only the matters on which the House and Senate have disagreed. Moreover, they are to propose settlements that represent compromises between the positions of the two houses. When they have completed their work, they submit a conference report and joint explanatory statement, and the House and Senate vote on accepting the report without amendments. Only after the two houses have reached complete agreement on all provisions of a bill can it be sent to the President for his approval or veto.

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<1. Introduction> Both legislators and regulators have expressed concern about the safety and effectiveness of prescription drugs prescribed for "off-label uses" purposes other than those for which the Food and Drug Administration (FDA) has approved their sale. Two recent incidents illustrate the bases for those concerns. The first involves a drug already on the market. Safety experts raised concerns about ketamine, a drug available as an injectable anesthetic. They noted that physicians have created outpatient clinics to administer intravenous ketamine in an off-label use to treat depression and migraines. FDA has not reviewed clinical data that could support the clinics' promotional claims of safety and effectiveness. In August 2018, a second incident occurred in a Texas courtroom. Astra Zeneca settled a case concerning its alleged promotion of Seroquel for uses other than those for which it had sought and obtained FDA approval for sale in the United States. The core of the complaint by the state of Texas was that the company promoted the drug's use in children, although the FDA-approved labeling of the drug was for adult use. It was one of a number of settlements since 2000 resulting in payments by drug companies for the promotion of off-label uses. To help understand the issues involving off-label use, and how these issues might concern Congress, this report addresses five questions: What is drug labeling? What is off-label use? How are off-label prescriptions used in medicine today? What are the risks and benefits associated with off-label prescriptions? What concerns, if any, does Congress have about such prescriptions? If Congress wanted to do something about off-label prescriptions, what would be some of the options? <2. Drug Labeling and Off-Label Use> To market a prescription drug in the United States, a manufacturer needs FDA approval. To obtain that approval, the manufacturer must demonstrate the drug's safety and effectiveness according to criteria specified in law and agency regulations. It must also ensure that its manufacturing plant passes FDA inspection. Finally, it must 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. FDA, thus, approves the drug and its labeling for a specific use. That use specifies the disease or condition, the population, and the way the drug is packaged and administered. When a physician prescribes a drug for reasons other than those specified in the FDA approval and labeling, the medical profession considers this to be off-label use . FDA regulates the drug and the manufacturer. Each state regulates clinicians and pharmacies. A licensed physician may except in highly restricted circumstances prescribe the approved drug without limitation. A prescription to an individual whose demographic or medical characteristics differ from those indicated in a drug's FDA-approved labeling is accepted medical practice. In a 2006 study of drug prescribing by office-based physicians, 21% of prescriptions were written for off-label uses. Of those off-label prescriptions, the study's authors found that 27% were backed by strong scientific support. A 2016 Canadian study of primary care clinics found an overall rate of 12% of prescriptions for off-label uses. The percentage varied, however, by therapeutic class, ranging from 5% for ear, nose, and throat medications to 25% for central nervous system medications. An econometric model from the National Ambulatory Medical Care Survey estimated a 38% rate of off-label use. Research has shown that more than half of oncology drug use is off-label. A 2018 study examined 43 FDA-approved cancer drugs and compared their 99 labeled uses with the acceptable uses published by a national compendium Medicare relies on to make coverage decisions. Of the 451 compendium-accepted uses, 56% were off-label. Of the off-label uses, the authors deemed 91% as "well-accepted off-label use." <2.1. Labeling: History, Requirements, and Value> History. Drug labeling has been central to FDA's role as a protector of the public's health since 1906. That year, Congress (1) required that sellers state on a drug's label the "quantity or proportion of any alcohol [or] opium" contained, and (2) considered as "misbranded" any drug whose label was "false or misleading." Requirements that drugs be safe were not established until 1938. Congress did not require they be effective until 1962. Requirements. Today, a drug's labeling is more than the sticker the pharmacy places on the amber vial it dispenses to a customer. The Federal Food, Drug, and Cosmetics Act (FFDCA) and associated FDA regulations require and describe a product's labeling as "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." FDA requires that labeling begin with a highlights section that includes, if appropriate, black-box warnings, so called because their black borders signify importance. The regulations list the required elements of labeling: Value. Labeling plays a major role in the presentation of safety and effectiveness information. For clinicians, it is a primary source of prescribing information. The manufacturer submits the approved labeling for publication in the widely used Physician's Desk Reference . That labeling also serves as the basis for several patient-focused information sheets that manufacturers, pharmacy vendors, and many web-based drug information sites produce. <2.2. Off-Label Use: Description and Examples> Off-label prescribing can reflect cutting-edge clinical expertise. It can also be a response to price: a physician may choose to prescribe a lower-priced drug instead of a specifically labeled higher-priced one. Or a physician may prescribe off-label in an attempt to try a different treatment approach when other options have failed. Sometimes an off-label use becomes so widespread that it becomes accepted practice. However, without the backing of carefully designed clinical trials and expert analysis, it remains unknown whether the drug is, in fact, safe and effective for the off-label use. Also unknown are dosing details and systematically evaluated associated adverse events. Examples of off-label use include a drug tested for the treatment of one disease prescribed in an attempt to prevent or treat another; a drug tested at one dose used at higher or lower doses; a drug tested in adults prescribed to children; and a drug tested in an eight-week trial prescribed for long-term use. Table 1 lists several examples of FDA-approved drugs widely prescribed for off-label uses. Although FDA materials do not list off-label uses, several drug compendia include both labeled and off-label uses. For Medicare coverage, for example, the Social Security Act defines "medically accepted indication" as those, in addition to uses approved by FDA, that have been evaluated and supported and listed in one of several compendia, or for which there is "supportive clinical evidence in peer reviewed medical literature." <3. Benefits and Risks of Off-Label Use> Why has Congress given FDA the authority to regulate whether a drug may be on the U.S. market? Two key reasons: to protect patients and to encourage research in a competitive pharmaceutical industry. By statute and regulation, FDA now approves a drug for a specific use once its sponsor (usually the manufacturer) has provided sufficient evidence that the drug is safe and effective for that use. FDA has developed procedures for the review of that evidence. The FDA-approved labeling, which informs the clinician about dosing and likely and unlikely adverse events, helps protect the individuals for whom the drug is prescribed. Labeling also helps protect the interests of the manufacturers who invest in the clinical trials that demonstrate safety and effectiveness. For new drugs and new uses of already approved drugs, the sponsor receives a period of market protection, in the form of regulatory exclusivity for the sale of the drug for those uses. Payors such as private health insurers or Medicare benefit from FDA-approved labeling in their evaluation of whether to pay for a drug's use. But use of a drug evolves as clinicians (and the manufacturer) share their experiences regarding off-label uses, which, by definition, were not part of the premarket clinical studies used to obtain FDA approval. Off-label use can benefit patients. In some instances, such as in the treatment of rare diseases, clinical practice may use drugs approved for other indications. A manufacturer may choose not to invest in trials for such a small patient group. A patient whose physician is already prescribing the drug off-label may not want to enroll in a clinical trial where there is a chance he or she may be assigned to the placebo group. Once drugs are well-established in off-label uses, manufacturers rarely design studies to determine or verify the safety and effectiveness of such uses. Individuals and groups wanting to conduct such studies may find it hard to obtain funding. Examples of adverse events (AEs) associated with the use of drugs for specific off-label uses include heart valve damage from the use of fenfluramine and phentermine (fen-phen) for weight loss, and seizures from the use of tiagabine hydrochloride for depression. Using a Canadian primary care database that captured all prescriptions, the reason for each prescription, and adverse events, researchers looked at the rate of AEs for on-label use, off-label use associated with "strong scientific evidence," and off-label use without such evidence. They found more AEs for off-label prescriptions than for on-label prescriptions. However, off-label use associated with strong scientific evidence had similar rates of AEs as did on-label uses. The increased risk of AEs for off-label use was concentrated in those uses without strong scientific evidence. Manufacturers benefit from sales for off-label uses. However, they risk losing that market should a competitor complete studies to obtain FDA approval and labeling for those uses. Researchers who are not supported by the manufacturer who try to assess the safety and effectiveness of off-label uses are hampered by the inexact nature of secondary data sources: the standard clinical trial data collection in preparation for an FDA application is not available for off-label uses. What may begin as hopeful and intermittent off-label use may gain momentum and offer opportunities for planned studies. Drug and device companies argue that current regulations prevent them from distributing important information to physicians and payors about unapproved, off-label uses of their products. In November 2016, FDA held a two-day public meeting to hear from various groups regarding off-label uses of approved or cleared medical products. In June 2018, FDA issued final guidances explaining the agency's policy about medical product communications that include data and information not contained in FDA-approved labeling. One FDA guidance document, in particular, described the types of information that a manufacturer could provide payors and formulary committees about unapproved uses of approved products. FDA made two points especially relevant to off-label uses. First, FDA differentiates among its audiences in its presentation of information. The material it allows in product labeling is directed to a clinical audience. FDA staff have reviewed the information and require that it be presented in a way that is understandable by individual clinicians, who often do not have the statistical sophistication or data analysis skills or resources to fully evaluate the claims of manufacturers. This guidance notes, though, that payors and formulary committees do have such expertise and resources. FDA also acknowledges that it is useful for payors to have information in their decisions on coverage, but it wants to ensure that the information manufacturers provide is not misleading. Second, the FDA guidance describes what harm could come from allowing more sharing of information about off-label use. Some firm communications regarding unapproved products or unapproved uses of approved/cleared/licensed medical products may potentially undermine substantial government interests related to health and safety. These interests include motivating the development of robust scientific data on safety and efficacy; maintaining the premarket review process for safety and efficacy of each intended use in order to prevent harm, to protect against fraud, misrepresentation, and bias, and to develop appropriate instructions for use for medical products; protecting the integrity and reliability of promotional information regarding medical product uses; and preventing the diversion of health care resources toward ineffective treatments. The concerns FDA raised in the June 2018 final guidance documents might explain why Congress may be interested in exploring the issue of off-label use further. <4. History of Congressional Interest and Action> Congress has developed a system to protect the public by ensuring that drugs sold in the United States have met clinical and manufacturing standards of safety and effectiveness. Labeling is the mechanism that bridges the regulated drug and the use of that drug in clinical practice. The labeling establishes the uses for which the manufacturer has demonstrated safety and effectiveness to FDA's satisfaction. Congress and the FDA have tried several approaches, using labeling as a tool, to reduce the risk to patients. Table A-1 includes examples of congressional and FDA actions to expand the information provided in a drug's labeling. The actions have addressed topics such as content labeling, directions for use, permissible and prohibited advertising, research incentives to support labeling specific to population subgroups (e.g., children), criteria for Medicare coverage, required and permissible labeling changes, and balance of benefit and risk information in labeling and advertising. Manufacturers, meanwhile, want to be able to provide information to insurers and other entities (such as the Centers for Medicare and Medicaid Services [CMS] and hospital pharmacy and therapeutics committees) that decide whether to cover a drug in a policy and whether to limit reimbursement for specific uses. Congress has provided some leeway relative to its earlier prohibition on promotional activities. For example, in 2016, it broadened the types of health care economic information drug and device manufacturers could provide to payors (e.g., insurance companies). Although the underlying FFDCA section continues to exclude information related only to an off-label use, it now requires "a conspicuous and prominent statement describing any material differences between the health care economic information and the labeling approved for the drug." Several bills concerning off-label use have been introduced that would have expanded the information that manufacturers could provide about off-label uses. For example, the Subcommittee on Health of the House Committee on Energy and Commerce marked up H.R. 2026 (115 th Congress), the Pharmaceutical Information Exchange Act, in January 2018, which would have allowed the provision of scientific information to payors, in addition to health care economic information. Then-Subcommittee Chair Michael Burgess, in commenting on the bill's effort to clarify how manufacturers can share "if it is based on competent and reliable evidence," expressed strong support for the bill. He noted "the importance of cutting edge information in medicine and science to optimize patient care and outcomes and [how the bill] could have the potential to save patients' lives." Then-Ranking Member (now, Chair) Frank Pallone, Jr., though, argued that the ability to communicate about off-label use "had great potential to undermine" FDA's approval process and to "hamstring" its enforcement efforts. H.R. 2026 passed the subcommittee, although it did not reach the floor in the 115 th Congress. <5. Possible Avenues of Future Congressional Interest> Off-label use presents both opportunities and risks to clinicians, patients, manufacturers, and researchers. At times, those interests clash. Academics, public health organizations, and journals have suggested what actions Congress might take based on their particular concerns regarding off-label prescriptions. These actions include both direct legislation and oversight activities to encourage action by other entities. The 116 th Congress might consider some of these varied approaches, summarized in the issues described below. Disclosure to patients. Most individuals, unaware of the nuances of FDA regulation, may not know that physicians may prescribe drugs for uses that FDA has not reviewed for safety and effectiveness. Several potential opportunities for providing this information exist. Congress could require or work with the states to require that the prescriber inform the patient about the off-label use and describe the meaning of off-label use; the prescriber note in the prescription why the drug is being prescribed; or the pharmacist inform the patient that the use is off-label. Data collection and availability. FDA, under federal law, determines whether a drug requires a prescription. The states, under their individual laws, determine what information the prescription order contains. Because clinicians do not need to note on the prescription order why they are prescribing a drug (e.g., simvastatin for high cholesterol or citalopram for depression), the information in pharmacy, administrative, and clinical databases often cannot directly identify off-label uses. Therefore, as Congress and other public policy groups consider whether and how to address off-label drug prescribing, they do not have adequate information on the scope and details of the practice. Congress could require or work with the states to encourage clinicians to note on prescriptions the reason for medication use (e.g., the specific condition, disease, or symptom), thereby allowing that information to appear in pharmacy databases, which would enable focused analysis of off-label uses; the establishment of confidential registries of off-label prescribing and follow-up information that FDA (or other designated scientifically appropriate agencies) could use in its electronic surveillance systems to identify associated adverse events and other drug use problems; or FDA to increase its surveillance of available data sources, such as registries and administrative and clinical databases, to identify patterns of off-label use and evidence suggesting effectiveness and associated adverse events. Dissemination. Because some information may be valuable to clinicians and entities that influence prescribing decisions (such as insurers and pharmacy and therapeutics committees), Congress could allow manufacturers to disseminate information about off-label uses that they have developed or of which they are aware, perhaps subject to certain limitations or accompanying reporting requirements. Possibilities include broader sharing of clinical analyses of off-label use with coverage deciders (e.g., CMS, insurers, pharmacy and therapeutics committees) to support requests that they cover a particular use of the drug; and dissemination of clinical analyses of off-label use at clinical and pharmaceutical conferences. Oversight. With an estimated 12% to 38% of all prescriptions' (and 56% of oncology prescriptions') being written for uses not listed on FDA-approved labeling, valid information on the extent of off-label use and the effect of such use on manufacturer, insurer, and clinician behavior could potentially better inform debate on how to best protect the public's health. Congress could direct the Government Accountability Office (GAO) to study the extent of off-label use in government-provided care (e.g., Department of Veterans Affairs, Bureau of Prisons, and Indian Health Service) and in government-funded care (e.g., Medicare and Medicaid); the Secretary of Health and Human Services (HHS) to contract with the National Academy of Medicine or a similar organization to assemble management or industrial policy experts to study the costs and rewards to industry of off-label prescriptions; or FDA and the Federal Trade Commission to investigate drugs whose off-label prescriptions account for a particularly high percentage of all prescriptions or that generate a particularly high percentage or high dollar value of sales. Pricing. The decision to use a drug off-label based solely or primarily on price introduces a new element to study. For example, the pricing difference between Avastin and Lucentis, both made by the same manufacturer with the same active ingredient, is so large that many ophthalmologists use the lower priced Avastin in their treatment of macular degeneration, despite its being an off-label use. The manufacturer included the treatment of macular degeneration in its application to FDA for Lucentis. To explore the ramifications of a traditionally nonclinical element in prescribing decisions, Congress could require the HHS Secretary to study the relationship among pricing, access, and prescribing and its effect on patient safety. Reimbursement. Although FDA approval of a drug not for each use of a drug is a requirement for sale in the United States, the decision to reimburse a physician or patient for a drug is made by entities such as the CMS and private insurers. Such decisions, therefore, influence what drugs are prescribed and, in part, for what uses drugs are prescribed. Congress could direct the HHS Secretary to study such coverage decisions or to contract with the National Academy of Medicine or a similarly equipped entity to do so; or HHS to form a task force to include CMS and FDA, along with private insurers and others involved in coverage decisions, and patient and clinician groups representing those affected by coverage decisions, to identify areas in need of action and to recommend steps in those directions. Congress also could encourage payors to require safety and effectiveness evidence before covering off-label uses. Research. The traditional path toward adding an indication (reason for use) to the labeling of a drug already approved for other uses has been for the sponsor of the drug to conduct clinical trials and submit a supplemental new drug application (NDA) to FDA. The widespread extent of off-label use suggests that relying on that model is not helping prescribers get better information. Congress could consider assigning responsibility (and funding) to the National Institutes of Health and the Patient-Centered Outcomes Research Institute for safety and effectiveness evaluations of off-label uses; or requiring, for a drug that has substantial (to be defined) off-label sales, that the manufacturer fund studies, such as clinical trials, to assess the safety and effectiveness of the drug for the off-label use and submit evidence to the HHS Secretary. Depending on the Secretary's assessment of the evidence, the Secretary could request that the manufacturer amend the drug's labeling either to add the off-label use to the label as an approved use or to add a statement that clinical evidence does not support the safety and effectiveness of the drug for the off-label use. Research transparency. FDA regulations describe standards for the design and analysis of clinical trials that a sponsor uses in an NDA. Studies done by or for the manufacturer or by other groups or individuals are not always made public, in which case their findings cannot be reviewed and evaluated. Because the results of such studies may be used in support of off-label uses, by providing positive and negative incentives, Congress could consider requiring or encouraging prospective posting of the designs and statistical plans of studies of off-label uses; or public reporting of studies of off-label use. Clinical guidance. Professional societies and other clinical groups often supplement the information available to prescribers from FDA-approved labeling, medical journals, and information from manufacturers. They can issue guidelines and recommend best practices. Congress could engage such groups and encourage professional societies to develop evidence-based clinical guidelines and training regarding off-label use. Precedents from other countries. The United States is not alone in facing the health care and economic implications of off-label use. For example, the member countries of the European Union have addressed measures involving reimbursement, guidance for prescribers, professional standards, and informed consent. Congress could require HHS to contract with the National Academy of Medicine or a similarly equipped entity to review measures taken by the European Union and other regulatory bodies and recommend legislative or administrative actions as appropriate. <6. Concluding Comments> Concerns over off-label use overlap with questions raised by some legislators and regulators in other contexts. In addition to clearly related issues such as what is allowable information in direct-to-consumer advertising, promotion to clinicians, and material shared with payors and insurers, off-label use also affects the entire basis of FDA regulation of drugs through its authority to approve drugs. That means it directly or indirectly affects research, clinical innovation, transparency, patents and exclusivities, pricing, and access. Changes in law or regulation in any one area may have benefits in some areas and drawbacks in others. For example, FDA's initiative to encourage research in drugs used traditionally but never reviewed and approved by FDA so-called legacy drugs stems from its desire for evidence of safety and effectiveness. Such evidence helps protect patients from possible use of ineffective, unsafe, or misdosed drugs. That initiative, in turn, helps enable sponsors to conduct the clinical trials, submit new drug applications, obtain regulatory exclusivity with the new drug approval and then raise the price of the new branded product while expecting FDA to honor the exclusivity and block the sale of the drug by others. For example, clinicians had been prescribing a compounded version of progestin for use in preventing preterm delivery. Such use had never been adequately tested in clinical trials. One company conducted those trials, and FDA approved its new drug application. The initial price for the new drug, Makena, was $30,000 for a 20-week course; patients had been paying pharmacists $200-$400 for the same course. Unanticipated price increases can also arise from the apparent following of FDA procedures. For example, a new owner of the FDA-approval of an old antiparasitic generic drug raised the price from $14 per tablet to $750, Daraprim's initial price. Such sudden and large price increases become a barrier to patient access and, therefore, a potential threat to health. In the case of off-label prescribing, actions in any direction whether by Congress, FDA, or the courts could have both intended and unanticipated effects. Actions to limit off-label prescribing could have the intended effects of reducing safety risks and the economic cost of using drugs ineffective for their prescribed purposes. Such limits, however, could also stifle informed clinical exploration. Similarly, incentives to mount clinical trials needed to add an indication to the label could help identify and disseminate information on dosing and contradictions. Such incentives, however, could also hurt. For example, a brand drug that added a new indication to its labeling could prevent, through exclusivities, generics from similarly modifying their labeling. Patients could need to pay more. The recent debates over the right-to-try movement regarding use of investigational drugs by terminally ill patients may preview discussion about any proposed restrictions on off-label use. The Goldwater Institute, considered a key impetus to development and passage of the 2018 enactment of a right-to-try act, looks to diminish government's role in an individual's choice and has supported dissemination of off-label information. Congress has built a process in which a robust FDA can regulate drugs to protect the public's health. Is there cause for concern that perhaps a third of prescriptions are for off-label uses and that, in at least one study, three-quarters of those had minimal or no accepted scientific evidence to support their use? Policy tension exists over the line between wanting to ensure individuals' freedom to take drugs for off-label uses and wanting to protect the public from the risk of unsafe or ineffective drugs. Where to draw that line and how to know when it may be time to move the line is of continuing interest to regulators and legislators. <6.1. Appendix. Selected Actions to Expand Information in Drug Labeling>

When the Food and Drug Administration (FDA) approves a drug for sale in the United States, the approval includes a section entitled "Indications for Use." This section lists the one or more diseases, conditions, or symptoms for which the drug's sponsor (usually the manufacturer) has provided, to FDA's satisfaction, evidence in support of the drug's safety and effectiveness. FDA approval is also based on its review of the drug's dosage, packaging, manufacturing plan, and labeling. Before changing any of those elements, the sponsor must inform, and usually receive permission from, FDA. In essence, FDA regulates all approval and post-approval aspects of a drug product. But FDA traditionally has not regulated the practice of medicine. Physicians, therefore, may prescribe an FDA-approved drug for indications that FDA has not reviewed for safety and effectiveness. Those uses, furthermore, are not addressed in the labeling information regarding, among other things, dosing, warnings about interactions with other drugs, and possible adverse events. How Are Off-Label Prescription Drugs Used? Prescribing for so-called off-label uses can be accepted medical practice, often reflecting cutting-edge clinical expertise. For example, this is the case with oncology drug use, more than half of which is off-label. Off-label prescribing can be a reasonable choice when labeling overlooks certain populations—for example, when a drug tested in adults is prescribed to children. A drug may be used off-label when it was tested for the treatment of one disease and prescribed in an attempt to prevent or treat another, when it was tested at one dose and used at higher or lower doses, or when it was tested in an eight-week trial and prescribed for long-term use. Estimates for how common off-label prescriptions are in the United States are hardly precise. Credible researchers have estimated they make up as little as 12% and as much as 38% of doctor-office prescriptions. What Are the Risks of Off-Label Prescriptions? Prescriptions for off-label uses of FDA-approved drugs are made without the benefit of an FDA-reviewed analysis of safety and effectiveness data. Physicians may resort to such prescribing to take advantage of new ideas and treatment approaches when available information to support them is inadequate. However, despite the potential risks associated with off-label uses, efforts to prohibit such uses might hurt the public. Some off-label prescribing may result because manufacturers have chosen not to invest the resources needed to have FDA add indications to the drug's approval and labeling. A worst-case scenario for the nation's health would be the widespread acceptance of a drug for an off-label use that sufficient research would have revealed to be ineffective, unsafe, or both. Aside from the drug's direct harm, the time spent waiting to see whether it worked would have been time not spent exploring other treatment options. Unchecked off-label prescribing may also threaten the FDA gold standard of drug approval. If clinicians had already accepted a new use into practice through off-label prescribing, a manufacturer may choose to not invest resources to go through clinical trials and the FDA process to win approval. Although manufacturers do share information on off-label uses, courts have sometimes found they had overstepped allowable bounds. Congress has given permission for limited sharing. Are there other ways to share clinical information that do not put the public's health or FDA's authority at risk? What Role Can Congress Play in the Use of Off-Label Prescriptions? How might Congress, in its legislative or oversight roles, consider the use of off-label drugs to protect the public's health? Legislators and health analysts have suggested both restrictive and permissive actions regarding off-label use. Ideas—some of which conflict with others—include disclosure to patients; data collection, availability, and analysis; dissemination of clinical data; linking reimbursement and coverage to evidence of safety and effectiveness; clinical research and research transparency; clinical guidance; congressional oversight through the Government Accountability Office, the Federal Trade Commission, and the Department of Health and Human Services; and consideration of other countries' approaches to off-label use. Some actions would require federal legislation. Other proposals would involve actions by other entities, such as state authorities and professional organizations, which Congress could urge.

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<1. Introduction> The United States has been a global leader in developing advanced genetic technologies and applying them to crops and livestock. Federal regulators first approved a genetically engineered (GE) food, the Flavr Savr tomato, for sale in 1994. As additional GE crops gained federal approval, farmers rapidly adopted them. Today, about 90% of canola, corn, cotton, soybean, and sugarbeet acres in the United States are planted with GE varieties. GE foods predominantly enter commerce as processed foods and food ingredients (e.g., soybean oil, corn syrup, and sugar). Some members of the public seek to avoid consuming GE foods, as advances in biotechnology have outpaced their acceptance. In July 2016, Congress enacted P.L. 114-216 (the 2016 Act), requiring the U.S. Department of Agriculture (USDA) to establish a National Bioengineered Food Disclosure Standard (the Standard) within two years. The 2016 Act followed decades of societal debate about genetic engineering, and it marked the first time that the federal government would require the disclosure of GE foods to consumers. (The 2016 Act defined these as bioengineered foods .) With the 2016 Act, the United States joined more than 60 countries that require some form of GE labeling , or on-package disclosure of GE foods or food ingredients. The Standard provides a mandatory national standard for disclosure of the presence of bioengineered foods and food ingredients to consumers. It details who is responsible for making disclosures, what they must look like, and when they are and are not required. The Standard provides U.S. food manufacturers, importers, and retailers with a voluntary compliance period and a mandatory compliance deadline. The more than 126,000 comments that USDA received during the rulemaking process demonstrate significant public interest in its formulation. USDA released the final rule in December 2018, and phased implementation began in January 2020. Stakeholder reactions to the final Standard have been mixed. Several organizations immediately criticized the final rule, while others supported it. The Organic Trade Association (OTA), the Center for Food Safety (CFS), the Non-GMO Project, and the Institute for Agriculture and Trade Policy (IATP) each released statements with critical comments. OTA remarked that it is "deeply disappointed in the U.S. Department of Agriculture's final GMO labeling rule and calls on companies to voluntarily act on their own to provide full disclosures on their food products about GMO content." CFS stated that "the USDA has betrayed the public trust by denying Americans the right to know how their food is produce[d]." The Non-GMO Project commented that it "is disappointed by the content of the final rule, which jeopardizes GMO transparency for Americans." IATP stated that "unfortunately, the final rule fails to fix the most egregious provisions of the draft rule and is practically useless in conveying accurate information about food ingredients to consumers while they are shopping." In contrast, the National Corn Growers Association (NCGA), the American Soybean Association (ASA), and the Food Marketing Institute (FMI) provided supportive comments. NCGA commented that "America's corn farmers need a consistent, transparent system to provide consumers with information without stigmatizing important, safe technology. Thus, we are pleased with the issuance of these rules and look forward to reviewing the details in the coming days." ASA stated, "we believe that it allows transparency for consumers while following the intent of Congress that only food that contains modified genetic material be required to be labeled bioengineered under the law, with food companies having the option of providing additional information if they choose." FMI stated, "the rule provides a consistent way to provide transparency regarding the foods we sell and allow[s] our customers across the country the means to learn more about grocery products containing bioengineered ingredients." This report provides background information on agricultural biotechnology; reviews major provisions of the Standard (related to applicability, disclosure options, and administrative provisions); and concludes with potential considerations for Congress. The Appendix provides definitions of select scientific and related terms used in this report. <1.1. Agricultural Biotechnology Background> People have been changing plants, animals, and other edible organisms since before agriculture began more than 10,000 years ago. Before people planted crops and raised farm animals, hunting and gathering changed the genetic composition of species. The pace of these changes accelerated with the onset of agriculture. Selective breeding helped create and improve agricultural varieties to meet farmer and consumer needs. Conventional (traditional) breeding created hybrid varieties with enhanced size, growth rate, and other valuable characteristics. Since the mid-20 th century, laboratory-based breeding techniques have further strengthened the ability to modify agricultural varieties. In recent decades, genetic engineering has allowed for increasingly specific genetic manipulation. These techniques can change plants and animals in ways that, with conventional breeding, would not be possible or could take decades to achieve. The public has come to recognize plants and animals altered through modern biotechnology and genetic engineering as genetically modified organisms (GMOs) . Scientific and federal government experts identify the term g enetically modified as more general than genetically engineered , and as such genetically modified may include conventional breeding. In this report, genetic engineering refers to genetic modification techniques other than conventional breeding. The Standard addresses food labeling, and it does not change how foods derived from biotechnology are regulated for safety and approval for human or animal consumption. The federal government's 1986 Coordinated Framework for Regulation of Biotechnology (the Coordinated Framework) governs how USDA, the U.S. Food and Drug Administration (FDA), and the U.S. Environmental Protection Agency (EPA) apply existing statutes to evaluate biotechnology products. USDA regulates plants under the Plant Protection Act (7 U.S.C. 7701 et seq.). FDA regulates food, animal feed additives, and human and animal drugs, primarily under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.) and the Public Health Service Act (42 U.S.C. 201 et seq.). EPA registers and approves the use of pesticides, including those incorporated into plants through biotechnology, under the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.). A key principle of the Coordinated Framework is to regulate products according to their characteristics and unique features rather than the processes used to develop them. More generally, FDA and the USDA Animal and Plant Health Inspection Service (APHIS) have responsibilities for assuring that foods sold in the United States are safe, with respect to human and agricultural health, and properly labeled. FDA released a policy statement on GE foods in 1992, indicating that in most cases they are "substantially similar" to non-GE foods and do not require additional regulation or labeling beyond what is required for comparable non-GE foods. A legal decision in 2000 upheld this policy. FDA requires labeling of GE foods that (1) have nutritional characteristics that differ from comparable non-GE foods, (2) contain GE material from known allergenic sources, or (3) have elevated levels of toxic compounds. This labeling is not required to indicate the GE status of the food. APHIS reviews GE organisms on the basis of whether they pose plant pest risks to agriculture. In 2019, the agency issued a proposed rule to exempt several categories of GE plants from review, citing 30 years of evidence indicating that "genetically engineering a plant with a plant pest as a vector, vector agent, or donor does not in and of itself result in a GE plant that presents a plant pest risk." The proposed rule further stated that new GE technologies, such as gene editing, do not engage with plant pests in any way. <2. The National Bioengineered Food Disclosure Standard> The Standard provides a mandatory national standard for disclosure of the presence of bioengineered foods and food ingredients to consumers. It provides U.S. food manufacturers, importers, and retailers with a voluntary compliance period and a mandatory compliance deadline. Following enactment of the 2016 Act, USDA delegated development and implementation of the Standard to the USDA Agricultural Marketing Service (AMS), which oversees many other USDA food-labeling programs, including mandatory Country of Origin Labeling (COOL), the voluntary National Organic Program (NOP), and the voluntary Process Verified Program (PVP). AMS developed the Standard through federal rulemaking, and issued the final rule in December 2018. The final rule defines key terms and interprets issues arising from the 2016 Act. The text box below includes terms defined in the Standard. The Standard identifies regulated entities as the food manufacturers, importers, and retailers responsible for making disclosures under the Standard. All regulated entities must comply with the Standard by January 1, 2022, although disclosures may begin during the voluntary compliance period, which started on January 1, 2020. As required for economically significant regulations, AMS prepared and published a regulatory impact analysis (RIA) of the Standard. The RIA estimates that implementation will cost between $570 million and $3.9 billion in the first year, and between $52 million and $118 million in each following year. It attributes most first year costs to those incurred by manufacturers analyzing the applicability of the rule and their compliance with the rule ($401 million to $3.1 billion). After the first year, the RIA attributes most ongoing costs to regulated entities avoiding mandatory disclosures by verifying that foods are not subject to the Standard ($0 to $59 million) and replacing bioengineered ingredients with non-bioengineered ingredients ($41 million to $44 million). The RIA estimates annual financial benefits of $190 million to $565 million, mostly attributed to costs avoided: the costs of complying with a patchwork of state laws, which are avoided and by implementation of the federal Standard. The RIA does not anticipate that the new Standard will provide any benefits to human health or the environment. Key provisions of the Standard, along with associated issues raised by stakeholders, are identified below within three categories: (1) applicability, (2) disclosure options, and (3) administrative provisions. Many components of the Standard remain controversial. Public reactions are discussed after each category. <2.1. Applicability> The Standard addresses its applicability to specific types of foods and types of entities involved in the manufacture, sale, and distribution of food. These issues were debated in policy discussions about GE food labeling, and they range from how the Standard defines a bioengineered food to which entities must comply with the Standard and which are exempt. <2.1.1. Bioengineered Food Definition and Exclusions> The 2016 Act defined bioengineering , with respect to food, as a food "(A) that contains genetic material that has been modified through in vitro recombinant deoxyribonucleic acid (DNA) techniques; and (B) for which the modification could not otherwise be obtained through conventional breeding or found in nature." It did not identify any specific technologies that would meet the definition of bioengineering . The 2016 Act specified that bioengineering referred to foods "intended for human consumption," and the act left open the possibility that USDA could use additional similar terms in the Standard. When issuing the Standard, USDA added detail to some statutory definitions and did not provide explicit definition of some other terms. While the Standard builds on the definition of bioengineering by describing the applicability of term, it does not define component parts of the definition, including conventional breeding or found in nature . Nor does it specify whether foods developed through specific technologies, such as gene editing, require disclosure to consumers. The Standard requires use of the term bioengineering rather than similar terms, such as genetic engineering , genetically modified , or GMO . The final rule sets boundaries for the foods that require disclosure. Based on the definition of bioengineering in the 2016 Act, AMS determined that certain products that derive from GE sources do not require labeling. The Standard identifies these exclusions in its definition of bioengineered food . They include animal feed, which is not considered food because it is not intended for human consumption; foods in which modified DNA is not detectable (e.g., refined oils and sugars); and incidental additives, as described in 21 C.F.R. 101.100(a)(3). The Standard expressly exempts other foods and substances described below. The text box at the end of this section summarizes exclusions and exemptions from the Standard. <2.1.2. Exemptions> The Standard identifies five exemptions from disclosure. The 2016 Act explicitly identified two of these: food served at restaurants or similar retail food establishments, and food produced by very small food manufacturers. The act called for the Standard to set a third exemption: foods containing an amount of a bioengineered substance below a certain threshold. The final two exemptions are for foods derived from animals solely because they consumed bioengineered feed, and food certified under the USDA National Organic Program (NOP). <2.1.2.1. Food Served in a Restaurant or Similar Retail Food Establishment> The 2016 Act exempts from disclosure food served in a restaurant or similar retail food establishment . The Standard defines this term as follows: A cafeteria, lunch room, food stand, food truck, transportation carrier (such as a train or airplane), saloon, tavern, bar, lounge, other similar establishment operated as an enterprise engaged in the business of selling prepared food to the public, or salad bars, delicatessens, and other food enterprises located within retail establishments that provide ready-to-eat foods that are consumed either on or outside of the retailer's premises. <2.1.2.2. Very Small Food Manufacturers> The 2016 Act exempts from disclosure food produced by a very small food manufacturer . The Standard defines this term as "any food manufacturer with annual receipts of less than $2,500,000." <2.1.2.3. Foods with Unintentional Bioengineered Ingredients Under a Presence Threshold> The 2016 Act called for USDA to "determine the amounts of a bioengineered substance that may be present in food, as appropriate, in order for the food to be a bioengineered food." The Standard exempts "food in which no ingredient intentionally contains a bioengineered (BE) substance, with an allowance for inadvertent or technically unavoidable BE presence of up to five percent (5%) for each ingredient." <2.1.2.4. Foods Derived from Animals That Consumed Bioengineered Feed> The 2016 Act specified that the Standard should not consider food derived from animals to be bioengineered food solely because those animals consumed bioengineered feed. The Standard exempts such foods. Food products such as meat, eggs, or milk derived from animals that consumed bioengineered feed do not require disclosure solely because the animals consumed bioengineered feed. <2.1.2.5. Foods Certified Under NOP> The 2016 Act specified that NOP certification "shall be considered sufficient to make a claim regarding the absence of bioengineering in the food, such as 'not bioengineered,' 'non-GMO,' or another similar claim." The Standard explicitly exempts foods certified under NOP. NOP is a voluntary food labeling program managed by AMS and operated as a public-private partnership. NOP certifies that agricultural products have been produced using approved organic methods listed in statute. Among NOP's diverse criteria, genetic engineering is an excluded method: NOP-certified products may not be produced or handled with genetic engineering. Thus, such products are not bioengineered and are exempted from the Standard. <2.1.3. List of Bioengineered Foods> The 2016 Act directed USDA to establish "such requirements and procedures as the Secretary [of Agriculture] determines necessary to carry out the standard." During rulemaking, AMS requested public comment on the utility of maintaining a list of potentially regulated foods, for entities to consult when determining whether a food is subject to disclosure. The final Standard includes a List of Bioengineered Foods (the List), that identifies foods that are available in a bioengineered form. While there are bioengineered and non-bioengineered versions of all foods on the List, only the bioengineered versions may require disclosure. The final rule details how AMS considered including on the List, but ultimately did not include, enzymes, yeasts, and other microorganisms produced in controlled environments. The rule states that regulated entities would need to make determinations on whether these substances require recordkeeping or disclosure on a case-by-case basis. AMS also publishes the List and associated details on its website. Beginning in early 2020, AMS plans to update the List annually, with associated opportunities for public comment. AMS plans to notify the public of the review via the Federal Register and the AMS website. If needed, AMS plans to update the List through the federal rulemaking process. See the text box below for foods on the List as of January 2020. <2.1.4. Public Response to Applicability Provisions of the Standard> The Standard's definition of bioengineered food , and what it applies to, remains controversial. Some areas of disagreement among stakeholders include the use of bioengineered rather than alternative terms, the definition's treatment of gene editing and new genetic technologies, the definition's treatment of refined food products, and the disclosure threshold for inadvertent or technically unavoidable presence of GE ingredients. Some farmer and industry groups have praised the Standard, contending that it provides consumers and regulated entities with needed consistency and transparency. Some advocates of stricter GE labeling argue that it is too permissive because many foods they consider genetically engineered do not require disclosure. These issues are addressed below. Alternative terms. The terminology used in the Standard has been a point of contention. While USDA had statutory authority to use alternative terms to bioengineered , it did not do so . Some stakeholder groups argue that most consumers are unfamiliar with the term bioengineered . They assert that using other terms, such as GMO , genetically modifi ed organism , or genetically engineered , would be less confusing for consumers. Other groups contend that the Standard's language is precise. Gene editing and n ew genetic technologies. The Standard's definition of bioengineered food does not identify specific technologies used to create such foods. AMS states that the Standard's definition "focuses primarily on the products of technology, not the technology itself." During rulemaking, some stakeholders had called for the Standard to explicitly address the status of foods derived from new genetic technologies that may not meet the statutory definition of bioengineering . For example, foods derived from gene editing may not meet the statutory definition of bioengineering if (a) they do not contain recombinant DNA or (b) AMS considers that that their modifications could be achieved through conventional breeding or found in nature. Other new genetic technologies may arise that do not meet the Standard's definition of bioengineering for these or other reasons. Because the Standard does not address specific technologies, consumers and regulated entities may lack clarity about whether or not foods derived from new genetic technologies must be disclosed under the Standard. In the absence of this information, many have interpreted the bioengineering definition as broadly excluding foods derived from gene editing. Under this interpretation, gene-edited foods would not require disclosure. Other interpretations of the Standard simply note that the final rule does not explicitly address gene editing or other new genetic technologies. Advocates of stricter GE labeling requirements contend that even though gene-edited foods seem to be excluded from the Standard's definition of bio engineering , such foods meet the common understanding of genetic engineering and therefore should be required to bear disclosures. R efined foods exclusion. The Standard excludes refined food products that do not contain detectable amounts of modified DNA from required disclosure. Food without detectable modified genetic material does not meet the statutory definition of bioengineered . Examples include soybean oil, canola oil, and refined sugar. The Standard does not require regulated entities to test every product for the presence of detectable modified genetic material. Rather, manufacturers, importers, and retailers can demonstrate the absence of modified genetic material with records of a validated refining process. Some groups that favor a more expansive definition of bioengineered foods argue that consumers want to know whether the foods they eat derive from GE plants and animals, and thus the Standard should have required disclosures for these refined foods. In contrast, some industry groups, including the Consumer Brands Association (formerly the Grocery Manufacturers Association), commended the Standard for providing regulated entities with the option to voluntarily disclose such foods if desired. Disclosure threshold. The Standard does not require disclosures for foods with up to 5% presence, per ingredient, of unintentional or technically unavoidable bioengineered substances. In comparison, the European Union applies a threshold of 0.9% per ingredient, and Australia and New Zealand use a threshold of 1% per ingredient. Foods in Japan must be labeled if a GE ingredient is among the top three ingredients and accounts for more 5% of the total product by weight. AMS selected the 5% threshold for the Standard to "appropriately balance providing disclosure to consumers with the realities of the food supply chain." Some advocates of stricter GE labeling, such as OTA, argue that the threshold in the Standard is too high and is "inconsistent with accepted private standards, most of our major global trading partners and unacceptable to consumers." <2.2. Disclosure Options> The Standard identifies permissible options for on-package disclosure of bioengineered foods. All disclosures must be "of sufficient size and clarity to appear prominently and conspicuously on the label, making it likely to be read and understood by the consumer under ordinary shopping conditions." Regulated entities must place the disclosure in one of three places: within the information panel close to details about the manufacturer, on the principle display panel, or on another panel the consumer is likely to see. In most cases, only one form of disclosure is required per package. Some disclosure options are available to all regulated entities for required disclosures (text, symbol, electronic or digital link, and/or text message), while others are available only to small food manufacturers (telephone number or website address) or in cases of voluntary disclosure (voluntary version of the BE disclosure symbol). Each option is described below. <2.2.1. Standard Disclosure Options> The 2016 Act specified that the Standard should provide several types of disclosure options. The final rule gives additional detail to their implementation. Text. "Bioengineered food" is the required text to disclose foods for which all ingredients either meet the definition of bioengineered food or lack records that indicate whether or not they are bioengineered. "Contains a bioengineered food ingredient" is the text required to disclose multi-ingredient foods for which some ingredients are not bioengineered while others are bioengineered or are of undetermined status. For foods distributed solely within a U.S. territory where the predominant language is not English, the appropriate text disclosure may be displayed in the territory's predominant language. Symbol. Regulated entities may use color or black-and-white versions of the disclosure symbols shown in Figure 1 . The symbol that incorporates the word bioengineered is for products that require disclosure. The symbol that incorporates the phrase derived from bioengineering may be placed voluntarily on packages of food that do not meet the bioengineered food definition but contain food that is derived from bioengineered food (such as refined foods without detectable modified DNA). Disclosures must not be false or misleading. Entities that are exempt from mandatory disclosure (e.g., very small food manufacturers and restaurants) may make voluntary disclosures using the appropriate symbol. Electronic or digital link . Entities may disclose bioengineered food via electronic or digital links, which are codes that consumers can scan to access more information. Current examples include Quick Response (QR) codes and digital watermarks that consumers may scan with a smart phone or in-store scanner. The code may embed product information or a link to a website with this information presented on the first webpage. The 2016 Act and the Standard require that any electronic or digital link disclosure on a package must be accompanied by the text "Scan here for more food information" or equivalent language consistent with technological changes. They also require that such disclosures be accompanied by a telephone number that consumers may call to receive additional information. Providing disclosure via these technologies was among the most controversial aspects of the 2016 Act. In the 2016 Act, Congress required USDA to solicit public comment and conduct a study to determine if electronic or digital links would provide consumers with sufficient access to information while shopping. If USDA were to determine that these disclosure methods were insufficient in this regard, then the Standard would need to provide additional disclosure options. AMS contracted with Deloitte Consulting to conduct the study. The resulting report identified several challenges that would need to be overcome for consumers to access information through digital or electronic link disclosures. AMS determined that the Deloitte study indicated that electronic and digital links would not provide consumers with sufficient access to this information. Text message . In response to public comments and the results of the Deloitte study, the Standard adopts disclosure by text message as an option in addition to those identified in the 2016 Act. Regulated entities choosing this option must include a clear statement on the food package describing how to receive a text message. <2.2.2. Disclosure Options for Small Food Manufacturers> The Standard defines a small food manufacturer as one with annual receipts of between $2.5 million and $10 million. As directed in the 2016 Act, the Standard allows small food manufacturers to select from additional disclosure options. These consist of providing a telephone number or an internet website address to allow consumers to access more information. Such disclosures must be accompanied by the text "Call [number] for more food information" or "Visit [Uniform Resource Locator of the website] for more food information." <2.2.3. Alternative Disclosure Options for Specific Circumstances> The Standard specifies additional considerations for small and very small packages as well as food sold in bulk containers. The additional disclosure options for small packages mirror the standard options but allow for abbreviated on-package text: "Scan for info," "Text [number] for info," and "Call [number] for info." For very small packages, regulated entities may use a label's preexisting telephone number or website address in lieu of other disclosures. Retailers are responsible for disclosures for food sold in bulk containers (e.g., display case, bin, carton, and barrel), and they must use the primary disclosure options. <2.2.4. Voluntary Disclosure> The Standard allows for voluntary disclosure in some cases. Exempt entities (very small food manufacturers and restaurants and similar retail food establishments) may voluntarily disclose bioengineered foods and food ingredients using any of the options provided. Additionally, the Standard permits both regulated and exempt entities to voluntarily disclose foods that do not require mandatory disclosure. Such foods include refined foods that derive from bioengineered foods but do not have detectable modified DNA. Voluntary disclosures should indicate that ingredients are "derived from bioengineering" rather than "bioengineered." The Standard does not permit voluntary disclosure in most other circumstances. <2.2.5. Public Response to Disclosure Options of the Standard> During the rulemaking process for the Standard, some advocates for strict GE labeling provisions were seeking a single, easily identifiable, on-package disclosure. These respondents have criticized the disclosure options in the Standard as confusing and uninformative. In contrast, some other groups sought flexible disclosure options that regulated entities could adapt easily to different circumstances. Such industry groups have supported the disclosure options in the Standard as informative and flexible enough for manufacturers to meet. Among critics, the Organic Trade Association (OTA) argued that the Standard does not provide for meaningful disclosure. It stated that the Standard "allows for the option of digital/electronic disclosures rather than requiring on-pack plain English text disclosure" and that the "stylized GMO symbol with a four-pointed starburst does not reflect a neutral symbol as Congress intended and is misleading." The Center for Food Safety (CFS) found that "both disclosure methods [electronic and digital disclosure], as well as 800 numbers, are unwieldy, time-consuming, and clearly designed to inhibit rather than facilitate access to GE content information." The International Dairy Foods Association (IDFA) provided a mixed reaction, approving of some aspects of the Standard while further stating, "the rule does not provide the level of transparency IDFA and consumers were hoping for." Among other perceived limitations, IDFA added that the Standard does not require disclosure of highly refined ingredients deriving from GE foods, although it allows for voluntary disclosure of these products. Among supporters of the Standard, the Food Marketing Institute and the National Corn Growers Association welcomed the disclosure consistency that the Standard provides. The Standard's inclusion of a voluntary disclosure option elicited mixed responses. While the Consumer Brands Association praised this option, the Center for Science in the Public Interest (CSPI) commented that voluntary disclosure could introduce confusion. CSPI identified the potential for consumers to encounter a single type of product, derived from bioengineering, that one company chose to voluntarily disclose and another company did not. OTA called on food companies to voluntarily disclose all foods produced with genetic engineering. <2.3. Administrative Provisions> Stakeholders have also focused on the administrative provisions of the Standard. Key administrative issues include the speed at which regulated entities must comply with the Standard, recordkeeping requirements and burdens, and the enforceability of the Standard. These topics are addressed below. <2.3.1. Compliance Deadline> The 2016 Act did not specify compliance dates for the Standard. The final rule allows for phased implementation before requiring all regulated entities to comply with the Standard (see Table 1 ). It sets January 1, 2020, as the date on which most regulated entities may begin implementation. Small food manufacturers have an additional year to begin implementation, with a start date of January 1, 2021. All regulated entities must fully comply with the Standard by January 1, 2022. <2.3.2. Recordkeeping> In the RIA, AMS commented that it provides the List of Bioengineered Foods to "simplify and minimize analysis and recordkeeping burden on regulated entities." The Standard requires regulated entities that sell foods on the List, including both bioengineered and non-bioengineered versions, to maintain records documenting whether or not those foods or their ingredients are bioengineered. The Standard does not require potentially regulated entities to maintain records for foods that are not on the List unless they know that a food is bioengineered. This situation could occur if AMS has not yet identified the food as commercially available and has not yet added the food to the List. In such cases, the entity must disclose the food and must maintain records. Regulated entities may determine what records to keep and how to manage them, as long as they contain sufficient detail for AMS to understand and audit them under the Standard. Entities must maintain these records for two years after sale or distribution of the food. <2.3.3. Enforcement> Failure to make a required disclosure is prohibited under the 2016 Act. However, the act limited the scope of potential enforcement mechanisms and remained silent on others. The 2016 Act explicitly prohibited USDA from recalling food for known or suspected violations of the Standard. It did not address or authorize potential civil penalties for violations. The act allowed USDA to enforce compliance through records audits, examinations, hearings, and public disclosure of findings. The Standard identifies procedures for carrying out these enforcement mechanisms. AMS does not continuously and proactively verify compliance with the Standard. Rather, the Standard creates a mechanism for the public to file statements or complaints to the AMS Administrator about possible violations of the Standard, and it outlines how AMS may respond to these written statements or complaints. If AMS determines that a complaint warrants further investigation, AMS may audit or examine the records of the entity responsible for disclosure and make its findings available to the entity. The entity may then request a hearing if it objects to the findings. The Standard allows for AMS to revise the findings if warranted and provides that AMS will make the final results of the investigation publicly available. <2.3.4. Public Response to Administrative Provisions of the Standard> While most stakeholder responses to the final Standard have focused on applicability and disclosure options, some interested groups have commented on its administrative provisions. Before release of the Standard, advocates of strict GE labeling had called for an early start to the mandatory compliance period. However, some industry groups supported the delay of mandatory compliance, citing the need to allow sufficient time for regulated entities to adjust labels and recordkeeping procedures. Echoing comments that AMS received during the federal rulemaking process, some critics of the Standard have continued to assert that its enforcement mechanisms are weak. <3. Other GE Labeling Approaches> The National Bioengineered Food Disclosure Standard was developed within a broader societal context. State-level approaches to GE labeling predated the federal 2016 Act. These were driven by public interest in knowing the GE status of their foods. In addition, some private and federal voluntary labeling programs that provide information on the GE status of foods are expected to continue after implementation of the Standard. <3.1. Public Opinion and State-Level GE Labeling Before the Standard> When foods containing GE ingredients were first introduced in the 1990s, some members of the public called for banning them based on concerns about potential harm to human health. Research has repeatedly found no difference between foods developed with and without genetic engineering, in terms of the health and safety of the people consuming them. Even so, some consumers remain concerned about genetic engineering, citing health, personal preference, religious, economic system, and other objections. Moving on from calls to ban GE foods for human health reasons, many consumers began to demand a government role in making GE foods easily identifiable via GE labeling. Before establishment of the Standard, some surveys reported that the majority of consumers wanted GE foods to be labeled. Various proposed GE labeling laws and initiatives at the state and federal levels provided for mandatory or voluntary labeling. Mandatory labeling requires companies to disclose the presence of GE ingredients. Voluntary labeling can allow companies to certify the absence of GE ingredients (as discussed in " Continuing Voluntary Labeling Programs and GE-Absence Claims ") or to disclose the presence of GE ingredients. The 2016 Act preempted state laws and initiatives and instituted mandatory labeling of the presence of GE ingredients in foods. In the years preceding the introduction and passage of the 2016 Act, state laws and ballot initiatives on GE labeling began to proliferate. In 2014, Vermont became the first state to enact a mandatory GE labeling law, with an effective date of July 1, 2016. Other states enacted similar laws, while others still considered similar legislation or voted on state ballot initiatives. Michigan and North Dakota enacted legislation urging the U.S. Congress to pass a uniform GE labeling standard. Most GE labeling proponents strongly supported mandatory labeling standards, citing consumers' right to know, even if safety were not an issue. Some GE labeling opponents argued that no scientific basis existed for requiring mandatory GE labeling, and that such labeling may unnecessarily introduce doubt about the quality or safety of labeled foods and could cause costly and unnecessary market disruption. Before the 2016 Act, some GE labeling proponents and opponents called for a federal law to preempt development of an uncertain and confusing patchwork of state laws with different GE labeling requirements. In the absence of federal legislation in 2015, USDA experimented with adapting an existing voluntary USDA labeling program to meet consumer and producer interests in GE labeling. That year, AMS used its Process Verified Program (PVP) to certify the absence of GE ingredients in food products from a single company, which had requested this service. Some anticipated that this would lead to a voluntary USDA program to certify the absence of GE ingredients in foods. GE-labeling proponents responded that, although this would be a step in the right direction, a voluntary program would fail to meet consumer demands, and only mandatory labeling would do so. This application of PVP to certify the absence of GE ingredients in foods did not expand beyond a single company. <3.2. Continuing Voluntary Labeling Programs and GE-Absence Claims> Voluntary labeling programs that identify the absence of GE ingredients predate legislation to require mandatory labels on foods that contain GE ingredients. On-package symbols from these private and public-private programs indicate to consumers that foods do not contain GE ingredients. They may either make a direct GE-absence claim (certifying that the food does not contain GE ingredients) or indicate that the food was produced with processes that do not include genetic engineering (e.g., certified organic production methods). Food producers and manufacturers may choose to opt into these programs and to bear associated costs. One example is the Non-GMO Project, which a non-profit organization manages to provide third-party verification for processed foods that do not contain GE ingredients. Companies sign agreements with the Non-GMO Project to have their processes reviewed and to have any high-risk products tested by third-party laboratories. Once the Non-GMO Project verifies a company's processes and products, the company can display the Non-GMO Project Verified symbol on its food packaging. This symbol on food packaging makes a GE-absence claim. Another example is the USDA National Organic Program (NOP), a public-private program for voluntary labeling that, among other things, indicates the absence of GE ingredients. NOP, which is administered by AMS, certifies that agricultural products have been produced using approved organic methods listed in statute. Genetic engineering is an excluded method: NOP-certified products may not be produced or handled with genetic engineering. The NOP symbol indicates that a food meets diverse criteria, including production methods that exclude genetic engineering. These voluntary labeling programs are expected to continue after implementation of the Standard. They differ from the Standard's voluntary disclosure option , which permits voluntary disclosure of foods that derive from bioengineering yet no longer have the characteristics of bioengineered foods, and is discussed in this report's section on " Voluntary Disclosure ." The voluntary labeling programs provide opportunities to identify foods that affirmatively do not derive from bioengineering. The Standard does not address GE-absence claims, and the final rule states that FDA (and the USDA Food Safety and Inspection Service, depending on the food at issue) "retain authority over absence claims." <4. Select Considerations for Congress> Implementation of the Standard over the next two years and beyond will affect consumers, regulated entities, and AMS. Many potential issues arising from the Standard will become clear only as implementation continues. The below text summarizes potential and stated concerns related to applicability, disclosure options, administrative provisions, and other issues. Congress may choose to monitor the new Standard's implementation in accordance with its oversight responsibilities. A key question for Congress is whether AMS's implementation of the 2016 Act meets congressional intent regarding the scope of applicability and the degree of disclosure required. In the final rule, AMS asserted that it balanced flexibility for regulated entities and information to consumers regarding the bioengineered status of their foods. Stakeholders who question AMS's decisions in the rulemaking process, as described above, may question the extent to which AMS's implementation aligns with congressional intent. Applicability. Groups that have criticized the definition of bioengineered in the 2016 Act may call on Congress to amend the definition to include highly refined products derived from GE organisms and/or include products that do not meet the current definition, such as those derived from gene editing and other new technologies. Other interested groups may continue to advocate for a definition that restricts the number and types of foods to which the definition applies. AMS has committed to maintaining and updating the List through annual public reviews, and on an interim basis as needed. Such reviews can provide opportunities to add to the List any bioengineered food products that have entered commerce. Additionally, during these reviews, stakeholders with differing views may encourage the agency to adopt either a more expansive or a more restrictive listing of bioengineered foods. Disclosure. Another issue in the context of disclosure is the degree of familiarity with the required labels that consumers may have. Consumers unfamiliar with the term bioengineered may have questions about what this means on foods bearing disclosure. Public reaction to implementation of the various types of disclosure may generate calls for these options to be revised based on their success or failure to provide consumers with easily accessible and useful information. Administrative provisions. An issue for potential consideration is the extent to which additional federal resources will be required to implement the Standard in both the voluntary and mandatory compliance periods. In its regulatory impact analysis (RIA), AMS broadly estimated that it may need $2 million annually to implement the Standard, without differentiating potential expenses during the voluntary and mandatory compliance periods. AMS proposed that it would use such funds to update the List; conduct audits and hearings; manage complaints and inquiries; and provide training, education, outreach and programmatic support. AMS may need to assign staff and develop new processes to implement the Standard's provisions related to audits, examinations, hearings, and publications of findings. Congress may be asked to consider allocating new resources to support continued implementation of the new Standard. In addition, Congress may assess the cost and administrative overhead that regulated entities expend to identify and maintain records on foods subject to disclosure and to adjust labels on food packaging. Estimates for administrative costs to regulated entities, which AMS presents in its RIA, range from a lower bound of $459 million to an upper bound of nearly $3.6 billion for the first year. AMS anticipates that these costs will greatly reduce in subsequent years as potentially regulated entities replace bioengineered ingredients with non-bioengineered ingredients. Regarding enforcement, the rule largely relies on a public notification mechanism to influence the compliance of regulated entities and correct violations of the Standard. Stakeholders may or may not view this mechanism as successful, depending on the extent and frequency of any such violations. Interested parties may petition Congress to strengthen existing enforcement mechanisms or identify new ones to enhance compliance with the new Standard. Market demand for bioengineered versus non-bioengineered products . In the RIA, AMS indicates that it cannot accurately predict how consumers will react to bioengineered disclosures on food labels. Consumers may avoid foods labeled as bioengineered, they may prefer them, or such labels may make no difference to consumer purchasing behaviors. In the RIA, AMS assumes that manufacturers will avoid labeling 20% of their products as bioengineered, by replacing bioengineered with non-bioengineered ingredients, due to potential consumer reactions. AMS selected 20% for purposes of estimating costs and benefits in the RIA following consideration of existing studies and surveys of consumer behavior and consideration of the requirements of the Standard. Depending on how consumers respond, implementation of the Standard may influence manufacturer and retailer demand for bioengineered and non-bioengineered foods. Congress may respond to stakeholder concerns about any market shifts resulting from the Standard. Interactions with international trade. Unexpected issues may arise as implementation begins. For example, AMS states that it does not expect the Standard to impact foreign trade. However, it also notes that the USDA Foreign Agriculture Service is prepared to work closely with foreign countries that export food and agricultural products to the United States, to facilitate their understanding of the Standard. If trade issues arise, Congress may choose to address harmonization of labeling requirements with foreign trading partners by amending applicability, disclosure, or administrative requirements in the 2016 Act, or by other means. <4.1. Appendix. Glossary of Select Scientific and Related Terms> Many terms are used when describing human alterations of plants and animals over time. Unless otherwise noted, the definitions in this glossary derive from USDA's online Agricultural Biotechnology Glossary and are used for the purposes of this report. Agricultural b iotechnology. A range of tools, including traditional breeding techniques, that alter living organisms, or parts of organisms, to make or modify products; improve plants or animals; or develop microorganisms for specific agricultural uses. Modern biotechnology today includes the tools of genetic engineering. Conventional breeding. Undefined in USDA's Agricultural Biotechnology Glossar y. USDA defines the similar term, traditional breeding , as "modification of plants and animals through selective breeding. Practices used in traditional plant breeding may include aspects of biotechnology such as tissue culture and mutational breeding." Gene editing. A technique that allows researchers to alter the DNA of organisms to insert, delete, or modify a gene or gene sequences to silence, enhance, or otherwise change an organism's specific genetic characteristics. GE labeling. On-package disclosure of genetically engineered foods or food ingredients. Genetically engineered (GE) . Produced through genetic engineering. Genetic engineering. Manipulation of an organism's genes by introducing, eliminating or rearranging specific genes using the methods of modern molecular biology, particularly those techniques referred to as recombinant DNA techniques. Genetic modification. The production of heritable improvements in plants or animals for specific uses, via either genetic engineering or other more traditional methods. Some countries other than the United States use this term to refer specifically to genetic engineering. Genetically modified organism ( GMO). An organism produced through genetic modification. Recombinant DNA. A molecule of DNA formed by joining different DNA segments using recombinant DNA technology. Recombinant DNA technology. Procedures used to join together DNA segments in a cell-free system (e.g., in a test tube outside living cells or organisms). Under appropriate conditions, a recombinant DNA molecule can be introduced into a cell and copy itself (replicate), either as an independent entity (autonomously) or as an integral part of a cellular chromosome. Selective breeding . Making deliberate crosses or matings of organisms so the offspring will have particular desired characteristics derived from one or both of the parents. Transgenic organism. An organism resulting from the insertion of genetic material from another organism using recombinant DNA techniques. Variety. A subdivision of a species for taxonomic classification also referred to as a "cultivar." A variety is a group of individual plants that is uniform, stable, and distinct genetically from other groups of individuals in the same species.

In July 2016, Congress enacted P.L. 114-216 (2016 Act), comprehensive legislation to govern the labeling of bioengineered foods. The 2016 Act required the U.S. Department of Agriculture (USDA) to establish the National Bioengineered Food Disclosure Standard ( the Standard ) . The Standard regulates labeling of bioengineered foods, a term defined in the 2016 Act. The act does not address or define other terms that some members of the public might associate with bioengineered foods, such as genetically engineered (GE), genetically modified , and genetically modified organism (GMO). The Standard guides the mandatory labeling of foods to indicate the presence of GE ingredients. As such, foods meeting requirements identified in the Standard must bear a bioengineered disclosure. Implementation began on January 1, 2020, and mandatory compliance begins on January 1, 2022. The Standard provides details under the three key issues of applicability, disclosure options, and administrative provisions: Applicability discusses the definition of bioengineered food and the USDA-maintained List of Bioengineered Foods (List). The Standard applies to foods that are or may be derived from bioengineered ingredients, with some exclusions and exemptions. It does not apply to refined products, such as oils or sugars, that derive from GE plants but no longer contain detectable modified deoxyribonucleic acid (DNA). Many groups interpret the Standard as not applying to foods derived from gene editing and other new technologies that do not use recombinant DNA. The Standard exempts from disclosure foods served in restaurants. Some have endorsed such exclusions and exemptions, and others have criticized them. Disclosure Options outlines acceptable disclosure options for regulated entities, as well as additional options available for specific entities and types of food packages. Most regulated entities may disclose by text, symbol (pictured above), electronic or digital link, or text message. In some cases, a telephone number or website address may be acceptable. Some groups have praised the flexibility that this range of options provides regulated entities, while others have criticized these options as confusing. Administrative Provisions reviews compliance dates, recordkeeping requirements, and enforcement mechanisms, which include audits, examinations, hearings, and release of public findings. The 2016 Act provided few enforcement mechanisms to promote compliance. The Standard establishes how USDA may investigate accusations of non-compliance and how it may publicly release its findings. The Standard does not affect how foods derived from biotechnology are regulated for safety and approval for human consumption. The Coordinated Framework for Regulation of Biotechnology , a policy the White House issued in 1986, continues to govern how federal agencies, including USDA, evaluate and approve products developed using modern biotechnology. More generally, USDA and the U.S. Food and Drug Administration (FDA) continue to ensure that foods sold in the United States are safe and properly labeled. USDA's Agricultural Marketing Service (AMS) developed the Standard within a broader societal context. Before the 2016 Act, some members of the public had demanded mandatory labeling of the presence of GE ingredients in foods, based on the consumer's right to know. Other members of the public had opposed any GE labeling because of the scientific consensus that GE foods are safe to eat and concern that labeling may introduce unwarranted doubts about food safety. Before the 2016 Act, several states had enacted GE labeling laws, creating concerns among industry and consumer groups. In response, Congress debated this and other federal GE labeling legislation. GE labeling programs may be voluntary or mandatory and may indicate the presence or absence of GE ingredients. Several voluntary labeling programs predate the Standard's mandatory labeling requirements. Public and private programs for the voluntary labeling of foods continue to indicate the absence of GE ingredients in foods. These include the Non-GMO Project and the USDA National Organic Program. Future considerations for Congress may include ongoing questions consumers may have concerning what it means for a food to be labeled as bioengineered , how regulated entities will respond to the Standard's new requirements, how USDA will implement its responsibilities under the Standard, potential market impacts as demand for GE versus non-GE foods may change, and how the Standard aligns with international labeling requirements. Congress may choose to monitor implementation of the new Standard in accordance with its oversight responsibilities.

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<1. Introduction> The U.S. Election Assistance Commission (EAC) is an independent federal agency charged with helping improve the administration of federal elections. It was established by the Help America Vote Act of 2002 (HAVA; P.L. 107-252 ; 116 Stat. 1666; 52 U.S.C. 20901-21145) as part of Congress's response to administrative issues with the 2000 elections. The EAC and the legislation that created it marked a shift in the federal approach to election administration. Congress had set requirements for the conduct of elections before HAVA, but HAVA was the first federal election administration legislation also to back its requirements with substantial federal support. In addition to setting new types of requirements, it provided federal funding to help states meet those requirements and facilitate other improvements to election administration and created a dedicated federal agency the EAC to manage election administration funding and collect and share election administration information. There was broad support in Congress during the HAVA debate for the idea of providing some assistance along these lines. Both at the time and since, however, opinions have differed about exactly what kind of assistance to provide and for how long. Members have disagreed about whether the EAC should be temporary or permanent, for example, and about what if any regulatory authority it should have. Changes in the election administration landscape and in Congress have brought different aspects of the debate to the forefront at various times. The 112 th Congress saw the start of legislative efforts in the House to limit or eliminate the EAC, for example, while the agency's participation in the federal response to attempted foreign interference in the 2016 elections has been cited as new grounds to extend or expand it. This report provides an introduction to the EAC in the context of such developments. It starts with an overview of the EAC's duties, structure, and operational funding, and then summarizes the history of the EAC and legislative activity related to the agency. The report closes with some considerations that may be of interest to Congress as it conducts oversight of the EAC and weighs whether or how to take legislative action on either the agency or election administration more broadly. <1.1. Notes on Terminology> HAVA defines "states" as the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands. This report takes a similar approach. Except where context makes clear that another meaning is intended, such as in references to "the 50 states," "state" is intended to include U.S. territories and the District of Columbia. "Election Assistance Commission" and "EAC" are used by some to refer to the four-member commission that is part of the agency. To avoid confusion, this report reserves those terms for the agency as a whole and uses "commission" for the four-member commission. <2. Overview of the EAC> The EAC was created by HAVA, Congress's primary legislative response to problems with the administration of the 2000 elections. Issues with the vote count in Florida delayed the results of the 2000 presidential race for weeks. Subsequent investigations revealed widespread problems with states' conduct of elections. They also generated recommendations about how to prevent similar problems in the future, including via more expansive federal partnerships with states and localities. Exactly what those partnerships should look like was a matter of debate. There was broad agreement that they should involve some federal assistance to states and localities. Proposals from Members on both sides of the aisle and in both chambers of Congress included federal funding for improvements to election administration and federal guidance on voting system standards, for example. Members disagreed, however, about other features of the partnerships. These disagreements were rooted in part in competing concerns. Some Members were concerned that certain types of federal involvement would shift the balance of election administration authority from states and localities, which have traditionally had primary responsibility for administering elections, to the federal government. Others worried that states and localities would not or could not make necessary changes to their election systems without federal intervention. Disagreements about the federal government's role in election administration played out in at least two discussions that were relevant to the EAC: (1) whether new federal election administration responsibilities should be assumed by extant federal entities like the Federal Election Commission's (FEC's) Office of Election Administration (OEA) or an entirely new agency; and (2) whether the new responsibilities should be focused solely on supporting states and localities or should also include more expansive authority to compel states and localities to act. The EAC, like HAVA as a whole, was a compromise. It was a new agency, but its role was envisioned primarily as a support role. As one of the primary architects of HAVA, Representative Robert Ney, noted in the markup of the 2001 version of the bill, [T]he name that we did choose, by the way, for this Commission is not an accident. The purpose of this Commission is to assist State and local governments with their election administration problems, basically taking the attitude we are the government, we are here to help. Its purpose is not to dictate solutions or hand down bureaucratic mandates. The following subsections provide an overview of the agency that emerged as a compromise from HAVA. They describe the EAC's duties, structure, and operational funding. <2.1. Duties> Consistent with the positioning of the EAC as a support agency, HAVA strictly limits the agency's power to compel action by states and localities. Responsibility for enforcing HAVA's national election administration requirements is assigned by the act to the U.S. Department of Justice (DOJ) and state-based administrative complaint procedures rather than to the EAC. Decisions about exactly how to comply with those requirements are reserved to the states. And EAC rulemaking is explicitly restricted to regulations for the voter registration reports and federal mail voter registration form required by the National Voter Registration Act of 1993 (NVRA; P.L. 103-31 ; 107 Stat. 77). Those limits do not mean the agency has no ability to influence state or local action. The EAC can trigger DOJ investigations of suspected violations of federal election law, for example, and revoke voting system certifications and testing lab accreditations. The agency can audit its grantees and specify how they should address issues identified by the audits. Its voting system testing and certification program can be binding on states that choose as some states have to make some or all of it mandatory under state law. Its voluntary guidance, while nonbinding, could be used by other agencies to inform HAVA enforcement. However, the EAC's duties are primarily envisioned by HAVA and have primarily functioned as support tasks. They fall into two general categories: (1) administration of funding and (2) collection and sharing of information. <2.1.1. Administration of Funding> The EAC is responsible for administering federal funding for improvements to election administration, including most of the grant and payment programs authorized by HAVA and an election data collection grant program that was authorized and funded by the FY2008 Consolidated Appropriations Act ( P.L. 110-161 ). Congress appropriated $380 million for payments to states under HAVA in FY2018 ( P.L. 115-141 ), following reports of attempted foreign interference in the 2016 elections. Prior to those appropriations, funding was last provided for EAC-administered grants and payments in FY2010 (see Table 1 for details). The EAC's administrative responsibilities typically extend past the fiscal year for which funding is appropriated. Much of the funding it administers has been provided as multiyear or no-year funds, and it performs ongoing funding maintenance tasks, such as providing technical assistance to funding recipients and issuing advisory opinions about proposed uses of funds. Through its Office of Inspector General (OIG), the EAC also audits grantees to confirm that they are meeting funding conditions, such as matching-fund and maintenance-of-effort requirements, and using funds as intended. <2.1.2. Collection and Sharing of Information> HAVA folded the FEC's OEA into the EAC, transferring its staff, duties, and funding to the new agency. The OEA had performed a clearinghouse function at the FEC. That function was first established by the Federal Election Campaign Act of 1971 (P.L. 92-225; 86 Stat. 3) at the General Accounting Office (now called the Government Accountability Office [GAO]), as a source of election administration research and a forum for sharing election administration information. The function was transferred to the FEC when that agency was created in 1975 ( P.L. 93-443 ; 88 Stat. 1263). The mandate expanded at the FEC to include creating and updating voluntary federal standards for voting systems and, following the enactment of the NVRA in 1993, producing a biennial voter registration report and developing and maintaining a federal mail voter registration form. These information collection and sharing functions have carried over to and undergone further expansion at the EAC. The following subsections describe the EAC's information collection and sharing duties. <2.1.2.1. Research and Coordination> Like its clearinghouse predecessors at GAO and the FEC, the EAC conducts election administration research and provides opportunities for election administration stakeholders to share their experience and expertise. Some of the work the EAC does as part of its research function is mandated specifically. The Election and Voting Survey (EAVS) it produces after each regular federal general election, for example, includes an NVRA-mandated voter registration report and reporting on military and overseas voting that is required by UOCAVA. The EAC was also directed by HAVA to conduct studies of military and overseas voting; voting system usability and accessibility; HAVA's voter identification requirement; use of Social Security information for voter verification; use of the internet in electoral processes; and postage-free absentee voting. The EAC also has considerable latitude to conduct other election administration research. It has issued a number of reports under this authority, including studies of rural versus urban election administration, alternative voting methods, and voter fraud and intimidation. The EAC has also released products that are specifically geared toward practitioners, such as a series of Quick Start Guides for election managers. The EAC facilitates information exchanges among election administration stakeholders in multiple ways, from publishing state and local best practices and requests for proposals to convening meetings and hosting roundtables and summits. One particularly high-profile example of the EAC's coordination work is its participation in the federal response to reports of attempted foreign interference in the 2016 elections. For more on that work, see the " The Agency's Role in Federal Election Security Efforts " section of this report. <2.1.2.2. Voting System Guidelines, Testing, and Certification> The FEC adopted the first voluntary federal voting system standards (VSS) in 1990 and updated them in 2002. The National Association of State Election Directors (NASED), a professional organization for state election directors, established a program to accredit labs to test voting systems to the VSS and certify systems as meeting the standards. When the EAC was created, it inherited enhanced versions of the FEC's and NASED's voting system guidelines, testing, and certification responsibilities. The VSS were replaced at the EAC by Voluntary Voting System Guidelines (VVSG), which were called "guidelines" to distinguish them from the mandatory voting systems standards included among HAVA's national election administration requirements. One of the EAC's advisory bodies, the Technical Guidelines Development Committee (TGDC), is charged with drafting the VVSG. The draft guidelines are made available to the public, the agency's executive director, and the EAC's other two advisory bodies, the Board of Advisors and the Standards Board, for review and comment before they are submitted to the commissioners for a vote on adoption. The commissioners are also responsible for accrediting laboratories to test voting systems to the VVSG and revoking lab accreditations; certifying, decertifying, and recertifying systems as meeting the VVSG; and issuing advisories to help voting system manufacturers and testing labs interpret the VVSG. The National Institute of Standards and Technology (NIST), which provides the TGDC with technical support on request and whose Director chairs the TGDC, is charged with monitoring voting system testing labs and making recommendations to the commission about lab accreditations and accreditation revocations. The VVSG were first adopted in 2005 and updated in 2015. The 2005 version updated and expanded the 2002 VSS to account for technological advances and to increase security and accessibility requirements. The 2015 iteration aimed to update outdated portions of the 2005 VVSG and increase the guidelines' testability. As of May 2019, the EAC was working on a second update (VVSG 2.0). Unlike previous versions of the VVSG, which were presented as device-specific recommendations, VVSG 2.0 separates higher-level principles and guidelines from technical details. The main document, which was released for public comment on February 28, 2019, sets out function-based principles, such as auditability, and guidelines, such as capacity to support efficient audits and resilience against intentional tampering. Supplementary documents are expected to provide the technical specifications required to help voting system manufacturers to implement and voting system testing labs to test whether systems meet the higher-level principles and guidelines. States are not required by federal law to adhere to the VVSG, but some have made the guidelines mandatory under their own state laws. States may also adopt other parts of the federal voting system testing and certification program. For example, they may choose to require voting systems to be tested by a federally accredited lab. <2.1.2.3. Voluntary Guidance> HAVA set new national election administration requirements such as certain standards for voting systems and requirements to offer provisional voting, post sample ballots at the polls on Election Day, and create and maintain a computerized statewide voter registration list and charged the EAC with adopting voluntary guidance about how to meet them. This voluntary guidance is intended to offer specifics about how to implement HAVA's general mandates. The EAC's guidance on statewide voter registration lists, for example, indicates that either a "top-down" system, in which a centrally located voter registration database is connected to local terminals, or a "bottom-up" system, in which information from locally hosted databases is used to update a central list, is acceptable under the law. As indicated by the name, this guidance is voluntary; states and localities can choose whether or not to adopt it. As noted above, however, the voluntary guidance the EAC issues could be used by other agencies to inform HAVA enforcement. <2.2. Structure> The EAC includes a four-member commission, a professional staff led by an executive director and general counsel, an OIG, and three advisory bodies: the Board of Advisors, the Standards Board, and the TGDC. Its primary oversight committees are the House Committee on House Administration and the Senate Committee on Rules and Administration. The components of the EAC are described in more detail in the subsections below. The structure of the EAC was informed by at least three objectives: State and Local Partnership . The EAC's advisory bodies play a central role in the agency's functioning, and state and local officials or the professional associations that represent them serve on or appoint members to all three bodies. Expert Input . The advisory bodies also feature a wide range of experience and expertise. In addition to state and local officials, members include representatives of voters, scientific and technical specialists, and disability access experts, among others. Bipartisanship . The commission and two of the advisory bodies are designed to be politically balanced, and the commission cannot take certain actions without a three-vote majority of its members. The agency's structure has also had implications for its functioning. For example, the three-vote quorum requirement for commission action has led at times to delays and inactivity. For more on such implications, see the " Debate About the Permanence of the Agency " section of this report. <2.2.1. Commission> The commission is designed to have four members, each of whom is required to have elections experience or expertise and no more than two of whom may be affiliated with the same political party. Candidates for the commission are recommended by the majority or minority leadership of the House or Senate and appointed by the President subject to the advice and consent of the Senate. Commissioners are appointed to four-year terms on staggered two-year cycles. They may be reappointed to up to one additional term and may continue to serve on "holdover" status after their terms expire, pending appointment of a successor. Two commissioners representing different political parties are chosen by the commission membership each year to serve one-year terms as chair and vice chair. Certain actions by the commission require a three-vote majority of its members. According to an organizational management document adopted by the commission in February 2015, the commission is responsible for setting EAC policy. Among the actions that require a policymaking quorum of the EAC's commissioners are adopting voluntary guidance and the VVSG, appointing an executive director or general counsel, and promulgating regulations for the NVRA-mandated voter registration reports and federal mail voter registration form. <2.2.2. Professional Staff> The EAC has two statutory officers an executive director and a general counsel who are appointed by the commission. Both serve four-year terms and are eligible for reappointment. HAVA grants the executive director the authority to hire other professional staff (see Figure 1 for an organizational chart of the agency as of 2019). As a matter of policy, the executive director is also responsible for the day-to-day operations of the agency, including preparing policy recommendations for consideration by the commissioners, implementing adopted policies, and handling administrative affairs. The size of the EAC's staff has varied, from the four commissioners and handful of OEA transfers in FY2004 to 50 full-time equivalent staff (FTEs) in FY2010 and around 30 FTEs since FY2015. The number of FTEs the agency could maintain was capped at 22 in FY2005 and 23 in FY2006. The cap was lifted in FY2007 and, as of May 2019, had not been reinstated. <2.2.3. Advisory Bodies> HAVA created three advisory bodies for the EAC: the Board of Advisors, the Standards Board, and the TGDC. The three bodies whose members represent a variety of agencies, associations, organizations, and interests play important roles in the agency's functioning. The following subsections describe their structures and responsibilities. <2.2.3.1. The Board of Advisors and the Standards Board> The EAC's Board of Advisors and its Standards Board review voluntary guidance and the VVSG before they are presented to the commissioners for a vote on adoption. In the event of a vacancy for executive director of the EAC, each of the boards is directed by HAVA to appoint a search committee for the position, and the commission is required to consider the candidates the search committees recommend. The commission is also directed to consult with the two boards on research efforts, program goals, and long-term planning; and the National Institute of Standards and Technology (NIST) must consult with the boards on its monitoring and review of voting system testing labs. The Board of Advisors was initially assigned 37 members, but its membership dropped to 35 with the 2016 merger of two of the organizations responsible for appointing its members. Sixteen members of the board are appointed by organizations that represent state and local officials, and seven represent federal entities. Four members are science and technology professionals, who are each appointed by the majority or minority leadership of the House or Senate. The remaining eight are voter representatives, two of whom are appointed by each of the chairs and ranking members of the EAC's two primary oversight committees. The overall membership of the board is intended to be bipartisan and geographically representative. The Standards Board has 110 members. They include two representatives of each of the U.S. jurisdictions that are eligible for HAVA's formula-based payments: the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands. Each pair of representatives consists of one state election official and one local election official who are not affiliated with the same political party. The Standards Board chooses nine of its members to serve two-year terms on its Executive Board. Executive Board members may serve no more than three consecutive terms, and no more than five Executive Board members may be either state officials, local officials, or members of the same political party. <2.2.3.2. Technical Guidelines Development Committee> The 15-member TGDC is charged with helping the executive director of the EAC develop and maintain the VVSG. The Director of NIST serves as the chair of the committee and, in consultation with the commission, appoints its other 14 members. Appointees to the TGDC must include an equal number of members of the Board of Advisors, Standards Board, and Architectural and Transportation Barriers Compliance Board (Access Board); one representative of each of the American National Standards Institute (ANSI) and the Institute of Electrical and Electronics Engineers (IEEE); two NASED representatives who are chosen by the organization and neither share a political party nor serve on the Board of Advisors or Standards Board; and other individuals with voting system-related scientific or technical expertise. <2.2.4. Office of Inspector General> The EAC is required to have an OIG under HAVA and the Inspector General Act of 1978, as amended ( P.L. 95-452 ; 92 Stat. 1101). As noted in the " Administration of Funding " section of this report, the EAC's OIG oversees audits of the use of HAVA funding and refers issues identified in audits to EAC management for resolution and, if necessary, corrective action. In one instance, for example, the OIG determined that a HAVA grantee could not document its grant costs, and the EAC put the organization on a payment plan to return the funds. In another case, some of a state's spending was found to be impermissible and some was found to be inadequately documented. The state was directed to repay the former funding to the U.S. Treasury and the latter to its HAVA state election fund. The OIG also oversees internal audits and investigations of the EAC. This work includes regular audits of the EAC's finances and compliance with federal laws, such as the Federal Information Security Management Act of 2002 ( P.L. 107-347 ; 116 Stat. 2899), and reports on management challenges facing the agency. It also includes special audits and investigations in response to complaints about fraud, waste, mismanagement, or abuse at the EAC, such as a 2008 investigation of allegations of political bias in the agency's preparation of a voter fraud and intimidation report and a 2010 investigation of complaints about its work environment. <2.3. Operational Funding> The EAC has received operational funding for salaries and expenses, including for its OIG, in addition to the funding it has received for the grants and payments it administers and for transfers to NIST for HAVA-related activities like monitoring voting system testing labs. EAC appropriations have been under the jurisdiction of the Financial Services and General Government (FSGG) Subcommittees of the House and Senate Appropriations Committees since those subcommittees were created in 2007. HAVA explicitly authorized up to $10 million in operational funding for the EAC in each of FY2003, FY2004, and FY2005. Congress appropriated significantly less than the authorized ceiling in the first two fiscal years: $2 million in FY2003 ( P.L. 108-7 ) and $1.2 million, plus approximately $500,000 transferred from the OEA, in FY2004 ( P.L. 108-7 ; P.L. 108-199 ). The House Appropriations Committee also recommended significant cuts to the President's budget request for the agency from FY2012 through FY2018, although the enacted bills hewed more closely to presidential and Senate proposals. For more on those cases, see the " Setting up the Agency " section of this report and Table 2 , respectively. Congress appropriated $10.8 million for EAC salaries and expenses in the final year for which operational funding was explicitly authorized for the agency, FY2005 ( P.L. 108-447 ). Although the explicit authorization of appropriations for EAC operations only ran through FY2005, the agency has continued to receive operational funding in subsequent years pursuant to its enabling legislation (see Table 2 for details). Some Members have proposed explicitly reauthorizing appropriations for EAC operations, although none of the proposals had been enacted as of May 2019. For more on such proposals, see the " Proposals That Engage the Existing Role of the EAC " section of this report. <3. History of the EAC> It took some time for the EAC to become operational. HAVA called for members to be appointed to the agency's commission within 120 days of the act's enactment (on October 29, 2002), but the first four commissioners did not take office for more than a year. Without commissioners, the agency drew limited appropriations, and the lack of commissioners and funding led to inactivity and missed deadlines. After nearly a decade of agency operations, the 112 th Congress saw the start of efforts to limit or eliminate the EAC, as some Members of Congress questioned whether there was still a need for the agency. More recently following reports of attempted foreign interference in the 2016 elections proponents of the EAC have cited the agency's participation in federal election security efforts as new grounds to preserve it. This section traces the history of the EAC from its origins in the wake of the 2000 elections to its position after the 2016 elections. <3.1. Setting up the Agency> HAVA called for members to be appointed to the commission by February 26, 2003, but the first four commissioners did not take office until December 13, 2003. The act also explicitly authorized up to $10 million in funding for EAC operations for each of FY2003, FY2004, and FY2005. With no commissioners in place for the first of those fiscal years or the start of the second, Congress appropriated significantly less than that amount in FY2003 and FY2004 ( P.L. 108-7 ; P.L. 108-199 ). In a 2004 oversight hearing on the EAC, some Members of Congress expressed concern that the limited early funding and delays in establishing the EAC had affected the agency's ability to perform its duties. One Member referred, for example, to missed deadlines for adopting voluntary guidance. As set out in HAVA, the deadlines for the EAC to adopt voluntary guidance for meeting the act's requirements preceded the deadlines for states to start meeting them. In theory, that would have given states the chance to review the agency's guidance before they finalized action on the requirements. In practice, the commissioners took office nearly a month-and-a-half after the first guidance was due and less than three weeks before states were supposed to have started meeting requirements. Some of the deadlines for conducting statutorily mandated research had also passed before the commissioners were sworn in, and some commissioners testified that the early issues had caused them to limit the scope of their ambitions for other projects. "We are unable to do anything more than really recite anecdotal things that we have heard as opposed to giving research-based guidance to States on how to implement" certain election measures, then-Commissioner Ray Martinez said about the commission's ongoing guidance work, for example. He added, "That is a critical point. We just don't have the means at this point to do anything other than how we are going about it, which I think is a very responsible and the best possible way that we can, but it is within the context of some very severely limited funds." <3.2. Debate About the Permanence of the Agency> Some aspects of HAVA, such as the provision for reappointment of EAC commissioners to a second four-year term and the absence of a sunset provision for the agency, are consistent with a vision of the EAC as a continuing agency. Others, such as explicitly authorizing only three years of operational funding, suggest something more temporary. That has left room for debate about how long-lasting the EAC should be. Some have viewed its proper role as permanent. At various points in the HAVA debate, for example, Members of the Senate characterized the agency as permanent. Other Members of Congress have highlighted benefits of ongoing EAC responsibilities like updating the VVSG, conducting the EAVS, and providing technical and other assistance to the states. They have argued that the tasks the EAC performs are essential and could not be carried out as effectively or much more cost-effectively by other agencies. Other Members have seen the agency as temporary. As of the beginning of the 112 th Congress, the EAC had distributed much of the funding it was authorized by HAVA to administer and completed a number of the studies HAVA directed it to conduct. The National Association of Secretaries of State had recently renewed a resolution first adopted in 2005 and subsequently to be approved again in 2015 that called for the agency's elimination. The EAC's inspector general reported ongoing issues with the agency's performance management, information security, work environment, records management, and overhead expenses. Such factors were cited by some as evidence that the agency had outlived its usefulness. Bills were introduced to terminate the EAC, and the House Appropriations Committee recommended cutting or eliminating its operational funding. For more on those activities, see the " Proposals to Terminate the EAC " section of this report and Table 2 , respectively. The Senate also stopped confirming and some congressional leaders stopped recommending nominees to the EAC. The commission lost the numbers required for a policymaking quorum in December 2010 and both of its remaining members in December 2011 (see Figure 2 for details). The Senate, some of whose Members cited opposition to the ongoing existence of the agency rather than to individual nominees, did not confirm any new commissioners until December 2014. Without the numbers for a policymaking quorum, the commission could not take official action. One notable consequence was that it could not update the VVSG. The creation of the EAC was, in part, a response to the FEC's handling of the VSS. The committee report on legislation containing a precursor to the VVSG provisions of HAVA, for example, cited the FEC's failure to keep the VSS up to date. The lack of numbers for a quorum between December 2011 and the swearing-in of the newly confirmed commissioners in January 2015, however, left an almost 10-year gap between the EAC's initial adoption of the VVSG in 2005 and its first update in 2015. <3.3. The Agency's Role in Federal Election Security Efforts> The U.S. Intelligence Community reported in 2016 that foreign entities had attempted to interfere with that year's elections. The U.S. Department of Homeland Security (DHS) responded in January 2017 by designating election systems as critical infrastructure, and Congress responded in March 2018 by appropriating $380 million for payments to states that, it indicated in an accompanying explanatory statement, it intended to be used for enhancing election technology and improving election security (see Table 1 for details). The EAC has participated in both responses. First, it was charged with administering the new payments to states ( P.L. 115-141 ). Second, it helped set up and, in some cases, serves as a member of the special channels for sharing threat information and facilitating sector and subsector coordination that came with the critical infrastructure designation. Those channels include the Election Infrastructure Subsector's Government Coordinating Council and Executive Committee, Sector Coordinating Council, and Elections Infrastructure Information Sharing and Analysis Center. The EAC has also focused on election security in some of its other work. It has provided information technology management trainings for election officials, for example, and produced election security and critical infrastructure resources for voters. Supporters of a permanent role for the EAC have pointed to its participation in the federal government's election security efforts as a new reason to keep the agency. Other Members have also indicated that they see a longer-term role for the agency in light of the 2016 elections. For example, the House Appropriations Committee proposed increasing the EAC's operational funding above the President's budget request in FY2019 after seven years of recommending substantial cuts (see Table 2 for details). <4. Legislative Activity on the EAC> The EAC has continued to be a subject of legislative activity since its creation by HAVA. It has been part of the appropriations process, receiving operational funding each fiscal year. For more on appropriations activity on the EAC, see the " Operational Funding " section of this report. It has also featured in a range of authorizing legislation. Some post-HAVA authorization bills have tapped into the existing role of the agency, while others have proposed changes to that role. There have also been proposals that focused less on the nature of the role the EAC performs than on how it performs that role. <4.1. Proposals That Engage the Existing Role of the EAC> The EAC has traditionally been responsible for managing certain election administration-related funding, adopting guidance for meeting some national election administration requirements, serving as a federal source of election administration expertise, conducting election administration research, and helping connect election administration stakeholders with one another. Members looking for a federal agency to perform such tasks to administer new grants to states to conduct risk-limiting audits, for example, or to set standards for electronic poll books have often turned to the EAC in their legislative proposals. Members have also proposed explicitly reauthorizing appropriations for EAC operations either permanently or for a set number of years. Table 3 presents selected examples of such bills. <4.2. Proposals to Change the Role of the EAC> The long-standing disagreements about the federal role in election administration that played out in the HAVA debate and in discussions about filling seats on the commission have also played out in post-HAVA legislative proposals. There have been proposals both to expand the EAC's authority and to eliminate the agency entirely. There have also been proposals to eliminate or substantially reduce the agency's funding. For more on proposed funding cuts, see the " Operational Funding " and " Debate About the Permanence of the Agency " sections of this report. <4.2.1. Proposals to Terminate the EAC> Some post-HAVA legislation has proposed eliminating the EAC. By the beginning of the 112 th Congress, almost a decade had passed since HAVA was enacted. As noted in the " Debate About the Permanence of the Agency " section of this report, the EAC was nearing the end of some of the bigger projects it had been assigned by HAVA. And other agencies, such as NIST, were already playing a central role in ongoing EAC responsibilities like the federal voting system testing and certification program. There was a sense among some Members that there was no longer a need for a separate agency to fill the role the EAC had been filling. Combined with concerns about how the agency was being managed, this prompted calls to terminate it. Bills to disband the EAC and transfer duties to other agencies were introduced in each Congress from the 112 th to the 115 th . <4.2.2. Proposals to Expand the EAC's Authority> Other bills have taken the opposite tack, proposing new authority for the EAC. One such approach has been to revisit the limit on EAC rulemaking, proposing lifting it in certain cases such as to permit the agency to promulgate regulations for a proposed new federal write-in absentee ballot or striking it entirely. Another approach has been to propose giving the agency new powers to direct state or local action, such as imposing penalties for noncompliance with certain national election administration requirements or designating types of evidence that state and local officials may not use as grounds for removing individuals from the voter rolls. Table 4 presents selected examples of proposals to terminate the EAC or to expand its authority. <4.3. Proposals to Change the Way the EAC Works> Some post-HAVA legislation on the EAC has focused less on what the agency does and more on how it does it. Bills have been introduced that propose structural changes to the agency, such as adding members to its advisory bodies or creating new advisory boards or task forces, and procedural changes, such as adjusting the payment process for voting system testing, changing how the EAC submits its budget requests, and exempting the agency from certain federal requirements. Such proposals aim to address perceived weaknesses in the way the agency operates. Some proposals may be responses to perceived inefficiencies in current processes, such as delays caused by the commission's quorum requirement or the public comment requirement of the Paperwork Reduction Act of 1980 ( P.L. 96-511 ; 94 Stat. 2812), or to a perceived need for new kinds of experience or expertise at the agency. Other proposals may aim to prevent possible conflicts of interest, such as by eliminating direct payments from vendors to voting system testing labs, or to give Congress more insight into the agency's resource needs, such as by requiring it to submit budget requests to Congress at the same time as it sends them to the President or the Office of Management and Budget. Table 5 presents selected examples of these kinds of structural and procedural proposals. <5. Potential Considerations for Congress> Congress has the authority to conduct oversight of the EAC and to legislate on both the EAC in particular and election administration more generally. In addition to issues raised by previous legislative proposals, such as whether to terminate the agency, the following issues may be of interest to Members as they consider whether or how to undertake such activities or whether to maintain the status quo: Providing for New Expertise . The EAC was structured to ensure input from a range of election administration stakeholders, from voters to technical specialists to accessibility experts. However, new developments, such as new election security threats, might call for experience or expertise not currently represented at the agency. If Congress seeks to assure the EAC access to such experience or expertise, how might it do so? Some possible options include directing the EAC to consult with specialist organizations or agencies, funding specialized professional staff or creating specialized departments within the agency, adding members to one or more of the advisory bodies, and establishing new advisory bodies or task forces. Are there reasons to prefer some of these options over others? For example, the EAC's advisory bodies play a particularly central role in the functioning of the agency. Are there reasons to want certain stakeholders to have or not to have such direct access to EAC actions and decisionmaking? Assigning (and Reassigning) Responsibilities . The EAC is the only federal agency dedicated to election administration as a whole. As such, it is often taken to be the obvious choice to assume federal election administration responsibilities. As noted above, however, some Members have suggested that some of the duties currently in the EAC's portfolio might be better performed by other agencies or in other ways. Are there election administration-related issues about which parts of the federal government other than the EAC might have relevant expertise? For example, the EAC has traditionally been the primary federal repository of election administration best practices, but DHS also provides resources related to election security. Questions might arise, with respect to certain elections-related duties, about which agency or combination of agencies is best positioned to perform them. More broadly, how might the EAC's and other agencies' comparative advantages guide assignment of new federal election administration responsibilities or reassignment of existing responsibilities? Assessing and Meeting Resource Needs . The EAC has been described variously as both overfunded and underfunded. Developments like the emergence of new election security threats have prompted calls for additional resources for agency operations and for distribution to states via the EAC. How do current levels of funding match up to the agency's and its grantees' resource needs? Are there tools, such as concurrent budget submission or research into appropriate funding levels for HAVA payments, that might help Congress better assess those needs? Are there resources other than funding, such as security clearances for commissioners or professional staff, that the EAC needs and does not currently have? Considering the Role of the Quorum Requirement . The quorum requirement for official action by the commission has led at times to delays and inactivity, such as deferred updates to the VVSG. Does Congress seek to consider ways to reduce the likelihood or frequency of such delays? If so, would it prefer an approach that eliminated the need for a quorum in certain cases, such as by exempting certain actions from the quorum requirement, or one that reduced the likelihood of the commission being without a quorum? Options for the latter approach might include structural changes to the commission, such as adding or removing a seat, or procedural changes to the way commissioners are seated, such as revising the roles of the President and congressional leadership in the candidate selection process. Scheduling EAC Action . HAVA envisioned that the EAC would adopt voluntary guidance about how to meet the act's national election administration requirements before the states actually had to meet them. The idea was to give states the opportunity to review the federal guidance before finalizing their actions on the requirements. Subsequent legislative proposals have similarly called for new national election administration requirements and EAC guidance about how to meet them. How might deadlines be set in such proposals to give the EAC time to research and adopt meaningful guidance and the states time to make best use of it? Are there additional conditions that might need to be set or support that might need to be provided to ensure that the deadlines can be met?

The U.S. Election Assistance Commission (EAC) is an independent federal agency charged with helping improve the administration of federal elections. It was established by the Help America Vote Act of 2002 (HAVA; P.L. 107-252 ; 116 Stat. 1666; 52 U.S.C. §§20901-21145) and includes a four-member commission, a professional staff, an inspector general, and three advisory bodies. The EAC—and the legislation that created it—marked a shift in the federal approach to election administration. Congress had set requirements for the conduct of elections before HAVA, but HAVA was the first federal election administration legislation also to back its requirements with substantial federal support. In addition to setting new types of requirements, it provided federal funding to help states meet those requirements and facilitate other improvements to election administration and created a dedicated federal agency—the EAC—to manage election administration funding and collect and share election administration information. There was broad support in Congress during the HAVA debate for the idea of providing some assistance along these lines. Both at the time and since, however, opinions have differed about exactly what kind of assistance to provide and for how long. Members have disagreed about whether the EAC should be temporary or permanent, for example, and about what—if any—regulatory authority it should have. Changes in the election administration landscape and in Congress have brought different aspects of the debate to the forefront at various times. The 112 th Congress saw the start of legislative efforts in the House to limit or eliminate the EAC, for example, while the agency's participation in the federal response to attempted foreign interference in the 2016 elections has been cited as new grounds to extend or expand it. These shifts have been reflected in some cases in legislative activity related to the agency. For example, bills have been introduced to grant the EAC additional authority as well as to eliminate it. Other legislative proposals would leave the fundamental role of the EAC largely as it is but add new versions of its existing responsibilities or change the way it performs those responsibilities. Such proposals would direct the EAC to administer new types of grants, for example, or add new members to its advisory bodies.

crs_R45807

crs_R45807_0

<1. Overview> India is a federal parliamentary republic and the world's most populous democracy, with more than 1.3 billion citizens. In the spring of 2019 the country held elections to seat its 17 th Lok Sabha (House of the People), the 545-seat lower chamber of parliament and locus of Indian political power. Results were announced on May 23, with the incumbent Bharatiya Janata Party (BJP, or Indian Peoples Party) winning a sweeping and repeat victory under Prime Minister Narendra Modi. Having in 2014 become the first party to attain a parliamentary majority (52%) in 30 years, the BJP was able to expand that majority to 56% in 2019, becoming the first party to win consecutive majorities since 1971. The dynastic Indian National Congress (hereinafter, Congress Party) which had dominated the country's politics from 1947 to 1977 and led a national coalition government from 2004 to 2014 again failed to win the 10% minimum of seats required to officially lead the Lok Sabha opposition. Powerful regional and caste-based parties likewise posed no meaningful obstacles to the latest "BJP wave." The Administration of President Donald Trump is seeking to expand upon a "strategic partnership" with India formally launched in 2005. Progress is ongoing, most notably in the area of defense and security cooperation. The U.S. Congress has been supportive of efforts to expand and deepen the bilateral partnership, formally designating India as a "Major Defense Partner" of the United States in 2016. Areas of engagement are broad and include an array of economic and security initiatives. Recent bilateral frictions have arisen over trade practices, religious freedom, and India's relations with Russia and Iran. A State Department release congratulated Prime Minister Modi and his ruling National Democratic Alliance (NDA) coalition for their "decisive victory," and it applauded the Indian people for turning out in historic numbers and the Indian government for "exceptional execution of this massive undertaking." It went on to declare that The United States and India enjoy a strong strategic partnership that stands on a foundation of shared values, extensive people-to-people ties, and a commitment to a secure and prosperous Indo-Pacific region. We look forward to working with the newly elected government on a range of important issues . We are confident that the strong and upward trajectory of our partnership will continue. The Chairman of the House Foreign Affairs Committee also issued a laudatory statement and, in June, several Members of Congress penned an open letter to President Trump to "highlight the continuing strategic importance of the U.S.-India relationship." Secretary of State Michael Pompeo met with Modi and other top Indian officials in New Delhi in June to express enthusiasm about America's "natural strategic partner." President Trump has yet to visit India, and high-level engagement occurs under the rubric of a "2+2 Ministerial Dialogue" inaugurated in September 2018. Nevertheless, many independent observers express concern about emergent frictions and indications that the partnership is becoming dissonant. A recent substantive overview of the relationship concluded that it "would benefit from some realism about its limitations." Officials in governments across the Indo-Pacific region expect the election results to bring general continuity in Indian policies. Given the instability and uncertainty that can accompany coalition governance, many likely regarded Prime Minister Modi's convincing reelection with some relief. Modi's internationalist orientation can be seen in his energetic pursuit of diplomacy with numerous major powers and regional governments. This includes though continued development of the U.S.-India strategic partnership, which is widely seen to be rooted in an array of mutually-held values and increasingly convergent visions for global order, lately conceived by Washington as a "shared vision for a free, open, and rules-based Indo-Pacific region." On the economic front, Modi's reputation as a reformer and liberalizer has met with mixed reviews. Five years in office realized no major land or labor reforms or meaningful efforts to address bad bank debt that were widely anticipated. The BJP leader's assumed electoral vulnerabilities relatively lackluster economic expansion (averaging below 7% annually), joblessness, rising prices, and a widely panned 2016 "demonetization" initiative did not end up degrading his impressive political support. Most market-oriented analysts are hopeful, but not entirely confident, that a "Modi 2.0" government will redouble efforts to implement the kinds of economic reforms sought by the U.S. and other governments and business interests. <2. Election and Outcome> India possesses a robust and competitive multiparty democratic system. Yet its politics also are described as "beset by corruption" by Freedom House, a think tank that ranks world countries on levels of political and civil liberties. In 2017, India had fallen 10 places on the Economic Intelligence Unit Democracy Index to 42 nd in the world, due in part to "a rise of vigilantism and violence against minority communities, particularly Muslims, as well as other dissenting voices." For 2018, India was ranked 41 st worldwide, but its overall score was unchanged, and it maintained its designation as a "flawed democracy" (as did the United States). The scale of India's national election presents daunting logistical challenges, and voting was completed in seven phases. As with each iteration, the event was history's largest democratic exercise: About 880 million people one-ninth of the world's population were eligible to cast ballots in the country's 29 states and 7 Union Territories, including some 84 million first-time voters. More than 600 million Indians participated, for a turnout rate of 67.4%. More than 8,400 candidates and a record 669 parties vied for the Lok Sabha's 543 elected seats; 36 parties won at least one seat, as did 4 independent candidates. In addition to being history's largest democratic undertaking, India's 2019 national election was also history's most expensive: participating parties and candidates spent an estimated $8.7 billion on the campaign, more than double the 2014 spending. The BJP reportedly received nearly three-quarters of all political donations. Such massive outlays raise concerns among many about fairness: there is little transparency in India's campaign finance system, the Modi government had lifted caps on corporate donations, and the Election Commission's oversight is criticized for ineffectiveness. In the lead-up to the 2019 voting, analysts debated whether the BJP's 2014 sweep was an anomaly in a decades-long era of coalition politics in New Delhi, or marked the beginning of a new period of single-party domination as was seen under the Congress Party prior to 1989. The BJP's unexpected and even stronger showing in 2019 suggests that India's national political stage has undergone qualitative change back toward a hegemonic national party. The BJP won by securing 303 seats with more than 37% of the aggregate vote, significantly exceeding the 272 seats required for majority status, and increasing the party's seat total from 282 in the previous Lok Sabha. Their closest competitors, the Congress Party, took 52 seats with 19.5% of the national vote, a net gain of 8 seats (see Table 1 ). According to Election Commission of India data, the BJP won a majority of votes cast in 10 states, as well as in the Delhi National Capital Territory. It also took 49.6% of the votes cast in Uttar Pradesh (UP), India's most populous state. No other party was able to garner a majority of votes in any single state. While the BJP's core support in India's western and north-central "Hindi belt" states remained strong, and the party succeeded in expanding its appeal in the country's east, it was shut out completely in seven states, including the major southern states of Andhra Pradesh and Tamil Nadu, where regional parties prevailed. In a sign of the Congress Party's historic collapse nationally, the party failed to win a single seat in 14 states, and nearly half of the seats the party did win (23) came from India's two southernmost states, Kerala and Tamil Nadu (see Figure 1 , "Map of Indian States"). The newly seated Lok Sabha is, on average, younger, wealthier, and better educated than its predecessor, and the number of female members has increased to 15% (see Text Box ). Upper-caste Hindus and political families continue to enjoy disproportionately high representation, and India's large and relatively marginalized Muslim minority community of about 190 million (about 14% of the total) suffers from a declining voice in Parliament: Muslim representation in the Lok Sabha peaked at 10% in 1980 and lingered at about 6% until dropping to 4% in 2014. A net gain of three Muslim members in 2019 only slightly raised that percentage. India's parliamentarians are also notable for the numbers who face formal criminal allegations. <2.1. Notable Changes in Union Ministers> The "Modi 2.0" cabinet includes some significant changes to the leadership of key Indian ministries. For the first time ever, a career diplomat, Subramanyam Jaishankar, is now External Affairs Minister, replacing BJP stalwart Sushma Swaraj. Jaishankar, until recently Foreign Secretary, is a former ambassador to both the United States and China, and is widely known in Washington as proponent and facilitator of closer U.S.-India ties. Another key new figure in the Modi cabinet is Home Minister Amit Shah, who succeeds senior BJP official Rajnath Singh, himself now holding the Defense Ministry portfolio. Also under new leadership is the Finance Ministry, where former Defense Minister Nirmala Sitharaman has become India's first female finance minister. Additionally, National Security Advisor Ajit Doval, a former intelligence chief in office since 2014 and considered a hardliner on Pakistan, was elevated to cabinet rank in 2019. <2.2. Other Parties and Figures> <2.2.1. The Indian National Congress> India's Congress Party had hoped in 2019 to reverse its general decline after 2014. It had led a United Progressive Alliance coalition government under Prime Minister Manmohan Singh from 2004 to 2014. Party president Rahul Gandhi son of former Prime Minister Rajiv Gandhi and grandson of Indira Gandhi had entered politics with apparent reluctance, winning the "family seat" in Amethi, UP, in 2004. Ten years later, Rahul oversaw Congress's worst electoral performance in history when the party took only 44 Lok Sabha seats, down from 206 previously. Gandhi's lackluster reputation took a new shine after the party's unexpectedly strong showing in the 2017 Gujarat state elections, and December 2018 Congress victories in three north-central states were a huge morale boost for the party, heartening potential Congress allies. During the 2019 campaign, Gandhi impressed many observers with what were described as creative policy proposals and a newly assured public speaking style. Still, going into the 2019 campaign, Congress had no significant presence in any of India's six most populous states and had shown an inability to recover in states where it had faltered. The party continued to struggle to both consolidate old alliances and to establish new ones. As put by one official from a BJP-allied regional party, the opposition had "neither a program, nor a leader, nor a narrative." Gandhi suffered an embarrassing upset loss in his family's Amethi district, and the party's 2019 defeat has led to new leadership crises. <2.2.2. Regional and Caste-based Parties> The BJP and Congress are India's only truly national parties they together won roughly half of all votes cast in 2009 and 2014, and their combined share rose to 57% in 2019 (attributable to a 6-point boost for the BJP). The influence of regional and caste-based parties although blunted by the BJP's outright majority victories remains a crucial variable in Indian politics. Such parties now hold about one-third of Lok Sabha seats, but many of the most influential met with significant reversals in 2019. By early 2019, Narendra Modi had become the primary, if not sole target of his many electoral opponents, but no single challenger emerged. Still, the opposition's zeal to dislodge the incumbents had them ready to make unusual alliances, especially in Uttar Pradesh, where the effort failed conclusively. Other powerful regional parties experienced setbacks, most notably West Bengal's Trinamool Congress, led by Chief Minister Mamata Banerjee, which barely survived a surprise BJP surge in the key eastern state, winning 22 of 42 Lok Sabha seats to the BJP's 18 (up from 2 in 2014). Only in Odisha was a major regional party in this case the Biju Janata Dal of popular Chief Minister Naveen Patnaik able to withstand the BJP onslaught. <3. Implications for U.S. Interests> Because the BJP campaign was run largely on Narendra Modi's personal popularity rather than an explicit policy platform, it is unclear how Modi will use his mandate going forward. Since 2014, the Modi government arguably has realized some foreign policy successes compatible with U.S. interests: sustaining the partnership with the United States, solidifying the partnership with Japan, strengthening ties with Israel while making new outreach to key Persian Gulf states such as Saudi Arabia and the UAE, and articulating a vision for the Indo-Pacific region that tracks well with that of the United States. Modi has successfully projected India as the world's next big economic opportunity after China, but critics argue that he has mostly squandered an opportunity to move India into great power status, with a lack of strategic vision harming India's position vis- -vis major powers and smaller neighbors, alike. Given India's myriad domestic problems, and still-limited capacity to project power, some American observers are skeptical about its near-term potential to play the role sought for it by the U.S. Congress and successive Administrations. The Modi/BJP victory has empowered the Indian leader domestically and this may provide Modi and India new opportunities on the global stage. Given Modi's reputation for favoring a "muscular" foreign policy, he may now be more willing to resist Chinese assertiveness and move closer to the United States. Yet troubles with the United States also could loom: Many Indian strategic thinkers say their country's national interests are well served by engaging not just with the United States but also with Russia and Iran, which could limit to New Delhi's willingness to abide what some Indian observers describe as "America's short-term impulses." While New Delhi generally welcomes the U.S. "free and open Indo-Pacific" (FOIP) strategy, Indian leaders continue to demur from confronting China. The United States and India also seek to cooperate on energy, climate change, and space issues, and have sometimes clashing views on immigration. <3.1. Bilateral Trade and Economic Relations26> Trade and economic ties, an important and growing part of bilateral relations, have faced recent challenges. Prime Minister Modi's strong electoral mandate suggests India's mixed economic performance did not hurt his standing with the public, and the results may embolden the BJP to press ahead with its reform agenda with greater vigor (see Text Box , below). The Trump Administration takes issue with the U.S. trade deficit with India and "unfair" trade practices that restrict U.S. exports to and investment in India. Some U.S. policymakers and businesses have been disappointed that, during Modi's first term, India did not move forward with market-opening reforms as they had hoped, and instead increased tariffs and trade restrictions. For example, recent tariff hikes by New Delhi on cell phones and other products have elevated long-standing U.S. concerns about India's tariff regime, and President Trump has called India the "tariff king." Other U.S. concerns include inadequate intellectual property protection and enforcement, and restrictive new rules on e-commerce and localization of certain financial data flows which affect major U.S. companies, such as Amazon, Walmart-owned Flipkart, Visa, and MasterCard. The United States and India also often have opposing stances on multilateral trade issues in the World Trade Organization. The outlook for bilateral trade relations is unclear. Both sides have taken decisive actions on simmering issues. President Trump terminated India's eligibility for the Generalized System of Preferences (GSP), effective on June 5, 2019, after determining that "India has not assured the United States that India will provide equitable and reasonable access to its markets." This decision followed a U.S. investigation into India's market access practices and petitions by U.S. dairy and medical technology industries. In 2018, India was the largest beneficiary of GSP, with over one-tenth ($6.3 billion) of U.S. goods imports from India entering duty-free under the program. India, which called the eligibility termination "unfortunate," announced soon after that it would impose higher retaliatory tariffs on 28 U.S. products, including almonds, apples, and walnuts, in response to U.S. Section 232 (national-security-based) steel and aluminum tariffs. During 2018, India repeatedly delayed applying retaliatory tariffs, in hopes of negotiating a resolution of bilateral trade issues. In late June, President Trump called India's 2019 imposition of retaliatory tariffs "unacceptable" and said they "must be withdrawn." At the June 2019 G-20 Summit, the two sides appeared to strike a more conciliatory tone. President Trump said a "very big" trade deal would be coming with India. According to India's foreign secretary, the "trade ministers of both countries would meet at an early date and would try to sort out these issues." Yet lack of progress in recent months reportedly is prompting the Administration to consider launching a Section 301 investigation of India's trade practices this would make India the focus of the next major, in-depth investigation of unfair trade practices after China. On one hand, Section 301 could be a new way to address long-standing issues of U.S. concern with respect to India. On the other hand, it could raise the risk of protracted bilateral trade tensions and tit-for-tat escalation of tariffs across many economic sectors. <3.2. Defense and Security Relations> Continuity in India's leadership may lead to continued rapid development of U.S.-India security cooperation, with U.S. leaders hoping that increased Indian capabilities will provide greater net security regionally and worldwide (in spite of some U.S. concerns about New Delhi's ties with Moscow). President Obama and Congress recognized India as a "major defense partner" (MDP) in 2016, a unique designation allowing India to receive license-free access to dual-use American technologies. The MDP designation was created in large part to carry over a presumption of license approvals into the new U.S. administration. It was linked to India's joining the four major multilateral export control regimes to become eligible to receive licensing for the most advanced defense systems the United States exports. In mid-2018, India received Strategic Trade Authorization Tier-1 status, putting it on par with NATO allies, and the two countries concluded a long-sought Communications, Compatibility, and Security Agreement (COMCASA), a military-to-military "enabling agreement." The two governments also seek expanded collaboration via the Defense Technology and Trade Initiative, launched in 2012, which aims to facilitate greater defense trade and technology sharing. India participates in formalized "quadrilateral consultations" with the United States, Japan, and Australia while downplaying prospects that the "Quad" may become a security-related architecture. Defense trade is a leading facet of the bilateral partnership. India is now a major purchaser in the global arms market and a lucrative potential customer for U.S. companies. The two nations have signed defense contracts worth about $15 billion since 2008, up from $500 million in all previous years combined. Washington seeks to identify sales that can proceed under the technology-sharing and co-production model sought by New Delhi while also urging reform in India's defense offsets policy. Since 2002, the United States and India have held a series of increasingly complex combined bilateral exercises involving all military services India now conducts more exercises and personnel exchanges with the United States than with any other country. A first-ever tri-service exercise is set for later in 2019. Bilateral intelligence and counterterrorism cooperation has accelerated over the past decade. In addition to intelligence sharing, homeland security cooperation has included growing engagement between respective law enforcement agencies, especially in the areas of mutual legal assistance and extradition, and on cyberterrorism and cybersecurity. Terrorist groups operating from Pakistani territory are of special interest. India broadly endorses the FOIP strategy pursued by Washington, and it benefits from the higher visibility this strategy provides for India's global role and for its immediate region. Yet India has not fully relinquished the "nonalignment" posture it maintained for most of the Cold War (more recently pursuing "strategic autonomy" or a "pragmatic and outcome-oriented foreign policy" ). Thus, Modi has articulated a vision of a free, open, and inclusive Indo-Pacific, and India remains wary of joining any nascent or potential security architectures that could antagonize Beijing. <3.3. India's Other Foreign Relations> India-China . Modi's win likely means a continuation of New Delhi's multilateralist/multipolar approach to international politics in Asia, as well as efforts to resist Chinese "assertiveness" in South Asia. India's relations with China have been fraught for decades, with signs of increasing enmity in recent years. Areas of contention include major border and territorial disputes, China's role as Pakistan's primary international benefactor, the presence in India of the Dalai Lama and a self-described Tibetan "government," and China's growing presence in the Indian Ocean region, which many Indians view as an encroachment in their neighborhood. New Delhi is ever watchful for signs that Beijing seeks to "contain" Indian influence both regionally and globally. China's BRI with "flagship" projects in Pakistan is taken by many in India (and elsewhere) as an expression of Beijing's hegemonic intentions. India-Pakistan . The United States has long sought to assist in reducing India-Pakistan conflict and its impact on developments in Afghanistan. A surge of Indian nationalism grew out of a February 2019 international crisis involving Pakistan. Coming just weeks before voting began in India, the confrontation was widely seen to have boosted Modi's electoral prospects. In contrast to his 2014 inauguration, when Pakistan's then-prime minister was an invited guest, Modi in 2019 omitted Pakistani Prime Minister Imran Khan from swearing-in festivities. It is unclear if the Indian leader will seek to use his political capital to launch a new peace initiative with Islamabad or will continue pursuing punitive policies that aim to isolate Pakistan internationally. Some analysts contend that Modi now has sufficient standing to change tack. Others, however, suggest that his reelection "will be projected as a vindication of his belligerent policy toward Pakistan." India-Russia . India maintained close ties with Russia throughout much of the Cold War and continues to rely on Moscow for the bulk of its defense imports. With the 2017 enactment of the Countering America's Adversaries Through Sanctions Act ( CAATSA, P.L. 115-44 ) in U.S. law , India's continued major arms purchases from Russia most prominently a current multi-billion-dollar deal to purchase the Russian-made S-400 air defense system could trigger U.S. sanctions. Although Congress subsequently provided for a national security waiver of these sanctions, the Administration has consistently counseled India to cancel the purchase and consider U.S.-supplied alternatives , while New Delhi insists that it will go forward in pursuit of its own national interest , a position possibly hardened with the BJP mandate . India-Iran . India has historically friendly relations with Iran, a country that lately has supplied about 30% of India's energy imports. It also opposes any potential acquisition of nuclear weapons by Iran and supports the Joint Comprehensive Plan of Action. Historically averse to unilateral (non-U.N.) sanctions, New Delhi until recently enjoyed exemption from U.S. efforts targeting Iran's energy sector. In April 2019, the Trump Administration ended such exemptions, and New Delhi has issued conflicting statements about its cessation of Iranian oil purchases while informing Washington that such cessation "comes at a cost." Continued tensions in the Persian Gulf and/or a longer-term boycott of Iranian oil could be disruptive to the Indian economy; Modi's strong mandate could place limits on his willingness to abide such disruption. Other Notable Relations . The Trump Administration's South Asia strategy has included calls for greater Indian involvement in Afghanistan, even as such engagement vexes Pakistan (New Delhi has committed about $3 billion to Afghan reconstruction to date). Islamabad is wary of the Indian presence in Afghanistan and accuses New Delhi of supporting anti-Pakistan groups there, a dynamic that can in turn affect U.S. efforts to sustain Pakistan's help in facilitating Afghanistan reconciliation. Many analysts expect India-Afghanistan ties to grow stronger with Modi's reelection, and New Delhi appears wary of any precipitous U.S. withdrawal from Afghanistan. Meanwhile, India's deepening "strategic partnership" with Japan is a major aspect of New Delhi's broader "Act East" policy and a key axis in the greater FOIP strategies broadly pursued by all three governments participating in a newly established U.S.-Japan-India Trilateral Dialogue. Prime Minister Modi appears to have a convivial personal relationship with his Japanese counterpart and bilateral ties are seen as likely to strengthen going forward. <3.4. Human Rights Issues> While Prime Minister Modi and his party have long sought to emphasize development and good governance, the 2019 election cycle revolved around nationalism and other emotive issues, with many observers arguing that Hindu majoritarianism is a threat both to India's religious minorities and to the country's syncretic traditions. According to the U.S. State Department and independent watchdogs, India is the site of numerous human rights violations, many of them serious and some perpetrated, or at least tolerated, by state actors. Many observers are concerned about the impact of growing religious bigotry and Hindu nationalism on human rights. The BJP is an openly Hindu nationalist party and Prime Minister Modi is a self-avowed Hindu nationalist. In 2005, Modi was denied a U.S. visa over concerns about his role in government during lethal anti-Muslim violence in 2002. Modi hit conciliatory notes in a national address three days after the 2019 election results were announced, vowing to seek the trust of minority groups and to work for the good of all Indians. Human rights nongovernmental organizations and social service groups have seen their Indian operations constrained in recent years, and observers are watching closely for signs that the Modi/BJP mandate will lead to renewed efforts toward Hindu nationalist goals. Some of these including laws preventing religious conversions and cow slaughter continue to cause sparks in U.S.-India relations, including explicit BJP criticism of the U.S. government for alleged "bias" against Modi. Future moves by the Modi government on other "Hindutva" policies could increase national divisions and lead to further international opprobrium.

India, a federal republic and the world's most populous democracy, held elections to seat a new lower house of parliament in April and May of 2019. Estimates suggest that more than two-thirds of the country's nearly 900 million eligible voters participated. The 545-seat Lok Sabha (People's House) is seated every five years, and the results saw a return to power of the Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi, who was chief minister of the west Indian state of Gujarat from 2001 to 2014. Modi's party won decisively—it now holds 56% of Lok Sabha seats and Modi became the first Indian leader to win consecutive majorities since Indira Gandhi in 1971. The United States and India have been pursuing an expansive strategic partnership since 2005. The Trump Administration and many in the U.S. Congress welcomed Modi's return to power for another five-year term. Successive U.S. Presidents have deemed India's growing power and influence a boon to U.S. interests in Asia and globally, not least in the context of balancing against China's increasing assertiveness. India is often called a preeminent actor in the Trump Administration's strategy for a "free and open Indo-Pacific." Yet there are potential stumbling blocks to continued development of the partnership. In 2019, differences over trade have become more prominent, and India's long-standing (and mostly commercial) ties to Russia and Iran may run afoul of U.S. sanctions laws. Additionally, India maintains a wariness of U.S. engagement with Pakistan and intentions in Afghanistan, with Islamabad presently facilitating a U.S.-Taliban dialogue and India counseling against a precipitous U.S. withdrawal from Afghanistan. Prime Minister Modi's return to power promises broad continuity, even with some notable changes to the federal cabinet. By many accounts, Modi's record as an economic reformer and liberalizer is mixed, and his reputation as a nationalist "watchman" has not always translated into effective foreign policy, according to some analysts. It is unclear if Modi will use his renewed domestic political mandate to pursue more assertiveness internationally, possibly in ways that challenge U.S. preferences. Still, most analysts contend that Modi and the BJP have been and will continue to be more open to aligning with U.S. regional strategy and more energetic in pursuing U.S.-favored economic reforms than would have been any alternative Indian leadership. The BJP is a Hindu nationalist party, born in 1980 of a larger social movement, and Narendra Modi is a self-avowed Hindu nationalist (India is roughly 79% Hindu and 14% Muslim). The 2019 Modi-BJP campaign was widely criticized for divisiveness, and nationalist fervor following a February India-Pakistan crisis may have benefitted the BJP at the polls. India's minority communities and the country's civil society are widely reported to be under increasing threats emanating from Hindu majoritarian policies and sentiment. These threats can take violent and repressive forms, at times with the involvement of Indian officials or political figures, as reported by the U.S. State Department and independent human rights watchdogs, and as criticized by some Members of Congress. This report reviews the recent Indian election process and results, the country's national political stage, and possible implications for U.S. interests in the areas of bilateral economic and trade relations, defense and security ties, India's other foreign relations, and human rights concerns.

gao_GAO-20-119

gao_GAO-20-119_0

<1. Background> <1.1. Federal Evidence-Building> According to OMB guidance, evidence can consist of quantitative or qualitative information and may be derived from a variety of sources. Those sources include foundational fact-finding (e.g., aggregate indicators, exploratory studies, descriptive statistics, and other research), performance measurement, policy analysis, and program evaluation. OMB recommends that agencies build a portfolio of high-quality, credible sources of evidence rather than a single source to support decision- making. Further, since different sources of evidence have varying degrees of credibility, the use of evidence in decision-making requires an understanding of what conclusions can and cannot be drawn from the information. Evidence-building can be viewed as a cycle of activities that can help decision makers obtain the evidence they need to address policy questions or identify the questions they should address. As illustrated in figure 1, the following four activities comprise the evidence-building cycle: assessing existing evidence to determine its sufficiency and if additional evidence is needed to further understand results and inform decision-making; prioritizing among the identified needs which new evidence to generate, when, and how; generating new evidence, by collecting, analyzing, and synthesizing sources of data and research results; and using that evidence to support learning and decision-making processes. Our prior work highlights long-standing challenges agencies continue to face in generating some sources of evidence developing performance measures for federal programs and conducting evaluations of their programs. Our work also identified variations in the use of evidence for decision-making by agency leaders and managers. <1.2. Fragmentation of Federal Evidence-Building Activities> Fragmentation refers to those circumstances in which more than one federal agency (or organization within an agency) is involved in the same activity and opportunities exist to improve implementation of that activity. The Commission on Evidence-Based Policymaking found that evidence- building activities are fragmented in the federal government. For example, it found that within agencies, many organizations have evidence-building responsibilities, including statistical agencies and programs, evaluation and policy research offices, performance management offices, policy analysis offices, and program administrators. In addition, the commission highlighted challenges the federal government faces in fully addressing cross-cutting research and policy questions when evidence-building activities span multiple agencies. The commission s final report noted that this fragmentation (see sidebar) can lead to duplication of effort or missed opportunities for collaboration. The commission s report stated that when activities are fragmented within an agency or across the federal government, they should be coordinated to improve the capacity to fully address a specific research or policy question. Similarly, our past work highlights the importance of coordination and collaboration to reduce or better manage fragmentation, overlap, and duplication. We found that uncoordinated or poorly coordinated efforts can waste scarce funds and limit their effectiveness. Even when efforts are coordinated, enhancements to those efforts can lead to improvements in effectiveness. As noted earlier, our work also identified leading practices that can help agencies enhance and sustain their implementation of collaborative efforts. <1.3. Efforts to Improve Federal Evidence-Building> Congress and OMB have taken actions to strengthen federal evidence- building activities and improve coordination of those activities during the last decade. Figure 2 provides a timeline of selected actions. Appendix II provides additional detail regarding the selected actions. <2. Selected Agencies Have Taken Actions that Align with Congressional and OMB Direction to Strengthen Evidence- Building> <2.1. Selected Agencies Implemented Evidence- Based Approaches in Response to Congressional Direction> Tiered evidence grants seek to incorporate evidence of effectiveness into grant making. Federal agencies establish tiers of grant funding based on the level of evidence grantees provide on their approaches to deliver social, educational, health, or other services. Grantees generally are required to evaluate their service models as a condition for the receipt of grant funds. spent on home visiting models with sufficient evidence of their effectiveness. To support this requirement, the program incorporated activities across each element of the evidence-building cycle. For example, through its Home Visiting Evidence of Effectiveness review, HHS annually assesses existing evidence about the effectiveness of new and existing home visiting models to identify those that meet criteria for inclusion in the program. The most recent review, in October 2018, identified 20 models that met HHS s criteria for an evidence-based early childhood home visiting model. Of those, HHS determined that 18 models were eligible for MIECHV grantees to select for implementation. In addition, based on statutory requirements, officials prioritized the generation of new evidence to assess the program s results in certain areas, including child health and development, and child maltreatment. The program generated this evidence through program evaluations assessing both program implementation and results. For example, an impact evaluation of four home visiting models published in January 2019 found that these models may reduce household aggression. Because child abuse has been shown to be associated with negative long-term outcomes, reducing household aggression could benefit children as they grow older. In another example of the use of tiered evidence, the Department of Labor s (DOL) Workforce Innovation Fund, established in 2011, intends to generate long-term improvements in the performance of the public workforce system. The fund established and funded projects in three different tiers: 1. those that proposed new and untested approaches, with little or no evidence of effectiveness; 2. those with promising approaches that were tested and existing evidence suggested could be effective; and 3. those that adapted proven approaches, supported by ample and robust evidence. To further build DOL s base of evidence on the effectiveness of evidence- based approaches, it required grantees to plan for third-party evaluations of their programs. During the first grant round in 2012, the Workforce Innovation Fund awarded 26 grants, including one for approximately $1.4 million in tier one funding to the Pasco-Hernando Workforce Board in Florida. This grant supported making one-stop services, such as employment workshops and workforce program orientations, more accessible to job seekers by providing online access. In addition, the grant supported offering virtual case management and business services through a call-in Employment Support Center to individuals who found it difficult to access these services in person. According to a 2016 case study of this project conducted by DOL, users of the online one-stop accessed services nearly twice as much during this 3-year grant period when compared to the prior 3-year period. In addition, the case study found there was a 53 percent increase in job placements during this 3-year grant period. <2.2. Selected Agencies Have Taken Evidence-Building Actions that Align with OMB Direction for Cross- Agency Priority Goal Implementation> The selected agencies evidence-building activities also aligned with implementation actions outlined by OMB for selected cross-agency priority (CAP) goals. As required by the GPRA Modernization Act of 2010, at least every 4 years, OMB is to coordinate with other agencies to develop and implement CAP goals. Two current CAP goals, established in March 2018 in the President s Management Agenda, place a particular focus on evidence-building activities. Leveraging data as a strategic asset. OMB and agency efforts to implement this goal included developing a long-term, enterprise-wide federal data strategy to better govern and leverage the federal government s data. Published in June 2019, this strategy established 10 principles and 40 practices intended to leverage the value of federal data assets while protecting security, privacy, and confidentiality. Officials at each of the five selected agencies described actions taken by their agencies that aligned with the federal data strategy s principles and practices. Federal Evidence Clearinghouses According to the Office of Management and Budget (OMB), evidence or what works" clearinghouses are repositories that synthesize evaluation findings in ways that make research more useful to decision makers, researchers, and service organizations. These repositories provide tools for understanding what service models are ready for replication or expansion and disseminating results. grade. Officials told us in September 2018 that preliminary evidence suggested the model could help close the literacy gap for the target population. In addition, officials told us they intended to disseminate the final results to stakeholders to help inform their decision-making about the approach. To do so, Education officials developed a communication plan to share this evidence via the OELA website, its Facebook account, the National Clearinghouse for English Language Acquisition (see sidebar), and a listserv of more than 10,000 recipients, among other means. As of September 2019, this study had not been completed. Therefore Education has not implemented its communication plan. Results-oriented accountability for grants. One of the four strategies for this CAP goal focuses on the achievement of grant program goals and objectives. In October 2019, OMB staff told us that the strategy aims to hold grant recipients accountable for promising performance practices that support the achievement of those goals and objectives while streamlining compliance requirements for those grant programs that demonstrate results. According to the September 2019 quarterly update for this goal, initial efforts for this strategy involved developing performance management processes to help grant-making entities improve their ability to monitor, and ultimately improve, the performance of grantees. The update stated that OMB and the Chief Financial Officers Council completed efforts in fiscal year 2019 that included soliciting information from agencies on their current grants performance management practices and identifying emerging and innovative performance practices. Subsequent efforts for this goal involved hosting monthly grants practitioner sessions (called Innovation Exchange Sessions) to share new ideas and approaches to grants management, which began in May 2019. The September 2019 session focused on data- driven decision-making for grants. We identified actions that each of the selected agencies took, aligned with the intent of this CAP goal, to better assess the performance of their grant programs. Officials at each agency told us that they took steps to further incorporate evidence-building requirements into their grant programs. They told us they did this based in part on their experiences in implementing the evidence-based approaches, such as the tiered evidence grants described earlier in this report. For example, officials at the Corporation for National and Community Service (CNCS) described their incorporation of evidence-building requirements into the agency s AmeriCorps State and National program. Agency officials told us that grantees have been required to evaluate their programs since 2005. In recent years, CNCS embedded the evidence generated by these evaluations into their grant-making activities. For instance, its grant announcement for 2019 stated that AmeriCorps State and National applications would be scored, in part, based on the reported empirical evidence supporting the applicants proposed projects. In addition, the announcement required applicants proposing projects in the education focus area to choose one of 13 models that had previously demonstrated effectiveness. According to CNCS officials, this was based on evidence generated in previous projects supported by AmeriCorps State and National grants or CNCS s Social Innovation Fund. <2.3. Selected Agencies Component Organizations and Programs Developed Learning Agendas Aligned with OMB Guidance> Although the Evidence Act s requirements apply to the agency-wide level, OMB s guidance strongly encourages lower-level organizations within agencies to develop and implement their own learning agendas (see side bar). We found instances where officials developed learning agendas at lower organizational levels within several of the selected agencies prior to the issuance of the June 2019 OMB guidance. These learning agendas covered individual component agencies, bureaus, offices, and programs. Learning Agendas According to Office of Management and Budget (OMB) guidance for implementing the Evidence Act, a learning agenda is to define and prioritize relevant questions and identify strategies for building evidence to answer them. In developing a learning agenda, an agency should involve key leaders and stakeholders, to help (1) meet their evidence needs for decision-making and (2) coordinate evidence-building activities across the agency. For example, from September 2016 to June 2017, the U.S. Agency for International Development (USAID) conducted a landscape analysis of learning agendas, in which officials identified 15 documented, office-, bureau-, or initiative-wide learning agenda processes at different stages of development within USAID. This included an office-wide learning agenda developed by the Center of Excellence on Democracy, Human Rights, and Governance (DRG). According to USAID, DRG seeks to elevate and integrate democracy, human rights, and governance issues within USAID s overall development portfolio. According to DRG s 2017 learning agenda, its development was informed by ongoing DRG research and evaluation efforts, and consultations with a range of internal stakeholders, including USAID staff from other bureaus and missions. The learning agenda included a set of 11 questions across five thematic areas, as illustrated in figure 3. DRG outlined steps it planned to take throughout 2017 to address each question, such as assessing existing evidence, identifying any gaps, and conducting new research and evaluation activities to fill those gaps. For example, DRG commissioned a study to help answer a question about the effects of human rights awareness campaigns. The study, published in September 2017, synthesized the results of a literature review to identify (1) characteristics of effective campaigns, and (2) typical causes of unintended negative consequences of human rights awareness campaigns and ways to avoid them. <3. Selected Agencies Established Processes to Coordinate Fragmented Evidence-Building Activities, but Processes to Prioritize New Evidence Did Not Always Reflect Leading Practices> <3.1. Selected Agencies Established Processes to Coordinate Fragmented Evidence-Building Activities> We found that evidence-building activities are fragmented within each of the five selected agencies and occur at multiple levels and entities within and across the agencies. As illustrated in figure 4, this fragmented approach to evidence-building includes separate component agencies or offices with responsibilities for building specific sources of evidence, such as performance information, evaluations, and statistical data. For example, at the Department of Labor (DOL), different organizations at the department level are responsible for certain evidence-building activities. This includes the Bureau of Labor Statistics (collecting statistical data), Office of the Chief Evaluation Officer (conducting program evaluations) and Performance Management Center (developing performance information). In addition, some evidence-building activities are dispersed throughout agencies and occur at multiple organizational levels (see figure 5). For example, at the Department of Health and Human Services (HHS), evidence-building activities are generally managed at the component agency level (referred to as divisions). The divisions manage their own offices and programs, which include evidence-building responsibilities. For instance, within the Administration for Children and Families (ACF), an operating division within HHS the Office of Planning, Research, and Evaluation is responsible for ACF-related evidence-building activities. These activities include program evaluations, research syntheses, descriptive and exploratory studies, data analyses, and performance management activities. Officials at the selected agencies said that evidence-building activities are fragmented and occur at lower levels for a variety of reasons. First, this approach helps ensure that decision makers at different levels within the organization have the evidence they need to inform decisions. Second, officials stated that many times these evidence-building activities have been undertaken in response to direction from Congress for example, through provisions in laws or related committee reports directed at a component agency or program. Third, agency officials said they have undertaken these activities based on OMB direction, such as memorandums or budget guidance. This has encouraged agencies to take actions at different organizational levels. However, each of the selected agencies had established processes for coordinating their evidence-building activities. For example, officials at each agency established one or more processes intended to regularly coordinate the assessment and prioritization of evidence needs across the agency, as described later in this report. Agency officials also described other efforts to coordinate evidence- building activities, but these efforts were either ad hoc (i.e., they did not occur regularly) or not comprehensive in nature (i.e., they did not focus broadly across different sources of evidence or did not cover the entire agency). For example, in August 2017, the Corporation for National and Community Service (CNCS) published the results of an assessment of existing evidence results from research and evaluation activities conducted between fiscal years 2015 and 2016 in its State of the Evidence report. However, CNCS has not conducted a similar analysis or issued a similar report since that time. Moreover, the assessment did not cover all of the agency s activities. While the report included evidence related to its programs, CNCS did not assess evidence related to other activities, such as internal management functions including information technology or human capital management. We identified instances in which effective coordination helped selected agencies better manage their fragmented evidence-building activities. For example, the U.S. Agency for International Development (USAID) developed an agency-wide Private Sector Engagement learning agenda, published in May 2019. This learning agenda is intended to guide and coordinate crosscutting efforts to develop evidence of effective approaches for engaging the private sector to help partner countries meet development goals and ultimately move beyond the need for foreign assistance. This learning agenda includes establishing performance measures to monitor progress on engagement with the private sector, and further evaluate the results of its activities. The coordinated evidence- building approach established by this learning agenda can help USAID better focus limited resources on building new evidence in this crosscutting area for use across the agency, thereby reducing any unwarranted overlap or duplication of effort. Effectively-coordinated processes can help agencies ensure they are comprehensively and systematically looking across their organizations to leverage their existing evidence and focus limited resources on building new evidence. They can also help agencies manage their fragmented evidence-building activities to improve effectiveness and reduce the potential for any unwarranted overlapping or duplicative efforts. Such processes can help ensure agencies are well positioned to meet forthcoming Evidence Act requirements related to assessing and prioritizing evidence across the entire agency. <3.2. Selected Agencies Use Similar Approaches to Assess Evidence Needs That Reflect Leading Practices for Collaboration> <3.2.1. Selected Agencies Established Similar Approaches to Assess Existing Evidence> Each of the five selected agencies established a similar approach for assessing existing evidence and identifying gaps or other evidence needs across the agency. Agency officials said that these approaches responded to OMB guidance for agencies to conduct annual strategic reviews. Specifically, in its guidance for implementing the GPRA Modernization Act of 2010, OMB established an annual process in which each agency is to review progress in achieving strategic objectives goals that reflect the outcome or impact the agency is seeking to achieve established in its strategic plan. According to OMB s guidance, as a part of those reviews, the assessment of existing evidence should inform agency decisions about where to focus limited available resources to build new evidence to fulfill any identified needs. OMB s guidance encourages agencies to leverage existing decision- making processes, such as the budget development process, to implement these reviews. Each of the five selected agencies conducts strategic reviews and associated evidence assessments in similar ways, through a variety of existing decision-making processes: CNCS and HHS use their budget formulation processes; Education incorporates strategic objective reviews into existing quarterly reviews of progress in meeting goals; DOL uses a stand-alone strategic review process; and USAID leverages an existing review process conducted at lower levels (i.e., its missions). Officials at selected agencies identified instances in which they used their agency strategic reviews to (1) assess a variety of existing sources of evidence a portfolio of evidence to determine progress toward a strategic objective, and (2) identify the need for additional evidence, as illustrated by the following examples. Assessing a portfolio of evidence. DOL s guidance for its strategic review process directs its component agencies to assess a variety of evidence sources to determine results and risks or challenges that may affect future outcomes. This includes performance information, program evaluations, risk assessments, and findings from reports by us and the department s Office of Inspector General (OIG), among other sources. In its fiscal year 2018 Annual Performance Report, DOL identified different sources of evidence to demonstrate the effectiveness of some of its programs, and challenges related to others, for its strategic objective to create customer-focused workforce solutions for American workers. For example, it cited statistics and performance data to provide context and some quantitative results related to this objective. It also shared the results from several program evaluations, including a 2017 impact evaluation that suggested DOL s Adult and Dislocated Worker programs were effective at increasing participants earnings and employment. DOL s performance report also highlighted that its OIG identified aspects of several programs that support this objective as Top Management and Performance Challenges for Fiscal Year 2018. One of those challenges related to maintaining the integrity of Foreign Labor Certification Programs. DOL s performance report stated that balancing the quality review of applications with employers needs for timely processing has been a challenge for years. Based on the totality of evidence, DOL identified this strategic objective as a focus area for improvement for fiscal year 2018. Identifying evidence needs. In its Strategic Plan for Fiscal Years 2018-22, Education established a strategic objective to increase high- quality education options and empower students and parents to choose an option that meets their needs. To implement this strategic objective, the strategic plan states that the department will encourage state and local education agencies to expand school choice by administering programs that increase education options, such as the Charter Schools Program (CSP). One of the performance measures Education uses to assess the program and progress on this strategic objective is the aggregate number of charter schools that are open, operating, and supported by CSP. Education officials told us that they identified limitations with this measure through the department s strategic review process, and the need for additional evidence. As an aggregate count, the measure did not allow the department to accurately identify underlying changes in individual charter schools served by the program or the results and activities of CSP. For example, Education officials set a goal to increase the number of CSP-supported charter schools by 150 for the 2017-2018 school year. However, Education reported a decrease of four charter schools for this time period. To better understand CSP s performance, Education officials told us they needed additional evidence to assess other aspects of the program s performance. Education officials identified additional sources of evidence within the department that they could use to understand the program s performance. These included statistics from Education s National Center for Education Statistics (NCES) on the total number of charter schools that opened and closed over the same time period, and annual performance reports from grantees. According to information on Performance.gov, these additional sources of information showed that, in the 2017-2018 school year, 134 new charter schools supported by CSP opened, and 101 charter schools expanded under a CSP grant. These actions illustrate an instance of effective coordination of evidence- building activities to manage fragmentation and reduce the risk of duplication. Education officials looked across the agency and leveraged existing evidence generated by different organizational units CSP and NCES to better understand program performance. Had this not occurred, CSP might have collected data that duplicated what was already generated by NCES. <3.2.2. Selected Agencies Processes to Assess Existing Evidence Reflect Leading Practices for Collaboration> Agencies assessments of the sufficiency of their existing evidence conducted via processes for their strategic reviews reflect the four leading collaboration practices. Although OMB s guidance provides flexibility in how the reviews are conducted, it also sets specific expectations for who should lead the process, who should participate in the process, and the types of roles and responsibilities for these individuals. Table 1 provides illustrative examples of the selected agencies evidence assessment processes that reflect leading practices for collaboration. <3.3. Some Agency Processes to Prioritize New Evidence to Generate Reflect Leading Practices for Collaboration> <3.3.1. Selected Agencies Established a Range of Processes to Coordinate Evidence Prioritization> Unlike the similar processes they use for assessing existing evidence and identifying needs, the five selected agencies use a variety of processes to prioritize new evidence to generate. Agency officials told us that much of this prioritization takes place at lower organizational levels. For example, at HHS, the department s component agencies 11 operating divisions and 14 staff divisions generally lead their own evidence-building processes, through which they prioritize which evidence to generate. Officials from HHS s Office of the Assistant Secretary for Planning and Evaluation told us that this decentralized model is due to the size and complexity of the department, and that it respects the unique needs of the divisions. According to these officials, a 2017 review by this office found variation in the processes that the components use for this purpose. HHS officials said that most components prioritize their evidence needs through their budget formulation processes. Officials at each of the selected agencies identified one or more processes intended to coordinate the prioritization of evidence needs across the entire organization. Table 2 describes these processes. We identified instances in which officials used these processes to more effectively focus limited resources to build new evidence through coordination across the agency. For example, CNCS officials described an instance in which agency leadership used the agency s budget formulation process to prioritize evidence-building activities to address knowledge gaps about the AmeriCorps National Civilian Community Corps (NCCC) program. According to CNCS officials, through the agency s evidence assessment processes, they found that the agency did not have evidence to fully assess the impact of NCCC programs on members and communities. Moreover, existing evidence showed that NCCC had experienced a decline in the number of qualified applicants and the retention of its members since 2014. To better understand the performance and results of this program, CNCS officials told us that agency leadership approved funding in fiscal years 2018 and 2019 for NCCC to undertake a multi-year impact evaluation. This evaluation, which is being conducted in conjunction with CNCS s Office of Research and Evaluation and an independent contractor, is expected to examine the member retention, leadership development, and community impact of NCCC programming. Officials at each of the selected agencies told us that they were considering how best to meet Evidence Act requirements to take a systematic and coordinated approach to prioritizing evidence-building activities, such as through learning agendas. For example, as described in table 3, Education created a new body in March 2019 the Evidence Leadership Group to coordinate its evidence-building activities. Education officials told us that in establishing this new group, they took into consideration our leading practices for collaboration. <3.3.2. Evidence Prioritization Processes at Four Agencies Reflect Leading Practices for Collaboration to Varying Extents> As described in table 3, all five selected agencies identified one or more leadership models for their evidence prioritization processes. We found that all five of the selected agencies involved at least some relevant participants in their evidence prioritization processes, as summarized in table 4. Our past work related to evidence-building activities identified a wide range of relevant participants to involve. Within agencies, these participants include agency leadership, program staff, and those with functional management responsibilities including budget, human capital, and information technology. External stakeholders include Congress, other federal agencies, state and local governments, grant recipients, and regulated entities. The five selected agencies include a range of relevant internal participants, although the evidence prioritization process at CNCS does not always include key internal stakeholders. CNCS s budget hearings involve discussions about prioritizing evidence, but primarily focus on budget formulation decisions. Therefore, agency leaders and budget officials are consistently involved in the hearings, but others, such as the Director of the Office of Research and Evaluation, are not. Involving all key internal stakeholders helps ensure that those involved in a collaborative effort can commit resources, make decisions, and share their knowledge, skills, and abilities. This can also help ensure that the evidence that will be subsequently generated will be useful to decision makers across the organization. Education and USAID established expectations to seek input from external stakeholders in their evidence prioritization processes. Education s charter for its recently-established Evidence Leadership Group states that the group is to engage a wide array of external stakeholders in its work. Similarly, for the evidence prioritization activities that occur through USAID s program cycle and learning agendas, related guidance sets expectations to involve or obtain the perspectives of external stakeholders. As USAID developed its Self-Reliance learning agenda, it sought input from external stakeholders including officials from other federal agencies, organizations that implement USAID programs, and experts in international development, among others. Three of the selected agencies, however, do not always have mechanisms in place to involve, or consider the evidence needs of, a range of external stakeholders in their evidence prioritization processes. Officials at CNCS, HHS, and DOL told us that, because they consider their prioritization processes to cover internal management purposes and decisions, including external stakeholders is not appropriate. Officials at these three agencies described ways in which they sought input on evidence needs from some stakeholders, such as from interactions with grant recipients and external researchers. However, these agencies have not developed an approach to collect and consider input on evidence needs from all relevant stakeholders to inform their prioritization processes. Our past work highlights the importance of engaging key external stakeholders, especially Congress, to better understand and meet their evidence needs. Engaging external stakeholders can also create a shared understanding of competing demands facing the agency and ensure that their efforts and resources are targeted at the highest priorities across the agency. Moreover, through this engagement, agencies may find that external stakeholders have, or are aware of, existing evidence that helps the agency meet its needs or provide a fuller picture of performance. Involving a full range of relevant stakeholders in the process for prioritizing new evidence to generate would help each of the selected agencies ensure it is meeting the evidence needs of decision makers within and external to the agency. Four of the selected agencies Education, HHS, DOL, and USAID fully define roles and responsibilities for those involved in their evidence prioritization processes, while the process at CNCS partially reflects this practice, as described in table 5. CNCS officials said that the primary focus of the agency s process is budget formulation. Therefore, roles and responsibilities are generally related to that purpose instead of the evidence prioritization activities that also take place during that process. Clearly defining roles and responsibilities can ensure all participants are aware of and agree upon (1) who will have what responsibilities, (2) how they will organize their joint and individual evidence-building efforts, and (3) how they will make decisions. As described in table 6, Education and USAID s processes reflect this practice, while those at CNCS, DOL, and HHS reflect it in part. Officials at CNCS, HHS, and DOL gave different reasons for why their written guidance and agreements related to evidence prioritization processes do not fully reflect this leading practice. CNCS s and HHS s written guidance primarily focuses on their budget formulation processes, since this is where their evidence prioritization activities take place. Thus, these guidance documents contain information on leadership, participants, and roles and responsibilities related to budget formulation activities, but not all relevant details related to evidence prioritization. Officials at DOL stated that they do not want to take a one-size-fits- all approach to developing learning agendas within the department. They told us they had not developed specific written guidance for that process to provide flexibility to component agencies to develop processes that work best for them in developing their learning agendas. As we have previously found, documenting a clear and compelling rationale to work together and how that work will be done and by whom is a key factor in successful collaboration. By incorporating this leading practice into their existing guidance, CNCS, HHS, and DOL would have greater assurance that they are effectively collaborating to prioritize evidence needs. <4. Conclusions> Decision makers need evidence to help them address pressing governance challenges faced by the federal government. Agencies undertake a range of efforts at different organizational levels to build evidence to meet their own decision-making needs, as well as those of others, such as Congress. However, these evidence-building activities are fragmented within agencies. Through a more comprehensive and coordinated framework, Evidence Act implementation provides opportunities to improve the effectiveness of federal evidence-building activities. The five selected agencies have taken steps to improve the coordination of evidence-building activities across their organizations, with Education s and USAID s evidence-building activities reflecting the leading practices for collaboration. CNCS, DOL, and HHS would have greater assurance that they are comprehensively considering evidence needs across their individual organizations by fully incorporating leading collaboration practices into their agency-wide efforts to prioritize new evidence to generate. These actions could also help ensure these agencies are better managing fragmented evidence-building activities and more effectively focusing their limited resources to generate evidence to meet decision makers needs. In addition, improved coordination could reduce the potential for any unwarranted overlap and duplication in their efforts, and better position the agencies to meet the Evidence Act s requirements and related implementation actions outlined in OMB s guidance. <5. Recommendations for Executive Action> We are making a total of seven recommendations, including three to CNCS, two to HHS, and two to DOL. Specifically: The Chief Executive Officer of CNCS should develop an approach to ensure that all relevant participants are involved in the agency-wide process for prioritizing evidence needs. (Recommendation 1) The Chief Executive Officer of CNCS should define roles and responsibilities for all relevant participants involved in the agency-wide process for prioritizing evidence needs. (Recommendation 2) The Chief Executive Officer of CNCS should revise written guidance for the agency-wide process for prioritizing evidence needs to ensure it identifies all relevant participants and their respective roles and responsibilities. (Recommendation 3) The Secretary of Health and Human Services should develop an approach to ensure that all relevant participants are involved in the department-wide process for prioritizing evidence needs. (Recommendation 4) The Secretary of Health and Human Services should revise written guidance for the department-wide process for prioritizing evidence needs to ensure it identifies all relevant participants and their respective roles and responsibilities. (Recommendation 5) The Secretary of Labor should develop an approach to ensure that all relevant participants are involved in the department-wide process for prioritizing evidence needs. (Recommendation 6) The Secretary of Labor should revise written guidance for the department-wide process for prioritizing evidence needs to ensure it identifies all relevant participants and their respective roles and responsibilities. (Recommendation 7) <6. Agency Comments and Our Evaluation> We provided a draft of this product for comment to OMB and the five selected agencies CNCS, Education, HHS, DOL, and USAID. CNCS, Education, HHS, DOL and USAID provided written comments, which are summarized below and reproduced in appendixes V, VI, VII, VIII, and IX, respectively. In addition, CNCS, Education, HHS, USAID, and OMB provided technical comments, which we incorporated as appropriate. In its written comments, CNCS neither agreed nor disagreed with the three recommendations we directed to it. The agency stated that it believes the planned actions included in its Strategic Evidence Plan, published in September 2019, address those recommendations. The plan includes a goal to strengthen how the agency prioritizes and uses evidence, and outlines various actions intended to achieve that goal. The plan does not include sufficient details to enable us to assess the extent to which its implementation would fully address the issues identified in our review and covered by our recommendations. Education stated in its written comments that the department is committed to maximizing the performance of its programs, and it views building, using, and disseminating evidence as critical to those efforts. Education also outlined planned and proposed actions that it believes would further its evidence-building activities. In its written comments, HHS did not concur with the two recommendations we directed to it. In response to both recommendations, HHS stated that the department had developed an approach for including all relevant participants in its process for prioritizing evidence needs. However, according to an HHS official in November 2019, HHS had not yet finalized the approach, and therefore was unable to provide any additional information about it. Thus we could not assess the extent to which HHS s stated actions would address our recommendations. DOL agreed with the two recommendations we directed to it, and in its written comments described an action it plans to take to address them. We will monitor DOL s action, which we believe would likely address our recommendations, if effectively implemented. USAID, in its written comments, reiterated the agency s commitment to a comprehensive and integrated approach for its evidence-building activities. In the draft of this report we sent to USAID for its review in October 2019, we included a recommendation to USAID that it ensure that all relevant participants are involved in agency-wide processes for prioritizing evidence needs. USAID subsequently provided documentation that it had not provided previously that showed the agency had taken various steps to seek the input of a range of external stakeholders. We determined that these actions addressed our draft recommendation. Thus, we removed the draft recommendation from our report. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget, the Chief Executive Officer of the Corporation for National and Community Service, the Secretary of the Department of Education, the Secretary of the Department of Health and Human Services, the Secretary of the Department of Labor, the Administrator of the U.S. Agency for International Development, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or sagerm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix X. Appendix I: Objectives, Scope, and Methodology This report responds to a request that we review the coordination of federal evidence-building activities. This report (1) describes activities selected agencies have taken that align with congressional and Office of Management and Budget (OMB) direction to strengthen evidence- building, and (2) examines the extent to which selected agencies processes for assessing and prioritizing evidence needs reflect leading practices for collaboration. To address both objectives, we analyzed agency documents about federal evidence-building activities and interviewed relevant staff at OMB and officials at five selected agencies: the Departments of Education, Health and Human Services, and Labor; the Corporation for National and Community Service; and the U.S. Agency for International Development. We selected these five agencies based on their experiences incorporating evidence-building activities into program design and implementation. These experiences include evidence-based approaches such as pay for success projects, performance partnerships, and tiered evidence grants. At the time we made our selection, these five agencies had designed or implemented evidence-based approaches to a greater extent than other agencies we identified. The agencies we selected vary in size as measured by budget authority and employees and organizational structure (see table 7). For the first objective, we reviewed information from the five selected agencies and identified examples of evidence-building activities within each agency since 2010. We then determined if these examples illustrated actions that aligned with evidence-building statutory requirements and directions from OMB including guidance, memorandums, and activities outlined in the President s Management Agenda. To do so, we reviewed relevant laws and OMB guidance. For the second objective, we evaluated processes each selected agency had established to take a coordinated approach to assessing and prioritizing evidence needs across the agency. We compared these processes to four selected leading practices for collaboration identified in our prior work (see table 8). We selected these four collaboration practices because our past work on evidence-building activities, such as analysis of performance information and program evaluations, has similarly identified them as key approaches related to evidence-building. Table 9 illustrates this alignment for selected past reports. We conducted this performance audit from April 2018 to December 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Selected Actions Taken by Congress and OMB to Strengthen Federal Evidence-Building Activities and Improve Coordination The Office of Management and Budget (OMB) has issued several memorandums and other key policy documents that encourage agencies to take actions to strengthen their capacity to build evidence. For example, in a July 2013 memorandum, OMB encouraged agencies to identify proposals for building evidence in their budget requests. Such proposals could be used to improve existing programs or inform decisions about new programs. The OMB guidance highlighted several evidence- based approaches for agencies to consider, including pay for success, performance partnerships, and tiered evidence grants, described further in the text box below. Examples of Evidence-Based Program Approaches Identified in Office of Management and Budget (OMB) Guidance Pay for success. Pay for success is a contracting mechanism under which final payment is contingent upon achieving specific outcomes. The government specifies performance outcomes in pay for success contracts and generally includes a requirement that contractors assess program outcomes or impacts through an independent evaluation. The evaluators may also generate and analyze performance data to inform program management and improvement during implementation. Performance partnerships. Performance partnerships allow federal agencies to provide grant recipients flexibility in how they use funding across two or more programs along with additional flexibilities. In exchange, the recipient commits to improve and assess progress toward agreed-upon outcomes by developing and using evidence. Tiered evidence grants. Tiered evidence grants seek to incorporate evidence of effectiveness into grant making. Federal agencies establish tiers of grant funding based on the level of evidence grantees provide on their approaches to deliver social, educational, health, or other services. The grant generally requires grantees to evaluate their service models as a condition for the receipt of grant funds. In addition, Congress passed laws aimed at strengthening and better coordinating evidence-building activities, which OMB reinforced through related guidance to implement those laws. GPRA Modernization Act (GPRAMA). GPRAMA established a framework aimed at taking a more crosscutting and integrated approach to improve government performance. Requirements included in that framework, such as cross-agency priority (CAP) goals and strategic reviews, were intended to strengthen evidence-building activities and improve coordination. CAP goals. At least every 4 years, OMB is to coordinate with other agencies to develop and implement CAP goals. These goals are to address issues in a limited number of policy areas requiring action across multiple agencies, or management improvements that are needed across the government. The President s Management Agenda, released in March 2018, established the third set of CAP goals since GPRAMA was enacted. Implementation of each CAP goal can involve evidence-building activities; however, two goals in particular are to focus on them, as described further in the text box. Cross-Agency Priority (CAP) Goals Focused on Evidence-Building Leveraging data as a strategic asset. The President s Management Agenda highlights several root causes for the challenges the federal government faces. One root cause is that agencies do not consistently apply data-driven decision-making practices. This agenda states that agencies need to make smarter use of data and evidence to orient decisions and accountability around service and results. The administration established this CAP goal to improve the use of data in decision- making to increase the federal government s effectiveness. Results-oriented accountability for grants. According to the June 2019 update for this goal, the federal government uses grants to invest approximately $700 billion each year in mission-critical needs. However, the report states that grant managers report spending 40 percent of their time using antiquated processes to monitor compliance instead of analyzing data to improve results. The administration established this CAP goal to maximize the value of grant funding by applying a risk- based, data-driven framework that balances compliance requirements with demonstrating successful results. A strategic objective is a type of goal that reflects the outcome or impact the agency is seeking to achieve. The agency is to identify the strategies the portfolio of organizations, regulations, tax expenditures, programs, policies, and other activities within and external to the agency that contribute to each strategic objective. As a set, the agency s strategic objectives are to encompass all of its activities. Strategic reviews. In its guidance for implementing GPRAMA, OMB established an annual process in which each agency is to review progress in achieving the strategic objectives established in its strategic plans (see sidebar). To do so, OMB s guidance directs agencies to assess existing sources of evidence to understand the progress made toward each strategic objective and identify where additional evidence is needed to determine effectiveness. In addition, OMB s guidance states that another purpose of strategic reviews is to strengthen collaboration. It notes that the reviews can do so by identifying and addressing crosscutting challenges and fragmentation. The Foreign Aid Transparency and Accountability Act of 2016 (FATAA). Among other things, FATAA requires the President to establish guidelines for establishing measurable goals, performance metrics, and monitoring and evaluation plans for federal foreign assistance. In January 2018, OMB issued guidelines for federal agencies that administer foreign assistance which includes the Departments of Labor and Health and Human Services, and the U.S. Agency for International Development. Among other things, the guidelines provide direction on strengthening evidence-building activities, such as establishing annual monitoring and evaluation plans, and disseminating findings and lessons learned. Agencies were directed to align their monitoring and evaluation policies with the guidelines by January 2019. The Foundations for Evidence-Based Policymaking Act of 2018 (Evidence Act). In June and July 2019, OMB released its initial guidance on implementing the Evidence Act. Among other things, this guidance provides direction to agencies on developing evidence-building plans, also known as learning agendas (see text box below). According to OMB, these plans will serve as the driving force for other evidence- building activities required by the Evidence Act. Prior to the enactment of the Foundations for Evidence-Based Policymaking Act (Evidence Act), both the Office of Management and Budget (OMB) and the Commission on Evidence-Based Policymaking highlighted and recommended the use of learning agendas by federal agencies to strengthen and coordinate their evidence- building activities. According to OMB s guidance for implementing the Evidence Act, a learning agenda is to define and prioritize relevant questions and identify strategies for building evidence to answer them. A federal agency developing a learning agenda should involve key leaders and stakeholders to help (1) meet their evidence needs for decision-making, and (2) coordinate evidence-building activities across an agency. OMB s guidance stated that the Evidence Act emphasizes the need for collaboration and coordination of agency staff and activities to achieve successful implementation. The guidance provides time frames for a phased approach to implement several Evidence Act requirements. For example, although learning agendas are not required to be published until February 2022, OMB s guidance includes several interim milestones and deliverables to build toward the final published version. 5 U.S.C. 306, 312. OMB embedded portions of Evidence Act implementation guidance in its 2019 update to Cir. No. A-11. In it, OMB noted that many of the Evidence Act s provisions support the Federal Performance Framework for Improving Program and Service Delivery (Part 6 of the Circular), which provides guidance for implementing GPRAMA and other related laws and policies. OMB Cir. No. A-11, at 200.2 (2019). Appendix III: Examples of Evidence-Building Approaches at Five Selected Agencies <7. Evidence-Building Approaches Used by Selected Agencies> We identified 20 examples of the five selected agencies incorporating evidence-based approaches in their program design and implementation. Table 10 describes each of these examples. <8. Selected Agencies Use of Evidence- Based Approaches Aligned with OMB Direction> OMB s July 2013 memorandum stated that agencies use of evidence- based approaches could help strengthen agencies abilities to improve program performance by using experimentation and innovation to test new approaches for service delivery. In addition, it noted that these approaches can be used to (1) generate new knowledge, and (2) apply existing evidence about approaches found to be effective. Generate new knowledge. OMB guidance notes that new knowledge can be used to improve existing programs or inform decisions about new ones. For example, Education designed the First in the World program to generate evidence about effective strategies for improving college completion rates for underrepresented, underprepared, or low-income students. Program officials told us that, prior to the issuance of the 2014 grant solicitation for the program s first year, Education had limited evidence of effective approaches. As noted in the solicitation, Education sought to expand its evidence base about effective approaches through the first round of grant awards. Using a tiered evidence approach, the program awarded grants to institutions of higher education to implement and evaluate the effectiveness of approaches, such as coaching or advisement services, intended to increase the number of these students who complete postsecondary education. The first round awarded grant funds to projects in a single evidence tier to test and evaluate the effectiveness of approaches. Education officials told us that after the program s first year, they conducted a literature review to identify approaches that were supported by some evidence of their effectiveness. Using this evidence, Education created a second tier for the 2015 grant awards, for which grantees could receive increased funding by implementing one of the program designs identified in the literature review. Officials told us they intend to publish the final results of First in the World grant recipient evaluations in Education s What Works Clearinghouse. Evaluation results will not be available until after the completion of the grant periods, the first of which ended in September 2019. However, Education officials told us that the evidence they have generated to date has improved their understanding of services that could potentially help at-risk students complete post-secondary education. Apply effective approaches. To meet increased demand for services in a constrained resource environment, OMB s guidance encourages agencies to allocate resources to programs and approaches backed by strong evidence of effectiveness. In addition, OMB s guidance encourages agencies to scale up effective program approaches by expanding them to a larger or different group of recipients. For example, USAID created the Development Innovation Ventures program in 2010 as a tiered evidence grant competition to create a portfolio of innovative approaches to reducing global poverty. This program provides funding in three tiers, with greater funding provided to those approaches with greater evidence of effectiveness. These three tiers (which USAID referred to as stages) were as follows: 1. Proof of concept. The program provided smaller grants to test the viability of an innovative approach; 2. Testing and positioning for scale. Grantees determined, through rigorous assessments, whether their approach could achieve greater results and also be implemented successfully at a larger scale; and 3. Scaling. The program funded the expanded implementation of an effective approach within one country or replicated that approach in another country. For example, from 2013 to 2015, the Development Innovation Ventures program awarded stage two funding to a nonprofit organization in India. The organization designed a methodology to help primary school students improve reading skills by grouping students according to skill level, instead of age or grade and tailoring lessons to their learning level. Evidence generated through randomized control trials showed that the approach was effective. Based on that evidence, in 2017, the program awarded stage three funding to replicate the approach in Zambia. Appendix IV: Additional Examples of Selected Agencies Coordination of Evidence-Building Activities Earlier in this report, we discussed agency-wide evidence assessment and prioritization processes established by the five selected agencies. In addition to those processes, officials described other actions they have taken to coordinate fragmented evidence-building activities across organizational levels (see table 11). Some of these actions were ad hoc (i.e., they did not occur regularly) or not comprehensive in nature (i.e., they did not focus broadly across different sources of evidence or did not cover the entire agency). Appendix V: Comments from the Corporation for National and Community Service Appendix VI: Comments from the Department of Education Appendix VII: Comments from the Department of Health and Human Services Appendix VIII: Comments from the Department of Labor Appendix IX: Comments from the U.S. Agency for International Development Appendix X: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the above contact, Benjamin T. Licht (Assistant Director), Daniel Webb (Analyst-in-Charge), Amanda Prichard, Kelly Turner, and Brian Wanlass made significant contributions to this report. Valerie Caracelli, Jacqueline Chapin, Ann Czapiewski, Steven Putansu, and Andrew J. Stephens also made key contributions.

Why GAO Did This Study Congress and OMB have taken steps intended to strengthen federal evidence-building activities. In September 2017, a federal commission found that agencies had uneven capacity to support, or did not fully coordinate, a full range of evidence-building activities. GAO was asked to examine the coordination of federal evidence-building activities. This report (1) describes selected agencies' actions that align with direction from Congress and OMB to strengthen evidence-building activities and (2) examines the extent to which selected agencies' processes for coordinating those activities reflect leading practices for collaboration. To address these objectives, GAO reviewed documents and interviewed officials about federal evidence-building activities at five selected agencies. GAO selected these agencies based on the greater number of experiences they had in comparison to other agencies incorporating these activities into the design and implementation of certain programs. GAO assessed their coordination of these activities against four leading practices for collaboration identified in GAO's past work. What GAO Found Federal decision makers need evidence about whether federal programs and activities achieve intended results as they set priorities and consider how to make progress toward national objectives. The five agencies GAO reviewed took actions that align with direction from Congress and the Office of Management and Budget (OMB) to strengthen their evidence-building activities. The five agencies are: the Departments of Education, Health and Human Services (HHS), and Labor (DOL); the Corporation for National and Community Service (CNCS); and the U.S. Agency for International Development. For example, based on a statutory requirement, a majority of grant funding for HHS's Maternal, Infant, and Early Childhood Home Visiting program is to be used for home visiting models with sufficient evidence of their effectiveness. Consistent with this requirement, HHS annually assesses evidence, such as the results of program evaluations, to identify effective home visiting models that grantees can implement. Evidence-building can involve assessing existing evidence, identifying any new evidence needs, and prioritizing when to fulfill those needs. These efforts are fragmented within each of the five agencies—that is, each has multiple organizational units with responsibilities for evidence-building. For example, DOL has established separate units responsible for different sources of evidence—evaluations, performance information, and statistics. Effective collaboration can help agencies manage this fragmentation, and lead to improved results. ; (3) clarifying roles and responsibilities ; and (4) documenting that information in written guidance . However, agencies' processes for determining which new evidence to generate, when, and how (i.e., prioritizing new evidence) did not always reflect the leading practices (see figure). What GAO Recommends GAO is making a total of seven recommendations to DOL, CNCS, and HHS to better reflect leading collaboration practices in their evidence prioritization processes. DOL concurred, CNCS neither agreed nor disagreed, and HHS did not concur with the recommendations. CNCS and HHS stated, but did not provide information to support, that each had already taken relevant actions. GAO continues to believe the recommendations are valid, as discussed in the report.

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<1. Background> The purpose of STEP is to help small businesses develop their export capacity. Congress initially established STEP in the Small Business Jobs Act of 2010, and later reauthorized the program through fiscal year 2020 and renamed it the State Trade Expansion Program in TFTEA. According to SBA officials, the goals of the program include increasing the number of small businesses exporting, the number of small businesses exploring significant new trade opportunities, and the value of exports for small businesses already engaged in international trade. SBA implements STEP and has other key roles in efforts to promote U.S. exports, including providing training, counseling, and export financing for small businesses. Within SBA, OIT has responsibility for managing export promotion programs, including STEP. OGM has responsibility for administering grants across the agency according to SBA s standard operating procedure for grants management. This responsibility includes oversight of financial and compliance-related aspects of issuing awards, and recording and tracking relevant information in SBA s grants management system. According to OIT officials, each state that receives a STEP grant submits quarterly reports to OIT that provide information on the amount of the grant expended and progress made toward the performance targets. Program managers within OIT then review the quarterly reports and provide feedback to each state, including with respect to progress toward performance targets. OIT officials and states that we interviewed told us that if a state reports not meeting its performance targets in a particular quarter, OIT program managers then work with the state to establish an action plan to meet targets in future quarters. At the end of each grant performance period, OIT program managers work with OGM to finalize and close the state s grant file. This procedure includes saving information on final performance data, the total amount expended, and the use rate, which is determined by dividing the amount expended by the amount awarded. Beginning in fiscal year 2011 and through fiscal year 2018, Congress has appropriated a total of $139.4 million for STEP, and SBA has awarded about $139.1 million, or almost 99.8 percent of the appropriated total. Table 1 shows the amounts appropriated and awarded, and the number of awards for each grant cycle from fiscal years 2011 to 2018. Every state government conducts some export promotion activities. State trade offices, which conduct these activities, can be housed in various state entities, including governors offices, state departments of commerce, universities, world trade centers, and state departments of economic development. As we have previously reported, state trade offices often offer export promotion services similar to those offered by certain federal agencies; in addition to SBA, these include the Department of Commerce and the Export-Import Bank. State trade offices often have both domestic and international staff; domestic staff are typically state employees. According to data from the 2017 SIDO survey, state trade offices had a median size of six employees, with a minimum of one and a maximum of 18. SBA awards STEP funds annually to state governments through a competitive application process. According to SBA, the annual STEP cycle begins with the funding opportunity announcement that SBA posts on www.grants.gov. This announcement, which usually occurs in the spring, indicates that the grant application is open and provides official information (e.g., objectives, deadlines, eligibility, and reporting requirements) about STEP. Once the announcement is posted, eligible states and territories may apply for a STEP grant during the application period. When a state trade office applies for a STEP grant, its application outlines any intended activities and establishes performance targets within each of the activities for the fiscal year or period of the grant. For example, the performance targets detailed in the application can include the state s estimate of the number of businesses that will apply for and receive funding to attend various international trade show exhibitions. Currently, all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa are eligible to apply for STEP grants. Independent technical experts and OIT program managers score states applications, generally during late spring and summer. OIT then selects grant recipients and notifies states of their award status in September. If a state receives a STEP grant, its trade office provides the funds to local small businesses through an application process. The funds are intended to support the businesses export activities. Figure 1 shows the process for awarding and distributing STEP grant funds. Once small businesses receive the STEP funding, they can use the money for a variety of export-related purposes. These purposes are outlined in TFTEA. Figure 2 shows the allowable uses of STEP grant funds. In fiscal years 2015-2017, SBA awarded a total of about $54.1 million; 40 to 44 states received a STEP grant each year. Over this time period, the median grant amount was $373,000, with a minimum of about $115,000 and a maximum of $900,000. Figure 3 shows the total award amounts by state for fiscal years 2015-2017. The SIDO survey, conducted annually, also asks member states about the STEP grant and how important it is to their export promotion activities. In recent years, most states responding to this question have indicated that the grant plays a key role in supporting such activities, even though the grant does not typically constitute a majority of the budget. In the three surveys conducted between 2015 and 2017, more than 80 percent of responding states, on average, said that the grant was extremely or very important each year. In these same surveys, about 60 percent of responding states, on average, said that the grant constituted less than half of their budget. <2. SBA s STEP Grants Management Process Does Not Provide Reasonable Assurance of Compliance with Some Requirements of Applicable Law> SBA s STEP grants management processes do not provide reasonable assurance that STEP grant recipients meet some TFTEA requirements before the grant is closed out. OIT does have a process in place to comply with the proportion of amounts clause of STEP s authorizing statute, which caps at 40 percent the amount of grant funds distributed to the 10 states with the largest numbers of eligible small businesses. However, we found that OIT does not have processes sufficient to ensure that states met TFTEA s total and cash match requirements. TFTEA contains specific requirements for STEP that SBA is responsible for meeting. These requirements include the following: Proportional distribution requirement. SBA must distribute grant funds in a way that caps the amount of grant funds distributed to the 10 states with the largest numbers of eligible small businesses at 40 percent of the total amount awarded each year. This requirement ensures that states with fewer eligible small businesses receive funding, and is known as the proportion of amounts clause in the law. Total match requirement. States must provide a 25 percent or 35 percent non-federal total match to the federal grant amount. Cash match requirement. A state s match cannot be less than 50 percent cash. <2.1. SBA s Process Provides Reasonable Assurance of Compliance with TFTEA s Proportional Distribution Requirement> OIT has established a process for ensuring compliance with the TFTEA requirement outlined in the proportion of amounts section of the law. As discussed above, TFTEA requires that OIT determine the 10 states with the highest percentage of eligible small businesses using the most recent data from the Department of Commerce. OIT officials told us they review data from Commerce s Census Bureau that show the number of exporting small and medium-sized businesses in each state, and then use these data to determine the top 10 states. According to OIT officials, they use the most recent data available, with an approximately 2- to 3-year lag in the data. For example, to assess the top 10 states for the fiscal year 2017 cycle, OIT used data from 2014. Based on these data, the 10 states that SBA identified for the fiscal year 2017 cycle received about 32 percent of the total amount appropriated which was below the 40 percent threshold and therefore in compliance with the proportional distribution requirement. OIT officials told us that they planned to use available 2016 Census data to determine the top 10 states for the fiscal year 2018 award cycle and then, after receiving applications, determine award amounts that would comply with this requirement. <2.2. SBA s Review Process Did Not Document that States Met TFTEA s Total Match Requirement before Grant Closeout> TFTEA requires that states receiving a STEP grant provide matching funds. The total match amount is typically 25 percent of the combined state-federal total amount; as noted above, in a limited number of cases, the state s total match is 35 percent of this amount. Within either a 25 percent or 35 percent match amount, at least half of the total match must be provided in the form of cash. Matching share requirements are often intended to ensure local interest and involvement through financial participation, and may also serve to hold down federal costs. If SBA determines that a state is not providing sufficient matching funds, it can withhold future reimbursement for expenses incurred under the grant. Figure 4 illustrates the STEP funding proportions described above. OIT s process for reviewing the quarterly reporting that states provide on STEP grants does not effectively document whether each state has met the total match requirement outlined in TFTEA. To determine whether each state is meeting the total match requirement, OIT program managers monitor state spending over the grant period through quarterly reporting that they require of the state grant recipients. At the end of each grant period, OIT officials told us they review the information collected through the quarterly reporting to determine whether the state met the total match requirement based on the amount of federal dollars expended. According to OIT data and officials, most states provide a greater match than is required; for example, according to OIT calculations, 75 percent of fiscal year 2015 states receiving the grant provided more matching funds than required. However, we identified four instances where, according to OIT s documentation, one state reported an insufficient total match in fiscal year 2015 and three states reported an insufficient total match in fiscal year 2016. OIT s documentation showed that these four states failed to meet the required total matching funds by about $76,000 combined over these 2 years of the program. SBA told us they nevertheless closed these grants. OIT officials provided several explanations for their actions. First, OIT officials told us that of these four states, two submitted additional information after the grant had closed, indicating that the states had met the matching requirement. OIT officials stated that they did not verify the accuracy of the total match information before grant closure because of OIT staff error. With respect to the other two states, OIT initially stated that it was working with OGM to verify that the total match requirement had not been met, and how best to recover the funds. Subsequently, OIT reported OGM s determination that one state had in fact met the match requirement, but that the other had not. In the case of the state that did not meet the requirement, OGM determined that SBA had overpaid federal funds to that state by about $19,600. However, after contacting the state and looking into the matter further, OGM conducted a review of quarterly reporting documentation for this state, and determined that the state had in fact exceeded its required match by about $3,800. Though all four of the states initially identified were eventually determined to have met the total match requirement, SBA did not have an adequate process in place to ensure documentation of a full match before grant closeout. OIT officials stated in July 2018 that, as a result of our review, they planned to implement a new quarterly process to focus on match information specifically, which would ensure documentation of whether a state meets its total match requirement before the grant is closed at the end of each fiscal year program cycle. However, officials were unsure what this process would entail. Standards for Internal Control in the Federal Government states that management should design control activities. By designing and executing appropriate control activities, management helps fulfill its responsibilities and address identified risks in the internal control system. This responsibility applies to the entire process or life cycle of a transaction or event from its initiation and authorization through its final classification in summary records. In addition, management should design control activities so that all transactions are completely and accurately recorded. Such control activities can be preventive for agencies, meaning that the activities prevent an agency from failing to achieve an objective or address a risk. Without a process for effectively documenting that the total match requirement has been met and reviewing this documentation before grant closeout, SBA does not have reasonable assurance that states have complied with TFTEA s total match requirement, and risks overpayment of federal funds. <2.3. SBA Does Not Monitor States Compliance with TFTEA s Cash Match Requirement> OIT s processes do not provide reasonable assurance that states have complied with the TFTEA cash match requirement. As previously noted, TFTEA requires that states provide at least half of the total match requirement in the form of cash. TFTEA allows for the remaining half to be any mixture of cash, in-kind contributions, and indirect costs. OIT collects information about the types of expended matching funds, including the proportion provided in cash; however, OIT does not have a process in place to use this information to address risks to the program. As part of their reporting, states submit on a quarterly basis a detailed expenditure worksheet that contains information on the types of expended matching funds, including cash and other types of allowed contributions. OIT documents show that while proposed cash match amounts are recorded, OIT does not track or analyze states expended cash matching funds during or at the close of the grant cycle. OIT officials told us that this information is included in the states quarterly detailed expenditure worksheets, and therefore can be reviewed for compliance on a case-by-case basis. However, OIT program officials told us that they do not regularly analyze this information to determine what proportion of the total match the cash portion constitutes. As such, SBA cannot consistently determine whether states are meeting the TFTEA cash match requirement, and risk closing out grants for which states have not met the cash match requirement. OIT does not have a process to monitor whether states are misusing federal funds to offset the cash match requirement. The Uniform Guidance defines matching funds as the portion of project costs not paid by federal funds. Matching funds must be accepted when they are not included as contributions for any other federal award, meaning that federal funds cannot generally be used to meet the state match requirement. The program s authorizing legislation does not define cash, and neither does the Uniform Guidance. OIT considers the salaries of state trade office staff who work on administering the grant to be a form of cash and, according to OIT officials, most states use state staff salaries as their total match, including the required cash portion. OIT does not have a process for ensuring that states reporting staff salaries as their required cash match are not also using grant funds from STEP to pay for portions of these same salaries. In our discussions with officials from 12 states that received STEP grants in fiscal year 2015, 2 states reported using the grant to pay for portions of state staff salaries. Both of these states told us that they also reported staff salaries to OIT as their cash matching funds. Using part of the grant to pay for staff salaries in this way could have the effect of reducing the match below the thresholds mandated by TFTEA. When we asked OIT officials what process they had in place to determine whether states were using staff salaries paid for with STEP funds as part of their match amount, OIT officials told us that they were not aware that STEP grantees had engaged in this practice, and therefore did not monitor for it. In order to determine whether this was happening, officials stated that they would need to inspect each state s grant files on a case-by-case basis. In previous years, OIT has hired a contractor to select samples of and examine individual state grant files, and this contractor worked with states as needed to improve reporting. OIT officials told us that the last grant year reviewed in this way was fiscal year 2015, and they expect to be able to conduct some examinations for the closed fiscal year 2016 grants. SBA s grants management standard operating procedure states that the agency should monitor grantees for compliance with the terms and conditions of the awards, which includes compliance with applicable federal law. Further, according to Standards for Internal Control in the Federal Government, management should design and execute control activities, and use quality information to achieve the entity s objectives. Management should process reliable data into quality information to make informed decisions and evaluate the entity s performance in achieving key objectives and addressing risks. Without processes to review whether states are meeting the cash match requirement, OIT is not implementing its responsibilities under SBA s standard operating procedure because it cannot consistently determine whether states are meeting this requirement. Without making such a determination, SBA does not have reasonable assurance that states are contributing to the program as required by STEP s authorizing statute. <3. SBA Made Changes to Enhance STEP in Response to States Feedback, but Some States Reported Ongoing Challenges to Using Grant Funds> According to agency officials, OIT made some changes to the program in response to feedback from states, including addressing some types of challenges that states say affect their ability to use all their grant funds. However, officials of some states said that continuing challenges with the program impeded their ability to use all awarded grant funds within the permitted time period. While the challenges they described cover a variety of topics, most relate to compressed program timelines, administrative burden, or poor communication with and within OIT. <3.1. SBA Made Changes in Response to States Feedback> OIT officials told us that they made some changes to STEP for the fiscal year 2017 program cycle in response to informal feedback from states, including changes to address concerns about use of funds and the administrative burden of the application. Of the 12 states that we interviewed, officials from 11 agreed that SBA s changes would improve the program. Changes included: Extending funds usage period to 2 years. OIT officials told us that, beginning with the fiscal year 2017 cycle, they converted the program from a 1-year award to a 2-year award. This change allows an additional 4 quarters to conduct program activities, which, in turn, may help enable states to use the full amount of their grant funding and achieve performance targets. Some state officials that we interviewed said that this change improves the program. Eliminating travel preauthorization requirement. OIT officials also told us that, during the fiscal year 2017 cycle, they eliminated a requirement that any travel funded by STEP grants be approved at least 30 days in advance of each trip. Instead, states now report all travel to OIT as part of STEP s quarterly reporting. According to some officials from the states that we interviewed, this change reduced the administrative burden on state trade office staff and allows greater flexibility to use grant funds when opportunities that require travel arise with limited notice. Reducing page length of technical proposal. For the fiscal year 2017 cycle, OIT reduced the length of the application s required technical proposal by nearly half, from 18 pages to 10 pages. According to some state officials that we interviewed, this change helped to streamline the program s application paperwork. <3.2. Some States Were Unable to Use All STEP Award Funds, Citing Challenges with the Program> State officials that we interviewed described a variety of ongoing concerns with STEP, including some challenges that reduced their ability to use all of their grant funds. We developed a nongeneralizable sample of the 12 states that did not use 25 percent or more of their grant funds in fiscal year 2015, and interviewed officials from those states in order to gain insight into their experiences with the program, including the challenges that they faced using the full award amount. These 12 low- use states represent almost 70 percent of funds that remained unused during that cycle. As shown in figure 5, we grouped the most commonly reported challenges into the following categories: (1) timing of the application and award processes, (2) administrative burden, and (3) communication. OIT s recent changes to STEP could help increase future use rates; however, the effect is yet unknown because the changes were introduced for the fiscal year 2017 cycle. Further, nearly all of the concerns expressed by the 12 low-use states relate to aspects of the program outside the changes made by OIT. Our analysis of data from the program s fiscal year 2015 and 2016 cycles found nearly 20 percent of grant funds unused each year, despite OIT officials stating that they seek 100 percent use of grant funds, as described below: 2015. Across all 40 recipient states, combined grant use was 81 percent, leaving 19 percent, or nearly $3.4 million, unused. This included one state that left 77 percent, or over $432,000, of its funds unused that year. 2016. Across 41 of the 43 recipient states, combined grant use was 82 percent, leaving 18 percent, or nearly $3.2 million, unused. This included one state that left nearly 95 percent, or nearly $184,000, of its funds unused that year. In addition, although officials from several states told us that they have made changes to their STEP grant applications or activities to increase their ability to use grant funds, use problems have persisted. Our interviews, conducted in March and April 2018, indicated that states continue to face obstacles using the full award amount. <3.3. Some States Said Challenges Related to Compressed Program Application and Award Time Frames Hinder Fund Use> Officials we interviewed from each of the 12 low-use states cited challenges related to the timeline of the application and award processes. These challenges were a variable application period, a short application window, a short application rewrite period, and award announcements occurring close to the start of the grant period. <3.3.1. Variable Application Period> The exact timing of the STEP application period varies from year to year, which officials from some states that we spoke with cited as a challenge to applying for the grant. In fiscal years 2015, 2016, and 2017, SBA opened the STEP application process at different points between February and May. Officials from five low-use states reported that they had difficulty planning staff resources for completing the application because of the variable time frames. For example, one state official told us that not knowing when the application period would open was one of his office s biggest planning challenges because spring is a busy time for trade activities and coincides with when his state hosts its largest annual trade event. At some point during this busy season, the application period typically opens. The state official said that, as a result of competing priorities for his office during this season, he might have only 2 weeks to complete the STEP application within the allotted time. He said that if the grant application periods were opened at the same time each year, he would be better able to plan for it. <3.3.2. Short Application Window> Officials from five low-use states told us that the window for completing the initial STEP application was insufficient because, for instance, of the amount of work the application requires and competing demands on their staff. For fiscal years 2015, 2016, and 2017, SBA announced application windows of between 30 and 42 days. For fiscal year 2016, SBA later extended the window to 50 days. Some state officials said that the variable and short application window creates challenges to writing quality applications. Without quality applications, it may be more difficult for states to develop good plans for using grant funds, which can facilitate the full use of funds. We discussed states concerns about when the grant applications opened, and how long they remained open, with SBA officials. These officials said that they were unable to open the application at the same time and for the same length of time each year because of factors beyond their control, such as the federal budgeting process and the involvement of other offices within SBA. In response to states concerns regarding the length of time that the STEP application is open, we observed that under OMB s Uniform Guidance the federal awarding agency must generally make all funding opportunities available for application for at least 60 calendar days; however, the guidance does allow agency officials to make a determination to allow for as few as 30 days. <3.3.3. Short Rewrite Period> Officials from three of the 12 low-use states told us that the window for rewriting applications is insufficient to adequately consider and implement the changes needed, given that states must rewrite their technical proposals, including updating all supporting financial information as well as proposed performance targets within that time. Once states applications have been scored and recipients selected, OIT may require certain states to rewrite their applications to request smaller amounts of federal funds. SBA officials told us that in the fiscal year 2015, 2016, and 2017 cycles, states were given 21 days to rewrite their proposals, but that the rewrite period has been as short as 48 hours. OIT officials told us that they reduce states grant requests each year because SBA receives applications for more grant funds than are available. Such rewrites require reducing or removing intended activities and establishing new performance targets within each of the remaining activities. State officials told us that the window for rewriting the grant impacts their ability to write their program proposals, which serve as the basis for states performance metrics and measurement of outcomes. <3.3.4. Award Announcements Close to Start of Grant Period> SBA announces final STEP award amounts in September, just prior to the beginning of the fiscal year. Officials from nine of the 12 low-use states told us that because the award notifications occur so close to the beginning of the fiscal year, using funds during the first quarter is difficult. For instance, most of these officials said that they cannot plan activities until they know whether they will receive an award and, if so, the amount. Furthermore, officials from four states attributed their low grant use to this issue. For example, officials from one state told us that September award announcements do not allow them enough time to recruit companies to participate and use funds in the first quarter of the federal fiscal year, forcing them to compress their activities into the remaining quarters of the program cycle. One state official referred to the first quarter as a lost quarter. Officials from two states reported reducing or eliminating programmatic activities in the first quarter to avoid pressure caused by OIT s award timeline. OIT officials told us that they notify states of their awards before the start of each fiscal year and in compliance with federal government policy. Figure 6 compares the timelines for the application process, notification of awards, recipients grant use period, and closeout activities for the fiscal year 2015, 2016, and 2017 program cycles, as well as associated challenges to grant use that states reported. <3.4. Some States Said Challenges Related to Burdensome Administrative Requirements Hinder Fund Use> Challenges related to administrative burden were cited by officials from all 12 of the states that we interviewed. These included challenges related to completing the application, the process for moving funds from one use to another (known as repurposing ), and the required reporting on the grant. <3.4.1. Inflexible Application Requirements> Officials from eight low-use states told us that the STEP application requirements are unrealistic or burdensome because, for instance, the level of detail required about performance targets conflicts with the reality of promoting exports in a fluid international business environment. As discussed above, OIT requires states STEP applications to detail their projected use of grant funds. For example, when submitting their applications, states project which trade shows they will attend and the number of small businesses they will take to these trade shows. Further required details include projecting the costs and number of companies that will attend events in particular foreign locations, for example. In the past, the application required performance targets that were based on estimates of business interest and export opportunities up to 18 months in advance. Today, with the aforementioned transition to 2-year awards, STEP applications must project such activities and performance targets up to 30 months in advance of their execution. In the event of differences between planned and actual performance during the course of the program cycle, OIT requires states to explain the differences and their plans for aligning their future performance with the targets established in their applications. <3.4.2. Difficult Process to Repurpose Funds> Officials from eight low-use states said they attributed their low use of grant funds to challenges with program rules or regulations. Difficulty in repurposing funds was the most common example that they cited. Some officials said that OIT s difficult repurposing process limits states ability to move funds from one purpose to another when participating small businesses plans change or don t align with the original program proposal, leaving funds unused. Several state officials described difficulty adapting to changing business plans or opportunities. For instance, one official said that when unanticipated opportunities appear, such as follow- up trade missions, OIT s restrictive repurposing process limits states ability to move funds from one purpose to another. Officials from two states reported applying for smaller grant amounts than in previous years in order to have a more manageable amount to spend, thereby avoiding the need to repurpose funds. In order for states to use STEP funds in ways that differ from the plans in their approved program applications, SBA requires that states request agency permission to repurpose the funds. According to the Uniform Guidance, the federal awarding agency may restrict grant recipients repurposing of funds in excess of 10 percent of the total grant amount, and determine the level of detail required for requests to repurpose funds. OIT officials told us that in cases of repurposing more than 10 percent of total funds, the documentation required is determined on a case-by-case basis depending on the amount of funds involved and the degree of difference between the original approved use and the proposed new use. These OIT officials said that in some cases, states may only need to submit a written request via email; in other cases, states may be required to revise and resubmit their STEP applications. To compensate for the difficulty in repurposing funds, officials from two states told us that in subsequent years they had proposed more general programs that allowed for greater flexibility, such as by increasing the use of stipends, which provide small businesses with a predetermined amount of funds for a range of allowed activities. When a state applies for a STEP grant using this approach, the state is typically less specific in its performance targets, such as which trade shows will be attended and by how many small businesses. One state official said that this approach can increase use rates by providing states with more flexibility in distributing the funds. OIT officials agreed that where a state is less prescriptive in its application performance targets it is easier for the state to repurpose funds, such as when federal trade missions are cancelled or small businesses express interest in activities that were not originally proposed. However, the OIT officials noted that the lack of specificity may result in lower grant application scores. <3.4.3. Burdensome and Changing Reporting Requirements> Officials from 11 of the 12 low-use states described challenges related to burdensome or changing reporting requirements, such as the number of forms required for quarterly reporting, or the level of detail required on certain forms, as well as challenges related to changes that SBA makes to reporting requirements during the grant period. Two state officials told us that, because they often have few people working on the grant, complying with these reporting requirements takes undue amounts of time, and thus have the effect of reducing use. For example, one state official described having to divide the cost of shared taxis and hotel rooms for a trade show, reporting the per-person cost for each company that was part of the state s delegation. Officials from two states also pointed out that the reporting requirements for STEP were much more detailed and burdensome than grants they administered from other federal agencies, such as the Department of Commerce. In addition, officials from six states expressed concern that OIT occasionally makes changes to program requirements, such as reporting requirements, after the grants have been awarded and the grant cycle has begun. Some state officials said that these mid-year changes increase the administrative burden on their limited staff. During our discussion of states concerns with OIT, officials said that they are limited in their ability to address certain concerns described by the states. For example, OIT officials told us that the quantity and type of forms and level of detail required in states reporting are imposed by federal guidelines, determined by OGM, or based on agency leadership s expectations. In addition, OIT officials said that sometimes requirements are changed outside of their office and are beyond their control. The officials stated that, for some changes, they are not in a position to wait until the following program cycle for implementation. They said that they do, however, postpone less urgent changes until the following program cycle rather than making them mid-cycle. <3.5. Some States Said Challenges Related to Poor Communication Hinder Fund Use> Communication between OIT and states was a frequently cited area of concern in our interviews with officials from the 12 low-use states. Officials from nine states raised concerns related to the quality of communication with OIT. For instance, some state officials described issues such as sometimes waiting weeks or months for responses to emails that they had sent to OIT, resulting in administrative delays or preventing states from executing some activities as planned. In one example, state officials said that SBA recently waited months to notify the state of a problem opening its emailed quarterly report file, causing the state to wait months to receive its STEP grant funds. The officials said that such delays bring their program to a halt. Communication within OIT was also cited as an issue that hindered states fund use. Officials from 10 states noted that program rules, regulations, or requirements are inconsistently communicated. Further, several state officials described witnessing OIT program managers disagree regarding the interpretation of program rules during discussions with state representatives at a SIDO conference. When we discussed states concerns with OIT officials, they told us that they maintain open lines of communication with the states and that STEP program managers are required to retain logs of their communication with the states. The officials described making an effort to listen to states concerns, adding that they had modified the program in certain ways as a result of state input, as noted above. States can provide feedback about STEP to their respective OIT program managers, who then discuss states comments during weekly meetings with OIT management and other program managers. In addition, OIT officials said that they make themselves available for informal conversations with states at SIDO s annual conference. According to OIT officials, communication with the states is usually channeled through each program manager, even when the content is pertinent to all grant recipients and could be communicated from one source. <3.5.1. SBA Has Not Adequately Assessed Risk to Achieving Program Goals from Some States Low Grant Fund Use> At the time of our review, OIT had not assessed and fully addressed the risk posed by some states low use of funds. OIT officials told us that while they informally collect feedback from states, there is no systematic process to collect states perspectives on challenges with the program, including obstacles to their ability to use funds. In addition to the goals of the program outlined earlier, OIT officials told us that one program performance metric is the use rate for STEP funds. Officials said that they seek 100 percent use for each state that receives an award, as well as for the program as a whole. Standards for Internal Control in the Federal Government specify that agency leadership should define program objectives clearly to enable the identification of risks and define risk tolerances in order to meet the goals of the program s authorizing legislation. These standards for internal control include assessing the risks facing the agency as it seeks to achieve its objectives, with the assessment providing the basis for developing appropriate responses to risks from external and internal sources. Therefore, agency management should set its risk tolerance with regard to STEP at a level that appropriately mitigates risk while enabling the achievement of program objectives. Without assessing and addressing this risk to the program, OIT may continue to fall short of 100 percent grant fund use. Low grant fund use could negatively affect OIT s ability to achieve program goals in supporting state export promotion activities. <3.5.2. SBA Has Not Effectively Shared Best Practices> In addition, OIT has no systematic process to share best practices with sufficient detail that states struggling to use their STEP funds might apply those practices to improve their own programs. TFTEA requires SBA to publish an annual report regarding STEP, including the best practices of those states that achieve the highest returns on investment and significant progress in helping eligible small businesses. While 12 states did not use 25 percent or more of their grant funds in the fiscal year 2015 cycle, 19 states used all or almost all of their funds, as shown in appendix I. SBA publishes high-level information on what it deems to be notable state activities in its annual report to Congress. OIT officials told us that, when possible, they share best practices with states that may have difficulty accessing external markets. However, OIT officials told us that they do not formally facilitate the sharing of best practices among the states, saying that best practices for promoting exports in one state might not be transferable to another state because each state is unique in terms of the characteristics of its economy. According to the Uniform Guidance, grant recipients performance should be measured in a way that helps the federal awarding agency and other non-federal entities to improve program outcomes, share lessons learned, and spread the adoption of promising practices. Further, under federal standards for internal control, management should externally communicate the necessary quality information so that external parties, such as grant recipients, can help to achieve the entity s objectives. We have also previously reported on the importance of collecting and sharing best practices, as well as the processes for doing so. By sharing detailed information with all participating states about the approaches that some grant recipients are using to successfully achieve STEP s goals, SBA could encourage all grant recipients to improve the effectiveness of their state STEP programs, including increasing fund use rates in pursuit of OIT s stated aim of 100 percent grant fund use. <4. Conclusions> The STEP program has provided about $139 million of federal support to assist small businesses in finding export opportunities, and Congress has authorized STEP through 2020. SBA has a process in place to ensure compliance with the program s legal requirement to cap the total grant amount to the 10 states with the largest number of eligible small businesses at 40 percent thereby ensuring that states with fewer small businesses benefit from the program. However, SBA has not taken some necessary steps to manage the program s total and cash matching requirements according to applicable law or federal internal control standards. SBA does not document that states are meeting the total match requirement, and has not developed a process to determine whether states are meeting the cash match requirement. As a result, SBA does not have reasonable assurance that the states are meeting these requirements. Matching requirements directly engage states, augment federal funds, and ensure further support to small businesses that export. As such, meeting the matching requirements is a key aspect of the program s success. Although not every state has problems using the full federal award amount, about a quarter of the states do, which may hinder the program s ability to fully achieve its goals of increasing the number of small businesses exporting, increasing the number of small businesses exploring significant new trade opportunities, and increasing the value of exports for small businesses already engaged in international trade. While SBA has taken some steps to improve the program based on feedback from states, it could do more in this regard, including finding ways to assess and address the specific concerns raised by states that have experienced difficulty using grant funds. SBA could also take further steps to collect and disseminate best practices among states to strengthen their ability to fully use grant funds. Higher grant fund use could enhance SBA s ability to assist as many exporting small businesses as possible, leading to a fuller realization of the program s goals. <5. Recommendations for Executive Action> We are making the following four recommendations to SBA: The SBA Administrator should establish a process that ensures documentation of states compliance with the total match requirement before grant closeout. (Recommendation 1) The SBA Administrator should develop a process to determine states compliance with the cash match requirement. (Recommendation 2) The SBA Administrator should assess the risk to achieving program goals posed by some states low grant fund use rates. Assessing this risk could include examining the challenges that states reported related to the program s application and award processes, administrative burden, and communication. (Recommendation 3) The SBA Administrator should enhance collection and sharing of best practices among states that receive STEP grant funds. (Recommendation 4) <6. Agency Comments> We provided a draft of this report to SBA for review and comment. In written comments (reproduced in appendix II), SBA generally agreed with our findings and concurred with our recommendations. SBA observed that the states we did not interview may have had different experiences with the program than the states in our sample. As we note in the report, our sample is nongeneralizable, and so the experiences these states reported to us may not be common to all states receiving the grant. As we stated in our report, we selected the 12 states that had the lowest grant use rates in fiscal year 2015 in order to understand the challenges they faced. We are sending copies of this report to the Administrator of SBA and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology The objectives of this report were to examine the extent to which (1) the Small Business Administration s (SBA) State Trade Expansion Program (STEP) grants management process provides reasonable assurance of compliance with selected requirements of applicable law, and (2) SBA has taken steps to address challenges states report in using grant funds to achieve program goals. To address these objectives, we did the following: Legal and regulatory review. We reviewed the Small Business Jobs Act of 2010 and the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), the statutes that established and reauthorized STEP, respectively. We focused on SBA s compliance with the proportional distribution, total match, and cash match requirements because these requirements are consistent across both of the program s laws, and to avoid duplication with ongoing Office of Inspector General (OIG) work on the program. In addition, we reviewed the Office of Management and Budget s (OMB) federal grant guidance, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and Standards for Internal Control in the Federal Government to identify relevant guidance and practices in managing grants to non-federal entities and in designing and executing effective control processes. We also reviewed these documents and previous GAO work for information about the collecting and sharing of best practices. Program data review. We analyzed data on award amounts, matching funds required, and matching funds provided for the fiscal years 2015 and 2016 program cycles, as well as information about the sources of matching funds in selected cases for the fiscal year 2015 program cycle. We focused on these program cycles because these were the most recent years for which the most complete information was available. We also reviewed the data the Office of International Trade (OIT) used to comply with the legal requirement for proportional distribution for the fiscal year 2017 cycle. We assessed the reliability of these data by interviewing OIT officials about the sources of the data, how the data are stored and maintained, and by tracing data from relevant sample documents back to their sources. We found these data sufficiently reliable for the purpose of understanding OIT s processes for complying with the proportional distribution and matching requirements. Program management review. We reviewed SBA s standard operating procedure for managing grants and cooperative agreements in order to understand the agency s requirements for this. We reviewed relevant documentation, including sample grant files, application forms, application scoring forms, grant reporting forms. To examine the relationship that states past use rates have on the award process, we reviewed OIT s forms for scoring the grant applications in fiscal years 2017 and 2018. We interviewed officials from OIT and OGM to understand how SBA monitors STEP grants, including the steps they take to comply with the proportional distribution, total match, and cash match requirements. We examined SBA s calculations of the total match amounts required for states, and we identified 4 instances in which SBA s documentation showed an insufficient match in fiscal years 2015 and 2016. We spoke to OIT officials to gain insight into why the scoring procedures for the grants changed for the fiscal year 2018 program cycle. In addition, we reviewed TFTEA, previous GAO work, and the most recent STEP best practices reports for information relating to SBA s communication to states about best practices in applying for and managing STEP grants. We interviewed officials from OIT to learn about steps they had taken to address concerns raised by states that participate in the program and to facilitate the sharing of best practices among states receiving the grant. Review of grant use rates. We analyzed SBA data on award amounts and amounts used for the fiscal years 2015 and 2016 cycles. We assessed these data by interviewing OIT officials about the sources of the data and how the data are stored and maintained. In discussing the fiscal year 2016 cycle with OIT officials, we learned that South Dakota and Texas had been granted extensions and therefore had not yet completed reporting on their use of these grants. As a result, we dropped these states from our calculation of the fiscal year 2016 cycle use rate. With the exclusions of South Dakota and Texas, we found these data sufficiently reliable for the purpose of calculating use rates for STEP for the fiscal years 2015 and 2016 cycles. In comparing the available grant use data from these years, we found the following: (1) some states that were in the low-use (less than 75 percent utilization) category in fiscal year 2015 were also in this category in fiscal year 2016, (2) some states that were in the low-use category in fiscal year 2015 were not in this category in fiscal year 2016, and (3) some states that were not in the low-use category or did not participate in STEP in fiscal year 2015 were in this category in fiscal year 2016. In our interviews, we asked officials from states in the low-use category in the fiscal year 2015 cycle about their experiences in subsequent years, including whether they intended to apply for the grant in the fiscal year 2018 cycle. Tables 2 and 3 below display data on fund use across participating states in fiscal years 2015-2016, including the percentage of federal award funds unused, amount of federal award funds unused, and percentage of total federal funds unused for each year. We used the data in table 2 to identify our population of low-use states. The 12 states that we interviewed used less than 75 percent of their award funds in the fiscal year 2015 cycle. They represent almost 70 percent of funds that remained unused during that cycle, representing a large proportion of the total unused funds that year. In table 2, the first three rows show data on the 12 states included in our sample. We used the data in table 3 to determine whether our population of low-use states achieved different use rates the following year. Interviews with low-use states. We conducted semi-structured interviews with officials from the 12 states that did not use at least 25 percent of their federal award in the fiscal year 2015 grant cycle. In these interviews, we discussed the states practices and reporting with respect to the total and cash match requirements, and inquired about the practice of using the federal award to offset state staff salaries while reporting these salaries as a cash match. These 12 interviews do not constitute a generalizable sample of STEP grantees, because we selected these states on the basis of their low use of grant funds in order to understand challenges faced by those states. As such, the practices reported by states we interviewed may not be common to all states receiving STEP grants. State challenges. In our semi-structured interviews with officials from the 12 states that did not use 25 percent or more of their award in fiscal year 2015, we gathered information about continuing challenges in fully using the grant funds. These states were: Maine We conducted these interviews in March and April 2018. However, our 12 interviews represent a nongeneralizable sample of the population of states that have received the 301 awards made through the STEP grant cycles since fiscal year 2011. As such, challenges reported by these states may not be common to all states receiving this grant. We asked officials from these 12 states questions about their experiences participating in the program, about challenges they had experienced, and about their views on how the program could be improved. To describe the themes that emerged from these 12 interviews with respect to challenges in fully using the funds, we identified categories based on an analysis of the responses that we received. Two GAO analysts independently coded the content of these interviews according to these categories. We conducted further analysis of the results of our coding to identify the three major groupings of challenges that we present in this report: (1) the timing of the application and award periods; (2) administrative burden; and (3) communication. The coders had an initial agreement rate of about 90 percent. Disagreements were resolved through discussion between the coders and, occasionally, through arbitration by a knowledgeable third party. SIDO survey data review. We analyzed 2015, 2016, and 2017 survey data provided by State International Development Organizations (SIDO), a national group that supports state trade offices. We reviewed data from their annual member survey conducted in those years. This survey asks SIDO member states about, among other things, top advocacy priorities, the number of staff in each state s international trade office, and the location of these trade offices within the state government. The survey also asks states to describe the importance of STEP to each state, and provide the estimated proportion of each state s export promotion budget that the grant constitutes. To assess these data, we interviewed a SIDO official about the organization s methods for developing the survey each year, as well as their processes for collecting and storing the data, and reviewed the response rates in each year. We reviewed the survey instrument and data, and conducted testing for missing data, obvious errors, and outliers, and determined that these data were sufficiently reliable for the descriptive purposes for which they are used in this report. However, we noted that the number of respondents by year varied. According to SIDO 36, 38, and 41 states fully or substantially completed the survey in 2015, 2016, and 2017, respectively. We are presenting the results as general proportions or rounded percentages. We did not independently audit the survey results. We conducted this performance audit from September 2017 to March 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Small Business Administration Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Adam Cowles (Assistant Director), Cristina Ruggiero (Analyst in Charge), Jesse Elrod, and Peter Kramer made key contributions to this report. The team also benefitted from contributions made by Martin de Alteriis, Mark Dowling, John Hussey, Jeff Isaacs, Christopher Keblitis, and Kimberly McGatlin.

Why GAO Did This Study Congress established STEP in 2010 to increase small business exports. Through STEP, SBA has awarded about $139 million in grants to state trade offices, which in turn facilitate small business export activities, including participation in trade missions and attendance at trade shows. Congress reauthorized STEP in 2016. GAO was asked to review SBA's management of the program. This report examines the extent to which (1) SBA's STEP grants management process provides reasonable assurance of compliance with selected requirements of applicable law, and (2) SBA has taken steps to address challenges states report in using grant funds to achieve program goals. GAO reviewed the program's authorizing legislation and federal and agency guidance on grants management, analyzed SBA program data, and interviewed SBA officials. GAO also conducted semi-structured interviews with a non-generalizable sample of 12 of the 40 states that received STEP grants in fiscal year 2015, the most recent year for which complete data were available. GAO selected these states on the basis of their low grant fund use rates. What GAO Found The Small Business Administration's (SBA) management of the State Trade Expansion Program (STEP) does not provide reasonable assurance of compliance with some legal requirements. Specifically, the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) requirements for STEP include: Proportional distribution requirement. SBA's Office of International Trade (OIT) must distribute grant funds so that the total amount awarded to the 10 states with the highest percentage of eligible small businesses does not exceed 40 percent of the program's appropriation that year. Total match requirement. States must provide a 25 or 35 percent non-federal match to the federal grant amount. Cash match requirement. A state's match cannot be less than 50 percent cash. GAO found that, while OIT has a process to meet the distribution requirement, it does not have a process for documenting that states have met the total match requirement before grant closeout, and does not have a process to determine whether states are meeting the cash match requirement. Without such processes, SBA cannot be reasonably assured that states are contributing per the law's requirements. GAO found that, while OIT has made changes to STEP in response to states' feedback, officials from states with low grant use described ongoing challenges with the program that affect their ability to fully use funds. These challenges include compressed application and award timelines, administrative burden, and poor communication. SBA has not adequately assessed risks to the program, including the risk to achieving program goals posed by some states' low grant fund use rates. Without such an assessment, OIT's ability to support U.S. exporters may be diminished. Further, SBA has not effectively facilitated sharing best practices among states. By doing this, SBA could help states make full use of funds to achieve the program's goals. What GAO Recommends GAO is recommending that SBA develop processes to ensure compliance with legal grant matching fund requirements, take steps to assess risks to program goals from low grant fund use rates, and enhance the sharing of best practices among states receiving the grant. SBA concurred with all of the recommendations.

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<1. Background> The FirstNet-AT&T network contract and its associated task orders define the requirements AT&T must meet. The contract currently involves five task orders, four of which relate directly to the network s deployment. Task orders 1 and 2 (actions complete). Required AT&T to develop and deliver individual network deployment plans for each of the 56 states, territories, and the District of Columbia (hereafter, states). The governor of each state had the opportunity to review the plan and opt in to allow FirstNet and AT&T to build the network in their state. All governors opted in by the applicable deadline. The result of this process was a state deployment plan that included state-specific commitments made by AT&T. Task order 3 (actions ongoing). Requires AT&T to deploy, operate, and maintain the network s core and all of its functions, and provide for the development of device and application ecosystems for the network. A network core consists of national and regional data centers and other elements that store, process, and secure network users traffic (activity), and interface with federal, state, and local networks. AT&T deployed the core in March 2018. The network uses the spectrum reserved for public-safety use ( Band 14 ), as well as the spectrum that AT&T s existing, commercial network operates on. When Band 14 spectrum capacity is not being used by public-safety users, AT&T can use the excess capacity for its non-public-safety, commercial-network users. As such, among the functions that task order 3 provides for are capabilities that allow prioritizing a public- safety user s network access and traffic over other users and, when necessary, preempting other users altogether. These functions are commonly referred to as priority and preemption. Task order 4 (actions ongoing). Requires AT&T to deploy the network s Band 14 coverage in the states, including building the radio-access network in each state that connects to the network s core and backhaul (which carries network users traffic) and fulfilling the state-specific commitments. Radio-access networks consist of cell towers, sites, and other elements that connect network-users devices to the network core. This task order also requires AT&T to provide 72 deployable cellular assets meaning, transportable equipment (typically in a vehicle) that can provide additional network coverage when needed dedicated solely for FirstNet network users. The task order also provides for access to at least 300 additional deployables in AT&T s fleet. The contract and task orders 3 and 4 outline a phased approach for deploying the network s capabilities and coverage (in both non-rural and rural areas), with five initial operating-capability phases that build to a final operating capability expected in 2023, as well as ongoing performance, maintenance, and continuous improvement through 2042. As described further below, each phase provides for increased capabilities and coverage and some outline goals for network user adoption and AT&T must meet certain required milestones in each phase to receive payment for that phase from FirstNet. Figure 1 depicts the phased timeline for task orders 3 and 4. The Band 14 spectrum on which AT&T is building the network is a key component that differentiates it from other commercial networks, as the network s full capabilities and functionality are only available via Band 14. For example, certain high-power user equipment can transmit at stronger signals; this signal increase can only be done using the Band 14 spectrum. However, at its expected final operating capability, the network using Band 14 spectrum will not cover the entire country. Public-safety network users will also have access to the non-Band 14 LTE spectrum that AT&T uses for its existing, commercial network (with priority and preemption), though this spectrum does not have all the full capabilities of Band 14, as in the high-power user equipment example above. According to AT&T, when including this non-Band 14 spectrum, the network will cover 76.2 percent of the U.S. geographically and around 99 percent of the population. Network users are to also have access, by request, to deployable assets that can provide temporary coverage when needed, such as in remote and wilderness areas that will not have permanent coverage. <2. FirstNet s Contractor Is Meeting, or Is on Track to Meet, All Nationwide Contractual Coverage and Adoption Milestones, but State- Level Progress Varies> <2.1. AT&T Has Met the First Nationwide Coverage Milestone but Coverage Is Not Uniform across States> AT&T has met, and exceeded, the first required nationwide network- coverage milestone. According to FirstNet documentation, AT&T is required to meet certain coverage milestones in both non-rural and rural areas and by the end of March 2019, AT&T had met the requirement to provide at least 20 percent of the total expected Band 14 coverage in both non-rural and rural areas. The Band 14 coverage milestones that AT&T is contractually required to meet to receive payment increase each year through March 2023, when AT&T is to have completed 100 percent of the total expected Band 14 coverage. For example, by March 2021, the coverage milestones are 80 percent of the total expected Band 14 coverage in both non-rural and rural areas and by March 2022, 95 percent. Per the terms of the contract, prior to meeting the first milestone, AT&T provided initial coverage via its existing, commercial wireless network and made 72 deployables (such as mobile cell sites on trucks) available for network users. AT&T fulfilled the deployables requirement through a combination of deployables built specifically for network users and others allocated from AT&T s existing fleet of deployables used for disaster relief. Specifically, to complete the first coverage milestone, AT&T delivered Band 14 coverage in about 63 percent of the total square miles required by 2023 in non-rural areas, and about 21 percent of the total square miles required by 2023 in rural areas, according to FirstNet documentation. For meeting this milestone, FirstNet paid AT&T approximately $1.2 of the $6.5 billion. Since completing this milestone, AT&T has continued to expand coverage and, according to FirstNet officials, is also on track to meet the next coverage milestone (due March 2020) early, although FirstNet was in the process of completing final verification and validation activities as of September 2019. AT&T constructed or delivered (i.e., these sites are all on-air) thousands of Band 14 cell sites to produce the level of coverage needed to meet the March 2019 milestone. Since then, according to FirstNet documentation, AT&T has continued adding Band 14 sites, delivering as of July 2019 more than one-third of the total Band 14 cell sites planned for the entire network. AT&T may deliver these cell sites through a combination of constructing new sites, retrofitting existing AT&T sites, or acquiring or contracting with local providers, such as rural telecommunications carriers. Although FirstNet tracks the status of planned cell sites (such as which sites are undergoing environmental policy review or are currently operational, or on-air), cell sites are not an explicit part of the contractual coverage milestones required for AT&T to receive payment. That is, AT&T s payment is not contingent upon getting a certain number, type, or location of cell sites on-air, but rather the amount of coverage (in square miles) provided on a nationwide level by these sites. While AT&T met the first coverage milestone and has delivered more than a third of the planned cell sites nationwide, AT&T also has state- specific commitments. These commitments or targets, like the delivery of sites, are not explicit contractual payment milestones. AT&T and the states negotiated the commitments during the state opt-in process, and AT&T delineated them in the state plans. For example, among states in our review, AT&T made commitments regarding the number of Band 14 cell sites, including new cell sites, and future coordination with state, local, or tribal authorities to discuss governance or priority coverage areas, among other things. According to our analysis of FirstNet documentation, progress toward meeting state-specific coverage commitments has varied. For example, among our case-study states as of July 2019, AT&T s progress meeting the total coverage commitment in non-rural areas ranged from approximately 20 percent complete in one state to nearly 100 percent in others. In comparison, AT&T s coverage progress in rural areas ranged from about 14 percent complete in one state to about 91 percent in another. Likewise, AT&T s progress meeting state-specific commitments for delivery of Band 14 cell sites has varied across states. For example, in our case-study states, AT&T delivered between 9 and 71 percent of the total committed Band 14 cell sites as of July 2019. According to FirstNet documentation and officials, variances in state progress are allowable, as the contractual payment requirements focus on outcomes related to nationwide milestones. FirstNet documentation specifies that if the nationwide payment milestone was met, regardless of the amount of coverage that was deployed in a specific state, FirstNet deemed AT&T to have fulfilled that phase for all states. Moreover, FirstNet officials explained that multiple factors can contribute to delays or variance in progress across states, including natural and man-made disasters, subcontractor issues that AT&T must work through with local partners, and technical challenges common to cellular networks, such as degraded performance due to mixing of radio-frequency signals. Furthermore, FirstNet officials explained that AT&T has the first 5 years of the contract to meet all commitments made to the states. <2.2. AT&T Is on Track to Meet the First Nationwide Adoption Milestone, with Adoption among Some Users and States Outpacing Others> AT&T is on track to meet the first adoption milestone, which is to have a certain number of devices connected or subscribed onto the network ( device connections ) by the end of March 2020. FirstNet uses device connections as a proxy for adoption and has set or forecasted monthly targets that build up to the nationwide connections expected by March 2020. Our analysis of FirstNet documentation indicates that AT&T is making progress in meeting the monthly nationwide targets leading up to March 2020. Specifically, we found that AT&T was at approximately 165 percent of the July 2019 target. See figure 2 for a comparison of actual nationwide device connections versus the forecasted targets by month through July 2019. Furthermore, while AT&T must meet the nationwide device-connection milestone to receive payment for the phase ending March 2020, the targets are to be prorated depending on the month that AT&T meets the corresponding nationwide coverage requirement. Thus, if AT&T meets this requirement early (i.e., before March 2020), then the required adoption milestone is to be reduced accordingly. For example, if AT&T completes the coverage milestone in September 2019, then it would be required to meet a corresponding adoption target for that timeframe. While AT&T is on track to meet the nationwide, forecasted device- connection targets that serve as the payment milestone, our analysis found that there is variation in who is adopting the network. The targets are broken out by device connections associated with primary versus extended-primary users in different states. FirstNet defines primary users as those in the law-enforcement, fire, and emergency medical- services disciplines, whereas extended primary encompasses a myriad of other types of public-safety entities. For example, according to our analysis of FirstNet documentation, there are extended-primary users from transit agencies; public-utility and tow-truck companies; school districts; a state child-protective-services agency; airports; and television- media news outlets. Nationwide, with regard to primary users, AT&T was at 196 percent of the July 2019 target. For extended-primary users, AT&T was at approximately 106 percent of the nationwide target. These device connections are also distributed amongst the different types of public- safety entities. For example, for primary device connections, AT&T was at more than twice the forecasted nationwide target for law enforcement, as of July 2019. Our analysis also shows that there is wide variance in where adoption is occurring. Specifically, we found that AT&T is exceeding the device connection targets forecasted in certain states but lagging in others. Among our case-study states as of July 2019, for example, device connections for primary users in one state were more than 5 times the target, whereas in another state, AT&T had met only 33 percent of the target by July 2019. Adoption by extended-primary users among our case-study states also varied, with one state at 3 times the target compared to only 7 percent of the target met in another. Many types of devices are connected to the network and users experiences with network performance can vary based on the specific device they use. According to FirstNet documentation as of April 2019, 93 device types, 47 of which are Band-14 capable, were vetted and published on the list of devices certified for use on the network maintained by Commerce s National Institute of Standards and Technology. Our analysis found that a variety of devices and device models are being used on the network, including smartphones, mobile hotspots, trunk modems, laptops, and tablets. As of July 2019, the most prevalent type of device was smartphones. FirstNet has acknowledged that user experiences on the network may vary depending on the type and model of device. Some public-safety officials we interviewed described inferior experiences on certain types or models of devices. In at least one case, AT&T worked with the public-safety entity to address identified device performance issues. Aside from device connections, FirstNet also tracks and has reported via press releases, board presentations, and its most recent annual report to Congress on the number of public-safety entities that have started using the network. For example, in April 2019, FirstNet reported to Congress that more than 7,000 public-safety agencies were using the network. This number represents agencies with at least one device connection, which may indicate piloting of the network. For example, one agency we interviewed had only about 2 dozen of its approximately 1,300 total devices on the network. Similarly, officials from multiple other public- safety agencies explained they were in the piloting phase (i.e., testing a small number or types of devices to gauge network performance) and that they were using or would continue to use another carrier for broadband services to ensure effective redundancy and emergency planning. According to FirstNet officials, AT&T provides the count of public-safety agencies at periodic program-review meetings and documents it in a required contract deliverable. We analyzed this deliverable and were able to approximate FirstNet s reported numbers. <3. Many FirstNet Oversight Mechanisms Align with Key Practices, but Weaknesses in Some Mechanisms Limit Their Effectiveness> <3.1. FirstNet s Approaches to Contract Oversight Generally Align with Key Practices> FirstNet employs a variety of mechanisms to manage and oversee AT&T s deployment of the network and monitor contract performance. We found that many of FirstNet s approaches to managing and overseeing AT&T s network deployment and contract performance generally align with the key contract-oversight practices identified in federal acquisition regulations and other government, academic, and industry guidance on contract oversight that we reviewed, as shown in table 1. We analyzed the key performance indicators and other documentation related to all 46 quality assurance elements that FirstNet monitors as of April 2019 and found that AT&T s performance was rated as excellent in over half of these elements but unsatisfactory in almost a quarter. Regarding the number of unsatisfactory ratings, FirstNet officials stated that these ratings did not raise concerns given where AT&T was in the deployment lifecycle at the time of our review. That is, the rating may measure performance on an item that was not yet contractually due. For example, AT&T cannot achieve an excellent rating for certain elements that relate to coverage deployment until it is closer to the network s final operating capability, expected in March 2023. Relatedly, according to FirstNet documentation as of April 2019, FirstNet had issued only one corrective action report since awarding the contract. According to FirstNet officials at the time of our review, although FirstNet has rejected or requested corrections to some items submitted by AT&T, no other concerns have risen to this level because they have been successful in resolving issues at lower levels first. FirstNet s oversight activities leading up to the March 2019 coverage milestone were the first wherein it had to validate AT&T s delivery of Band 14 coverage. FirstNet s methodology for doing so included verifying AT&T s prediction of the signal strength at which the necessary throughput or, capacity, the amount of data transported successfully in a given time period would be achieved, and reviewing AT&T s lab and field tests. FirstNet then engaged in a process to verify the validity of AT&T s coverage-prediction maps to ensure they were an acceptable representation of coverage in the field. Finally, FirstNet confirmed that the on-air coverage as compared to the expected total coverage at the network s final operating capability met the contractual requirement. FirstNet s methodology did not include conducting its own coverage tests in the field. According to FirstNet officials, FirstNet does not perform independent verification of network coverage in the field because FirstNet officials believe the contract provides an appropriate level of detail within the contractual deliverables and supporting information that is used to validate and verify the coverage milestones. <3.2. Some FirstNet Oversight Mechanisms Have Weaknesses That Limit Their Effectiveness> While many of FirstNet s contract-oversight mechanisms generally align with key practices, we found that some have weaknesses that limit their effectiveness. Specifically, FirstNet lacks: (1) a reliable master schedule to review, (2) communication with relevant stakeholders regarding contract oversight, and (3) meaningful information on end-users satisfaction to gauge performance quality. <3.2.1. Reliable Master Schedule> Key practices for contract oversight call for tracking the contractor s performance and progress toward the expected schedule. Furthermore, GAO s Schedule Assessment Guide identifies 10 best practices associated with effective scheduling, and they are grouped into 4 characteristics of a reliable schedule comprehensive, well-constructed, credible, and controlled. The contract cites this guide when detailing the schedule s requirements. As described above, AT&T must provide a current master schedule to FirstNet monthly. However, we found that FirstNet s use of the schedule AT&T provides is limited because, based on our assessment, it only partially or minimally meets the characteristics of a reliable schedule, as shown in table 2 and described further below. Comprehensive. We found that the schedule did not reflect all of the work to be performed, precluding a comprehensive view of the entire program. For example, although a master schedule should be a comprehensive plan of all government, contractor, and subcontractor work that must be performed to complete the project, the schedule did not capture all government (e.g., FirstNet) activities or cover the entire contract period. Our schedule guide notes that management should be aware of how long government activities take because they often have a clear effect on schedules. An integrated master schedule should reflect all efforts necessary to successfully complete the program. Failing to include all work for all deliverables, regardless of whether they are the government s responsibility or the contractor s, can hamper program members understanding of the complete plan. Further, our analysis showed that there was a 1:1 detail-to-milestone ratio, meaning there was 1 detail activity for every milestone in the schedule, which is a low level of planning detail. Activities contained in the schedule did not always have manageable or reasonable durations; for example, over 50 percent of remaining activities had durations greater than 2 standard working months, with 25 percent of those having durations greater than 1 year. Our schedule guide notes that, for a schedule to provide a more accurate view of progress, longer activities should be broken down into smaller efforts where possible. While some of these activities had long durations because FirstNet expects AT&T to plan them in the future, some were not designated as such and had no other noted justification. Moreover, the schedule did not show any resources (i.e., labor, materials, travel, facilities, equipment, etc.). Our schedule guide also notes that resources must be considered in the creation of a schedule because their availability directly affects an activity s duration, and a schedule without resources implies their unlimited supply and availability. Well-constructed. We found that the schedule had a high number of date constraints and an unreasonable amount of total float (or slack). For example, 60 percent of remaining activities and milestones in the schedule had start-no-earlier-than constraints. These date constraints confine the schedule by preventing tasks from starting earlier even if predecessor activities are completed ahead of schedule, which prevent the constrained activities from taking advantage of possible savings being introduced by predecessor activities. Our schedule guide recommends minimizing and justifying (in documentation) date constraints because they override the schedule s logic and restrict how planned dates respond to accomplished effort. Schedules with constrained dates can portray an artificial view of the program and begin to look more like calendars than schedules. Moreover, over 50 percent of remaining activities had total float greater than 2 standard working months, with the average being over 200 days. In other words, activities in the schedule can slip an average of 200 working days before delaying the project s finish date. Our schedule guide notes that without accurate values of total float, the schedule cannot be used to identify activities that could be permitted to slip and thus release and reallocate resources to activities that require more resources to be completed on time. Finally, while we found that the schedule had continuous critical paths, there was not enough detail activities to track the work necessary to achieve project milestones. Credible. We found that there was no risk analysis performed for the schedule. Our schedule guide notes that data about program risks should be incorporated into a statistical simulation to predict the level of confidence in meeting a program s completion date; to determine the contingency, or reserve of time, needed for a level of confidence; and to identify high-priority risks. Additionally, our schedule guide notes that a schedule should be (1) horizontally traceable, meaning that it should link products and outcomes associated with other sequenced activities; such links are commonly referred to as hand- offs and serve to depict the relationships between different program elements and verify that activities are arranged in the right order, and (2) vertically traceable, meaning data are consistent between different levels of the schedule. Our analysis found that the schedule responded when significant delays were introduced into the planned activities; that is, when we tested the robustness of the schedule by extending activities durations, forecasted dates recalculated appropriately. However, as described above, we found that the schedule did not capture all activities or provide sufficient detail, meaning it cannot be fully traceable horizontally. We also found that, in general, the schedule provided good vertical traceability that is, dates were traceable between status reports and the schedule. However, when we compared other reported information to the schedule, there were instances where this traceability was not the case. For example, one monthly report stated that baseline information was included for all tasks and milestones of a particular task order, but we found that the schedule did not in fact include this information. Vertical traceability provides assurance that the representation of the schedule to different audiences is consistent and accurate. Controlled. We found that the schedule was updated regularly using actual progress and logic by trained AT&T personnel, with supporting documentation and review procedures. We also found that not all activities in the schedule had baseline dates. According to FirstNet officials, portions of the schedule are baselined on a rolling basis once the next requirements traceability matrixes are created. However, some activities with no baseline dates had already begun or been completed. Further, FirstNet officials stated that no basis document exists for the baselined schedule. Our schedule guide notes that a corresponding basis document is important because it explains the overall approach to the program, defines custom fields in the schedule file, details assumptions used in developing the schedule, and justifies constraints, lags, long activity durations, and any other unique features of the schedule. Furthermore, while AT&T was submitting schedule variance information, it covered only tasks that had been baselined, when the majority of activities in the schedule were missing baseline dates. Without formally established baseline-schedule start and finish dates to measure performance against, FirstNet is limited in how it can use the schedule to identify or mitigate the effect of unfavorable performance. Overall, FirstNet officials said they are not concerned about the gaps in the AT&T master schedule for a variety of reasons. Namely, officials stated that FirstNet entered into a contract with AT&T that lays out specific milestones that AT&T must meet or it does not receive payment. Accordingly, they said that the summary level of detail is sufficient for FirstNet s purposes, as AT&T s program management office determines what activities are appropriate to track to meet those milestones and AT&T maintains its own, more detailed schedule. They further added that given the firm-fixed price nature of the contract, it is not practical or helpful for FirstNet to collect information on the resources for AT&T s deliverables; if it takes AT&T 50 or 50,000 individuals to complete the requirement that decision is for AT&T to determine. As such, although the contract cites GAO s schedule guide when detailing the schedule s requirements, FirstNet excluded requirements related to resources. Similarly, FirstNet excluded requirements related to schedule risk analysis primarily, according to FirstNet officials, because risks to the established schedule milestones were largely considered when evaluating AT&T s proposal prior to contract award. Finally, FirstNet officials highlighted that the schedule is not the only measure for progress and reporting, noting that it employs many other mechanisms to monitor and oversee AT&T s progress and performance, and discusses the schedule during program management review and other meetings with AT&T. However, the contract itself states that FirstNet is responsible for ensuring the overall success of the network and that, to do so, its responsibilities after contract award include overseeing the program schedule. Regarding resources in particular, the contract also states that these responsibilities include managing schedule resources. Thus, while it may not be necessary for FirstNet to collect information from AT&T on every resource detail, as FirstNet has stated, it is nevertheless important for FirstNet to gain an understanding of the overall resources needed to complete the work. This understanding could include, for example, evidence that sufficient resources were assigned to activities in the more detailed schedule that AT&T maintains. Our schedule guide notes that resources must be considered in the creation of a schedule and it is important that FirstNet have sufficient insight into those resources because their availability directly affects an activity s duration. Regarding schedule risk analyses, consideration of risks to the milestones prior to contract award may not serve as a substitute for a risk analysis of the current schedule, which would include detail on activities and risks that could not have been known or fully understood prior to the award. Finally, while FirstNet utilizes a variety of other mechanisms to oversee AT&T s performance, having a more detailed master schedule from AT&T would strengthen FirstNet s use of the schedule as a management and oversight tool. For example, such a schedule could improve FirstNet s insight into the activities driving AT&T s deployment of the network and completion of requirements, how each activity relates to others, and any potential risks. It could also provide FirstNet with additional information that could help it and AT&T manage tradeoffs and make decisions to maximize the program s success across the entire country. <3.2.2. Contract Oversight Communication with Stakeholders> Key practices for contract oversight call for communicating appropriate information to relevant stakeholders and reporting on monitoring results. Additionally, the 2012 Act requires FirstNet to consult via a designated single point of contact (SPOC) in each state with regional, state, local, and tribal jurisdictions regarding a host of activities, such as: ongoing compliance review and monitoring of the management and operation of the network; practices, procedures, and standards for the management and operation of the network; terms of service for use of the network; radio-access network build out, placement of cell towers, and coverage areas; and assignment of priority and selection of entities seeking use of the network. Furthermore, the contract requires AT&T to report, by state, on the state- specific commitments made as a result of the state opt-in process. Portions of this report are to be shareable with states, and it is to detail the deadline by which the commitments will be fulfilled, the status of fulfilling them, and include evidence of the state s satisfaction with progress. Beginning April 2018, AT&T is required to deliver this report semi-annually. Although two such state-specific commitment reports were due as of July 2019, only one has been completed by AT&T and accepted by FirstNet. Additionally, according to FirstNet officials as of October 2019, the report was not shared with the states. Numerous state, local, and tribal stakeholders we interviewed described having had very little contact with FirstNet or being generally dissatisfied with the level or quality of information they had received from FirstNet and AT&T. These officials said that FirstNet had communicated little to no information on AT&T s progress deploying the network in their area, or if and how FirstNet was monitoring performance. For example, many officials said that they had limited interaction with FirstNet beyond public relations emails or events promoting the network, or noted that their interactions lacked substantive information and details that would be of more value. The SPOCs were particularly dissatisfied with the lack of transparency surrounding the contractual requirements or FirstNet s oversight of progress to date. Many of these state officials noted that the level of communication and information shared by FirstNet post contract award stood in stark contrast to the level of engagement prior to the state s opt-in decision. Numerous state, local, and tribal stakeholders we interviewed said that additional information on AT&T s deployment and FirstNet s oversight would be helpful or that greater transparency was needed. Officials wanted additional information on, among other things: contract requirements, milestones, and progress; technical details on the network including operational status and location of cell sites; subscribers within the official s agency or agencies across the state that had adopted the network; and FirstNet s oversight activities and results, including assurance from FirstNet that network coverage and performance had been verified. Even public-safety officials who were pleased with their experiences on the network to date or their relationship with FirstNet representatives reported that having more information was important. In the absence of this type of information, many public-safety entities we contacted expressed concern that they did not know whether FirstNet was holding AT&T accountable. For example, several officials indicated they did not know whether FirstNet or AT&T was running the show. State, local, and tribal stakeholders we interviewed gave a variety of reasons for wanting greater transparency on contractual requirements and oversight. Numerous public-safety officials said that they needed to know this information for tactical response and planning, or state and local contracting purposes. For example, some local public-safety officials described wanting to have basic information on the contract coverage phases in their states so that they could confidently plan out equipment lifecycles. Additionally, many SPOCs said that there was a duty for FirstNet as the contracting agency to oversee that state-specific commitments were met. Many SPOCs also stated that their attempts to obtain more information from FirstNet or AT&T per the agreed-upon commitments had been delayed. At times, when they reached out to FirstNet, they were directed back to AT&T, or vice versa. Numerous stakeholders agreed that given the nature of the network as a public resource involving public investment and funds, with the expressed purpose of serving public safety they expected greater transparency from both FirstNet and AT&T. FirstNet officials provided several reasons for not communicating the additional information cited by the stakeholders we spoke to and for not reporting on monitoring results. In particular, FirstNet officials told us there is no contractual requirement to communicate or share information collected, including any performance information or monitoring results, with any stakeholders or network users. However, its Public Safety Advocacy team serves as the primary interface to the public-safety community and conducts considerable outreach to stakeholders, as described above. Regarding the SPOCs, the officials further said that they believe the 2012 Act s consultation requirement applied only to the initial planning stages (namely, the development of the request for proposal prior to contract award). As such, they do not believe they are legally obligated to continue to communicate specifically as identified in the 2012 Act. Additionally, FirstNet has stated that much of the information AT&T provides is proprietary and, therefore, cannot be disclosed to stakeholders. Finally, regarding the state-commitments report, FirstNet officials have said that FirstNet shares subsets of this information with states that request it during consultative interactions with FirstNet and in coordination with AT&T, but does not routinely share the full report to protect confidential commercial or trade-secret information. While the 2012 Act does require consultation to occur in developing requests for proposals, it also states and otherwise carrying out its responsibilities, suggesting a broader application than just the initial planning stages, which is FirstNet s interpretation. Moreover, while there are valid concerns about disclosing proprietary information and statutory prohibitions on doing so, there are opportunities for FirstNet to communicate additional information in ways it deems appropriate. For example, communicating how it oversees AT&T, the mechanisms it employs, and the performance areas it monitors could be done in a manner that does not disclose proprietary AT&T information, as these are government activities. Additionally, a state official and some local government officials we spoke to said that certain AT&T commercial information (e.g., the location of cell towers) could already be publicly available through local permitting offices. Further, federal internal-control standards note that management may select appropriate methods for external reporting, meaning management can consider what methods are appropriate for different audiences when communicating and reporting information. Finally, the contract states that except as specifically indicated or with explicit written permission from FirstNet, AT&T s deliverables documentation shall not contain proprietary information or have any restriction on reproduction and/or distribution, suggesting that upon awarding the contract, FirstNet recognized the value of limiting these instances. Industry guidance on project management that we reviewed and which is cited in the contract notes that analyses of high-profile project failures highlight the importance of stakeholder engagement. It also notes that communicating with stakeholders in an appropriate way can mean the difference between a project s success and failure. Stakeholders lack of information on the program and FirstNet s oversight of AT&T can make it difficult for stakeholders to assess what benefits have, or have not, been realized, which may affect their enthusiasm and continued support of the program. This scarcity of information has also left them speculating about other matters such as what, if any, oversight FirstNet conducts of AT&T. By not communicating additional information and reporting on monitoring results, FirstNet could be unknowingly reinforcing nascent skepticism of the program overall and of itself as the entity charged with holding AT&T accountable. <3.2.3. Information on End-Users Satisfaction> Key practices for contract oversight call for obtaining information on end- users satisfaction that can be used as a metric to gauge performance quality. For example, industry guidance on program management emphasizes that end-users satisfaction is a powerful metric that should be obtained to gauge program quality, noting that the benefits, product, or service delivered is best evaluated by those who receive it. While FirstNet collects some information via its QASP monitoring, as described above that could relate to end-users satisfaction, these metrics provide limited insight into users experiences. For example, although AT&T surveys some customers to ask them whether they would recommend FirstNet services to a colleague to satisfy a QASP requirement, a user could recommend the service not because they are satisfied but because they have limited alternatives. Indeed, while many state and local public-safety officials we spoke to were pleased with their experience migrating to or piloting the network, numerous officials told us about experiences that fell short of their expectations for a public-safety broadband network backed by the government. Numerous officials told us that they had concerns about misleading or disorganized sales tactics from AT&T representatives. For example, while some officials said that their AT&T representative had been candid in explaining the limited available coverage in their area, many officials told us about instances when AT&T representatives had shown them maps depicting more coverage than actually existed or that were insufficiently granular for their mission work. Similarly, while many officials recounted positive experiences with network coverage or performance or AT&T representatives, many also described instances when equipment failed to work or perform as expected during piloting phases or exercises. In some instances, these officials stated that FirstNet or AT&T representatives explained, after the fact, that differences in user experience were to be expected depending on the device model or subscriber identity module (SIM) card being employed. Specifically, FirstNet or AT&T officials explained that the optimal performance could only be achieved when Band 14 devices connected to a Band 14 cell site. According to FirstNet officials, the best experience will be when subscribers use a Band 14-capable FirstNet-ready device with a FirstNet SIM card while in a Band 14 coverage area. The officials said any other combination could result in slightly degraded performance or features being unavailable. This is notable given that Band 14 coverage is still limited and generally state and local public-safety officials do not have insight as to where these sites were located or when, if ever, coverage will be expanding, as previously discussed. As stated above, at its final operating capability, the network utilizing Band 14 spectrum will not cover the entire country. Many officials also expressed concerns about the network s quality of service, priority, and preemption capabilities over the long run or during a catastrophic event. They speculated about the type or expanding number of subscribers allowed on the network or whether at some point in the future, the network would become saturated because non-public safety organizations or individuals (either extended-primary users or non-verified public-safety subscribers) were being granted priority and preemption capabilities. Exacerbating these concerns, many officials noted that they did not have insight into who had subscribed even within their own agency or state, or lacked confidence in how FirstNet or AT&T verifies individuals public-safety status, based on anecdotal experiences. Further, some officials also raised concerns about their inability to test the network during congested periods or simulate catastrophic power failures and lack of insight into if or how AT&T had hardened the network. Many officials discussed or shared after-action reports or their testing results with us, and several communicated that they had shared or would be willing to share such information with FirstNet as well to support validation of the network s actual performance. According to FirstNet officials, the key performance indicators identified via the QASP are the performance quality measures, not end-users satisfaction. They also stated that disincentive payments embedded in the contract serve as an incentive for AT&T to ensure end-users satisfaction. Specifically, if AT&T does not meet user adoption (i.e., device connection) goals specified in the contract, it has to make payments to FirstNet on a timetable identified in the contract. Additionally, according to FirstNet officials, they informally hear information on end- users satisfaction and the network s performance through many of the engagements its Public Safety Advocacy team conducts, which they can informally share with AT&T. However, disincentive payments (and the user-adoption goals tied to them) may be a limited reflection of end-users satisfaction for various reasons. For example, users may continue to subscribe to the service not because they are satisfied with it but because agency procurement lifecycles and budgets prevent them from changing providers, or because they find it difficult to break a sales contract, have already sunk costs into the transition, or lack alternatives in the market. Additionally, if AT&T perceives that the value derived from its commercial customers use of the excess Band 14 spectrum capacity is greater than the disincentive payment it must make to FirstNet, it may view making the payment as an acceptable tradeoff. Alternatively, aggressively pursuing sales contracts with potential public-safety users to avoid the payments may not be welcomed by the public-safety community, which could result in negatively, not positively, affecting end-users satisfaction, as some public-safety network users we spoke to said it had. Finally, while the informal collection and sharing of information on satisfaction can be valuable, it does not serve as a formal performance-quality measure, which could provide FirstNet with additional recourse should issues arise. End-user adoption is both a goal of the program and how AT&T plans to fund the $40 billion of investment in the network. Adoption may be driven by satisfaction in addition to need. Ultimately, end-users dissatisfaction could affect the success of the program. Thus, FirstNet s lack of formal insight into end-users satisfaction hampers its ability to take actions that could increase the program s chance of succeeding. By not obtaining and using this information to inform its oversight or related activities, FirstNet could be missing an opportunity to increase assurance of the program s long-term success. <4. Conclusions> The FirstNet public-safety broadband network has the potential to save lives every day. Since beginning their 25-year partnership, AT&T has made progress deploying the network and meeting contractual milestones and goals, and FirstNet has employed a variety of mechanisms many of which align with key practices to oversee AT&T s performance. However, the success of the network depends not only on AT&T s contract execution and FirstNet s oversight but also on the confidence of the end users, the nation s first responders. As FirstNet enters the next phases of its partnership with AT&T, it could reduce the risks to the network s long-term success by strengthening its schedule oversight; increasing transparency, communication, and reporting of additional information to states and other public-safety stakeholders; and obtaining and using meaningful information on the satisfaction of the first responders for whom the network is intended. <5. Recommendations for Executive Action> We are making the following four recommendations to FirstNet: FirstNet s Chief Executive Officer should take steps to ensure that the integrated master schedule for the program is developed and maintained in accordance with the best practices provided in GAO s Schedule Assessment Guide. (Recommendation 1) FirstNet s Chief Executive Officer should identify additional information about the program, including FirstNet s oversight and monitoring activities, that can be shared with public-safety stakeholders and periodically communicate and report this information to them. (Recommendation 2) FirstNet s Chief Executive Officer should share relevant portions of the accepted state-specific commitment reports with the states, as specified in the contract. (Recommendation 3) FirstNet s Chief Executive Officer should, in consultation with public- safety stakeholders and its contractor, as appropriate, identify and obtain periodic information or meaningful indicators on end-users satisfaction that would serve as a metric to gauge performance quality, including the effect of the FirstNet network and products on public-safety operations. (Recommendation 4) <6. Agency Comments> We provided a draft of the sensitive report to FirstNet for review and comment. FirstNet s comments on the sensitive report are reprinted in appendix II. In these comments, FirstNet stated that it agreed with all of our recommendations; will take appropriate additional steps to apply lessons learned and address our concerns; and will continue to find ways to improve transparency with and feedback from its stakeholders, in addition to refining the integrated master schedule. Separately, FirstNet also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Chief Executive Officer of FirstNet, the Secretary of Commerce, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report examines the extent to which (1) AT&T is meeting the established milestones for deploying the nationwide public-safety broadband network, including coverage and adoption goals, via its contract with the First Responder Network Authority (FirstNet), and (2) FirstNet is overseeing AT&T s deployment of the network in accordance with key practices. To assess progress toward the coverage and adoption milestones, we reviewed the FirstNet-AT&T network contract, corresponding task orders, and relevant documentation contained in FirstNet s contract files, including information or deliverables submitted by AT&T that had been reviewed by FirstNet for contract compliance. We also reviewed additional FirstNet documentation, such as board-meeting materials, annual reports to Congress, press releases, fact sheets, and official blog postings. We reviewed the Middle Class Tax Relief and Job Creation Act of 2012 (the 2012 Act), which created FirstNet as an independent authority charged with establishing a nationwide public-safety broadband network that would, among other things, be deployed in phases that included substantial coverage milestones in rural areas. Within the contract, we identified the various coverage and adoption milestones and focused our analysis primarily on task order 3, phase 3 (which spanned March 31, 2018, to March 30, 2019) and task order 4, phase 2 (which spanned October 1, 2018, to March 30, 2019) milestones. We focused on these task orders because they are most relevant to the network s coverage deployment and adoption, and on these phases because they were the phases under way at the time we began our review. We did not review activities or progress as described in AT&T deliverables dated beyond September 2019 given the timing of our review. We also did not make any conclusions about progress toward the final phases of these task orders. However, we did assess the master schedule to determine its reliability and validity for planning and tracking progress toward the final phases as described further below and in our report. The contractual deliverables that we reviewed in some cases included detailed data broken out by state and public-safety discipline. In particular, we analyzed data that indicated progress toward nationwide and state Band 14 network coverage (in square miles); cell site delivery; monthly adoption targets (i.e., device connections) by discipline; and types of devices connected. When analyzing these data, in all cases, we used the most currently available data at the time of our request for the information, and we report data as of September 2019. Although all data were the most currently available as of September 2019, because the deliverables have varying cycles for when AT&T is contractually required to report the information, we specify throughout the report the as of period these data represent. We assessed the reliability of these data by asking FirstNet officials questions about how they review the deliverables and about data sources, quality, and timeliness, as well as by electronically testing the dataset for missing or invalid entries. We removed a small number of missing or invalid entries from our analysis of device types and models and count of public-safety agencies. We did not assess AT&T s underlying systems or databases, nor did we interview AT&T officials about their protocols for producing this data. We found these data reliable for the purpose of describing FirstNet s current and projected progress toward coverage and adoption milestones for the related task orders and phases. To further assess deployment progress, we conducted case studies of seven states to illustrate and obtain greater context on variations in state- level coverage and adoption. We selected our case-study sample to include states that had very high-density counties; relatively large numbers of low-population density counties; high poverty rates (due to budgetary challenges public-safety entities may face); varying levels of progress in cell site delivery as of January 2019 (the most currently available data at the time of our selection); and geographic diversity and tribal lands. In total, the selected states represent almost a third of the contract dollars allocated for network coverage deployment. Our case- study analyses included reviewing and comparing the deployment plans and commitment letters for these seven states (detailing the agreed-upon, state-specific commitments AT&T made to these states) against the deliverables describing the progress AT&T made on some of these commitments, as of July 2019. It also included interviewing state, local, and tribal officials and first responders from these states, as described further below. The case studies and stakeholders views illustrate experiences with FirstNet s deployment of the network across a wide cross section of geographies and network users to date but are not generalizable to those of all FirstNet stakeholders or the network as a whole. We also interviewed FirstNet officials to obtain their perspectives on AT&T s progress and factors that may explain the variance across states. To examine FirstNet s oversight efforts, we reviewed the FirstNet-AT&T network contract and documentation contained in FirstNet s contract files, as well as additional FirstNet documentation. In addition to the material described above, this documentation included, for example, the Quality Assurance Surveillance Plan, requirements traceability matrixes, verification reports, memos, Contract Administration Plan, FirstNet Acquisition Manual, guidance documents on contract management and procedures, and FirstNet officials written responses to questions we posed. For the same reasons described above, we focused primarily on material related to task order 3, phase 3 and task order 4, phase 2. We interviewed FirstNet officials to obtain greater context on FirstNet s oversight mechanisms and their use, and to observe FirstNet s verification activities and the platform it uses to manage its contract files. Further, we reviewed key acquisition and contract-oversight practices established in the Federal Acquisition Regulation and the Commerce Acquisition Regulation, as well as the Commerce Acquisition Manual and other academic and industry guidance. We also reviewed the 2012 Act and federal standards for internal control. We selected those practices that were most appropriate given FirstNet s contract approach (i.e., Indefinite-Delivery/Indefinite-Quantity, Firm-Fixed-Price contract vehicle) and the stage of the acquisition process FirstNet was in during the course of our review. We assessed FirstNet s oversight efforts against these practices. We also compared the network s integrated master schedule, which AT&T provides to FirstNet, to scheduling best practices in GAO s schedule guide. Collectively, these best practices are organized into four characteristics of a reliable schedule. A schedule is considered reliable if each of the four characteristics is substantially or fully met; if any of the characteristics are not met, or minimally or partially met, the schedule cannot be considered reliable. We reviewed the schedule as of its status date January 31, 2019, which represented the latest status update to the schedule at the time we began our schedule analysis. In reviewing the schedule, we also reviewed the schedule dictionary, work breakdown structure, and program management review or monthly progress reports dated October 2018 to January 2019, among other documents. We provided our criteria and draft schedule analyses to FirstNet for review. To inform both of our objectives, we conducted about 40 interviews with state, local, and tribal officials and first responders. These interviews represented almost 30 different states single point of contact (SPOC) to FirstNet or their designees, and over 30 different state, local, or tribal public-safety entities. The public-safety entities we interviewed included police and fire departments, sheriffs offices, emergency medical-services providers, and emergency-management agencies, among others. We interviewed the SPOC from each of our case-study states and received information from other SPOCs (or a designee) via a multi-state focus-group discussion and written responses to the semi-structured discussion questions and prompts we posed. A GAO moderator led the discussion to establish ground rules and keep participants focused on the specified issues within the discussion time frame. We selected state, local, and tribal public-safety entities within our case-study states to interview. To select the state and local public-safety entities to interview, we reviewed the AT&T subscription management report provided to FirstNet as of February 2019 (the most current available at the time of our selection) and asked the SPOCs for recommendations within their state. Generally, we selected among the largest subscribers (meaning, the most number of devices on the network) in each of the primary public-safety disciplines (law enforcement, fire, emergency-medical services) in each state, and selected others to ensure representation among urban, suburban, and rural areas. To select the tribal entities to interview we asked the National Tribal Emergency Management Council for a recommendation in each state. Not all public-safety entities accepted our interview requests. Among our case-study states, we conducted a site visit in one state region. We selected this region for our visit because of the concentration of subscribers within reasonable geographic proximity to each other. For additional context, during this visit we also met with the FirstNet Public Safety Advisors that serve the state and attended a FirstNet presentation and town hall meeting hosted by the local chapter of the Association of Public Safety Communications Officials. Because stakeholders varied in their expertise with various topics, not every stakeholder provided an opinion on every topic. Throughout this report we refer to some stakeholders if officials from 3 5 entities, several if 6 9, many if 10 19, and numerous if 20 or more expressed the view. Finally, for additional perspective we also interviewed the National Public Safety Telecommunications Council because of its role as a federation of organizations whose mission is to improve public-safety communications and interoperability. As noted above, stakeholders views are not generalizable to those of all FirstNet stakeholders. Appendix II: Comments from FirstNet Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Sally Moino (Assistant Director); Nalylee Padilla (Analyst in Charge); David Aja; Melissa Bodeau; Andrew Burton; Mark Goldstein; Yvette Gutierrez; David Hooper; Jason Lee; Andrew Stavisky; Hai Tran; William Woods; and Friendly Vang-Johnson made key contributions to this report.

Why GAO Did This Study Public-safety officials such as police officers and firefighters rely on communications systems to do their jobs. The Department of Commerce's FirstNet must establish a nationwide public-safety broadband network for use by these officials. In March 2017, FirstNet awarded a 25-year, multibillion-dollar contract to AT&T to deploy, operate, and maintain the network. AT&T must meet milestones specified in the contract, such as for providing network coverage and for the network's adoption. FirstNet's oversight of AT&T's progress and performance is critical given the contract's scope and duration. GAO was asked to review FirstNet's progress and oversight. GAO examined the extent to which (1) AT&T is meeting milestones for the network's coverage and adoption and (2) FirstNet is overseeing AT&T in accordance with key practices. GAO analyzed FirstNet and AT&T documentation; assessed FirstNet's oversight efforts against key contract-oversight practices identified in federal regulations and other government, academic, and industry guidance; and assessed the program's master schedule against GAO best practices. GAO interviewed FirstNet officials, and selected state, local, and tribal officials and first responders representing a variety of viewpoints. Although not generalizable, they provided useful perspectives. What GAO Found AT&T is meeting—or on track to meet—all nationwide, contractual network coverage and usage (adoption) milestones for the First Responder Network Authority (FirstNet) public-safety broadband network. AT&T has met the first nationwide coverage milestone (20 percent of the final expected coverage by March 2019), but coverage varies across states. Similarly, AT&T is on track to meet the first nationwide adoption milestone (which is to have a certain number of devices connected to the network by March 2020). AT&T has exceeded adoption targets in most states but lags in others. According to FirstNet officials, variances by state are allowable, as the key milestones are nationwide. FirstNet uses various mechanisms to oversee AT&T; many of which align with key contract-oversight practices. For example, FirstNet uses a quality assurance surveillance plan to evaluate AT&T's performance. However, GAO found that FirstNet lacked (1) a reliable master schedule to review, (2) communication with relevant stakeholders regarding contract oversight, and (3) meaningful information on end-users' satisfaction to gauge performance quality. Schedule. AT&T is required to provide a current master schedule to FirstNet monthly, but the schedule only partially or minimally meets the characteristics of a reliable schedule per GAO best practices. For example, the schedule only partially captures all activities or the duration or sequence of activities. Key practices call for tracking a contractor's progress toward the expected schedule. Having a more detailed schedule to review could improve FirstNet's insight into AT&T's deployment and strengthen FirstNet's use of the schedule as a management tool. Stakeholder communication. Numerous public-safety officials GAO interviewed were dissatisfied with the level or quality of information received from FirstNet, noting that FirstNet had communicated little to no information on AT&T's progress or FirstNet's oversight. FirstNet officials said there is no contractual requirement to share such information, but key practices call for communicating appropriate information to relevant stakeholders and reporting on monitoring results. The lack of information has left stakeholders speculating about what, if any, oversight FirstNet conducts; sharing more information about the oversight FirstNet conducts could improve public-safety sentiment for and support of the program. End-users' satisfaction. FirstNet collects some information that could relate to end-users' satisfaction, but this information provides limited insight into users' experiences. For example, AT&T surveys some users to ask whether they would recommend FirstNet services, but a user might do so due to limited alternatives, not satisfaction. Although end-users' satisfaction is not a performance quality measure in the contract, key practices call for using end-user satisfaction information as a metric to gauge performance quality. By not using this information to inform FirstNet's oversight or related activities, FirstNet could be missing an opportunity to increase assurance of the program's long-term success. This is a public version of a sensitive report that GAO issued in December 2019. Information that FirstNet deemed proprietary has been omitted. What GAO Recommends GAO is making four recommendations, including that FirstNet ensure the schedule aligns with GAO best practices, share additional oversight and other information with appropriate stakeholders, and utilize end-user satisfaction information to gauge performance. FirstNet agreed with GAO's recommendations.

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<1. Background> <1.1. Job Corps Eligibility Criteria and Program Services> To be eligible for Job Corps, youth must generally be 16 to 24 years old at the time of enrollment; be low-income; and have one or more barriers to education and employment, such as being homeless, a school dropout, or in foster care. The vast majority of students live at Job Corps centers in a residential setting, while the remaining students commute on a daily basis from their homes to their respective centers. This residential structure is unique among federal youth programs and enables Job Corps to provide a comprehensive array of services to students 24 hours a day, 7 days a week. These services include housing, meals, clothing, medical and dental care, academic instruction, and job training. <1.2. Job Corps Structure and Operations> ETA administers the Job Corps program through its Office of Job Corps under the leadership of a national director and a field network of six regional offices located in Atlanta, Boston, Chicago, Dallas, Philadelphia, and San Francisco. Of the 119 centers, 94 are operated under contracts with various businesses, Native American tribes, and nonprofit organizations. Job Corps predominantly contractor-operated structure is unique among ETA s employment and training programs, according to ETA officials, as other programs it administers are generally operated by states through grants. Several Job Corps contractors have operated centers for two or more decades, and some contractors operate multiple centers. For example, by the end of program year 2016, over two-thirds of Job Corps contract centers were operated by seven contractors. The remaining 25 centers (called Civilian Conservation Centers) are operated by USDA s Forest Service through an interagency agreement with DOL. Figure 1 presents a map of ETA s Job Corps center locations and regions. Multiple offices within DOL at the national and regional levels are involved in Job Corp center contracting (see fig. 2). Three offices within ETA award and monitor Job Corps center contracts. The Office of Job Corps oversees program operations and monitors contractors who operate Job Corps centers. Each regional office has between seven and nine program managers who carry out these functions and assist in the contracting process. The Office of Contracts Management awards and manages Job Corps center and other support contracts, and oversees ETA s Contract Review Board, which, among other things, generally reviews all competitive Job Corps center contracts over $1 million. Each regional office has one contracting officer who is the designated official with the legal authority to enter into, administer, and terminate Job Corps contracts on behalf of the government. In addition, regions have contract specialists who assist the contracting officer in managing Job Corps center and support contracts. Contracting officers and contract specialists in Job Corps regional offices report to the Office of Contracts Management. The Office of Financial Administration monitors Job Corps budget and spending, communicates information about the availability of funds for Job Corps center and support contracts, and calculates and pays incentive fees to contractors, among other types of fees. At the national level, budget analysts carry out these functions and are assigned to each Job Corps regional office. In addition, other DOL offices are involved in Job Corp center contracts. Specifically, DOL officials said that the Office of the Solicitor provides legal advice and representation to ETA on legal matters related to Job Corps center contracts, such as protests and contractors failure to meet specific contractual requirements. DOL s department-wide Procurement Review Board within the Office of Procurement Policy reviews and approves all noncompetitive Job Corps center and support contracts. DOL s Office of Small and Disadvantaged Business Utilization reviews and makes recommendations on all ETA procurements over a certain threshold. DOL officials told us this includes reviewing whether to set aside Job Corps center and support contracts for small businesses. <1.3. Awarding Contracts Competitively and Noncompetitively> Similar to other federal agencies, ETA is generally required to use full and open competition meaning all responsible parties are permitted to compete when awarding contracts. Competition is considered a cornerstone of the federal acquisition system and a critical tool for achieving the best return on investment for taxpayers. In addition, competitively-awarded contracts can help conserve scarce resources, improve contractor performance, curb fraud, and promote accountability. In fiscal year 2017, over 80 percent of obligations at federal civilian agencies (non-defense) were awarded competitively. Despite the preference for competition, federal procurement law recognizes that full and open competition is not feasible in all circumstances and authorizes contracting without full and open competition under certain conditions. For example, contracting officers may award a contract noncompetitively if one of seven exceptions listed in Federal Acquisition Regulation (FAR) subpart 6.3 applies. Examples of allowable exceptions include circumstances when products or services required by the agency are available from only one source, or when the need for products and services is of such an unusual and compelling urgency that the federal government faces the risk of serious financial or other injury. Generally, exceptions to full and open competition must be supported by written justification and approval documents that contain sufficient facts and rationale to justify use of an exception. <1.4. ETA s Process for Awarding and Monitoring Job Corps Center Contracts> ETA s process for awarding and monitoring Job Corps center contracts generally consists of several phases, which we have categorized into six areas that reflect the federal contracting process. As shown in figure 3, Job Corps contracting process starts with acquisition planning and concludes with contract administration. Within each phase, regional program and contracting officials conduct various contracting activities, such as evaluating proposals received from prospective contractors. In addition, budget analysts support the acquisition process by communicating information about the availability of funding for Job Corps center contracts, among other duties. Interested parties including actual or prospective offerors may make written objections (which are referred to as protests) of an agency s actions concerning the solicitation and award of contracts. For example, interested parties may object to the award of a Job Corps center contract if they believe the contract was awarded improperly. Parties may file protests in several different venues, including with the agency, GAO, or the U.S. Court of Federal Claims. Parties that disagree with the agency s protest decisions or GAO s recommendations can file a protest with the U.S. Court of Federal Claims. The legal procedures and the length of time it can take to resolve a protest varies based on the venue in which the protest was filed. For example, protests filed with the agency should be resolved within 35 days, while GAO generally decides protests within 100 days. In some instances, interested parties may seek to halt the award or suspend performance of the contract until the protest is resolved. This can introduce potential delays in the agency s acquisition process or interrupt the performance of an existing contract. Protests may be resolved in a variety of ways depending on which venue the protest was filed. For protests that are found to have merit, the agency may take actions such as issuing a new solicitation, re-competing a contract, or terminating a contract. Parties can also withdraw their protest at any time during the process. <1.5. Job Corps Center Performance Measurement> ETA established a performance management system (commonly referred to as the Job Corps Outcome Measurement System) to assess center performance and program effectiveness. In program years 2016 and 2017, center contractors collected and reported to ETA data related to performance measures that generally fall under three areas of services provided to students: (1) direct center services (e.g., helping students attain a high school diploma or high school equivalency); (2) short-term career transition services (e.g., placement of graduates in a job related to their training); and (3) long-term career transition services (e.g., job placements of graduates 6 and 12 months after completing the program). For each measure reported, ETA established a national performance goal and assigned a weight that represents its relative importance for achieving student outcomes. The sum of the ratings on each performance measure was used to develop an overall ranking for each center. According to ETA officials, they revised Job Corps outcome measurement system for program year 2018 to align with requirements under the Workforce Innovation and Opportunity Act (WIOA). Under the Act, ETA is required to annually assess the performance of each Job Corps center and to report to Congress on their performance based on specified performance indicators. Officials said they are currently tracking Job Corps data on eight performance measures related to various student outcomes such as measurable skills gain and credential attainment (i.e., earning a high school diploma or its equivalent, or completing career and technical training). ETA reported these new measures for program year 2018. <1.6. Prior GAO Reports on the Use of Bridge Contracts> In certain situations, it may become evident that services could lapse before a subsequent contract can be awarded. In these cases, because of time constraints, contracting officers may, for example: (1) extend the existing contract or (2) award a short-term stand-alone contract to the incumbent contractor on a sole-source basis to avoid a lapse in services. Both these extensions and new sole-source contracts are informally referred to as bridge contracts by some in the acquisition community, and we have used this definition in previous work. In our October 2015 report, we found that the three selected agencies included in our review the Departments of Defense, Health and Human Services, and Justice had limited or no insight into their use of bridge contracts, as bridge contracts were not defined or addressed in department-level guidance or in the FAR. In response, we recommended that the Administrator of the Office of Federal Procurement Policy (OFPP) an office within the Office of Management and Budget (OMB) that provides government-wide guidance on federal contracting take the following actions: (1) develop a standard definition for bridge contracts and incorporate it as appropriate into relevant FAR sections and (2) provide guidance to agencies as an interim measure until the FAR is amended. OFPP agreed with these two recommendations; however, as of May 2019, OMB had not yet implemented them. We acknowledge that in the absence of a government-wide definition, agencies may have differing views of what constitutes a bridge contract. For example, ETA informed us that it does not consider competitive contracts that exercise the Option to Extend Services under FAR 52.217-8 to be bridge contracts. However, ETA and DOL could not provide us with a documented definition of bridge contracts for their agency. Contracts and extensions (both competitive and noncompetitive) are included in our definition of a bridge contract because the focus of the definition is on the intent of the contract or extension. <2. ETA Used Bridge Contracts Extensively for Center Operations During Program Year 2016 Due to Workforce Challenges and Other Reasons> <2.1. ETA Used Bridge Contracts to Operate Nearly Three-Quarters of Its Job Corps Centers During Program Year 2016> Nearly three-quarters of the Job Corps centers (68 of 97) were operated by contractors under bridge contracts at some point during program year 2016. Of the 68 centers that operated under bridge contracts, 58 centers had at least one bridge contract awarded on a sole source basis, or noncompetitively. The other 10 centers had bridge contracts based on use of the Option to Extend Services clause. While GAO has found that bridge contracts are generally envisioned as short-term, over two- thirds of the centers (49 of 68) that used bridge contracts in program year 2016 operated under them for at least 12 months, with over a third of these centers operating under bridge contracts for at least 2 years or potentially longer. Figure 4 shows the minimum length of time ETA used bridge contracts to operate Job Corps centers. Our in-depth review of 10 centers highlights how a center may use bridge contracts for longer periods of time. For example, for 1 of the 10 centers we reviewed and that operated under bridge contracts for 30 months, ETA first opted to exercise the option to extend services clause with the same contractor for 6 months, between May and October 2014. By the end of the extension, ETA was unable to award the follow-on contract and instead awarded a 2-year bridge contract to the same contractor. ETA stated that with respect to this center, it needed to use a bridge contract due to several factors, including protests, funding challenges, and internal efforts to strengthen aspects of the procurement process. Subsequently, ETA awarded a competitive follow-on contract in September 2016 to a new contractor. <2.2. ETA Cited Acquisition Workforce Challenges and Other Reasons that Led to the Need to Use Bridge Contracts During Program Year 2016> ETA cited several reasons that contributed to its need to use bridge contracts during program year 2016, according to the justification and approval documents we reviewed and our interviews with national and regional officials. For example, acquisition workforce challenges were a primary reason ETA cited for its need to use bridge contracts. ETA also frequently cited protests by Job Corps contractors; at times citing protests that dated back to 2011. <2.2.1. Acquisition Workforce Challenges> Leading up to program year 2016, ETA national officials said they encountered a number of acquisition workforce challenges that affected their ability to competitively award Job Corps center contracts. These challenges included: (1) staff attrition in key contracting positions, (2) the need to hire and train new contracting staff, and (3) the need to divert staff to address new requirements under WIOA and other issues. As discussed earlier, ETA has one contracting officer position for each of its six regions. ETA officials said they faced significant attrition in the Office of Contracts Management around 2013 when all but one of the six regional contracting officers left or retired, leaving them with limited regional resources to award center contracts. San Francisco was the only Job Corps region that did not lose its contracting officer. Officials said that this may help to explain why the region operated under fewer bridge contracts as compared to the other five regions. In addition, ETA officials said the agency decided to centralize contracting positions in the national office in 2013 due to concerns about oversight of regional contracting staff. In 2015, ETA decided to reestablish its regional contracting structure, with one contracting officer in each region. To address the large number of staff departures, ETA hired new contracting officers and all of the contracting officers we spoke with told us that they joined ETA s Office of Contracts Management in 2015 or 2016. When ETA filled its staff vacancies, it hired contracting officers who had prior experience at other agencies. Nonetheless, some contracting officers said it still took time for them to get up to speed due to the uniqueness and complexity of Job Corps center operations contracts. Program officials said that the additional time needed to explain program requirements to new contracting staff slowed down the contracting process. Also, national officials said that contracting officers were unable to competitively award center contracts because of the time needed to carry out acquisition planning tasks, which as we have previously reported, are important to establishing a strong foundation for the contracting process. Such activities include market research, which is used to collect and analyze information about capabilities within the market available to satisfy agency needs. According to ETA s Acquisition Handbook, market research should occur at least 16 months prior to the anticipated award of a new center contract and after the requirements have been developed by the Office of Job Corps. Figure 5 provides an example of how acquisition workforce challenges affected one of the centers in our in-depth review. Additionally, in the written justification and approval documents for noncompetitive bridge contracts related to 35 of the 68 Job Corps centers that operated under bridge contracts during program year 2016, ETA officials noted that they had to divert contracting staff to implement contracting changes that resulted from the passage of WIOA. WIOA included provisions that affected the Job Corps contracting process, including requiring that certain criteria be considered when selecting an entity to operate the centers. DOL issued regulations implementing these provisions in August 2016. Additionally, in written justification and approval documents for noncompetitive bridge contracts related to 34 of the 68 Job Corps centers that operated under bridge contracts during program year 2016, ETA officials noted that they diverted staff from awarding Job Corps procurements to address financial issues encountered by the program. GAO and DOL s Office of Inspector General previously reported on earlier problems with ETA s financial management oversight of Job Corps. In particular, DOL s Inspector General reported insufficient management oversight and inadequate documentation led to ETA obligating funds that had yet to be appropriated across multiple years. In response, ETA officials said that the agency had, among other actions taken, provided training to its program and contracting staff in program year 2016. <2.2.2. Protests> In our review of ETA s written justification and approval documents for noncompetitive bridge contracts related to 42 of the 68 Job Corps centers that operated under bridge contracts during program year 2016, ETA officials cited protests from Job Corps offerors as a reason for using bridge contracts. Some of these justifications cited specific center protests, while others cited the accumulation of protests beginning in 2011. According to ETA officials, in general, each time a protest is filed, the center contract in question is either not awarded or performance on the contract is suspended until the protest is resolved. Our analysis of DOL s data of protests filed with GAO, the agency, or the U.S. Court of Federal Claims shows that a total of 11 protests were filed in program year 2016 related to seven centers; however, Job Corps offerors filed 44 protests in the four proceeding program years. Figure 6 presents DOL s data on the number of Job Corps center protests by decision outcome filed in program years 2012 to 2016 before GAO, the agency, or the U.S. Court of Federal Claims. ETA officials said that the accumulation of protests filed since 2012 contributed to the agency s heavy reliance on bridge contracts in 2016. ETA officials explained that they temporarily suspended the issuance of solicitations for center contracts prior to program year 2016 to address the issues raised in the protests. This resulted in a backlog of contracts waiting to be competitively awarded. We found that protests were not the only factor contributing to ETA s need to use bridge contracts. Figure 7 provides an example of how a protest and other factors affected one center in our in-depth review. In one partially sustained protest filed at GAO, GAO found that ETA failed to meaningfully consider whether another contractor was capable of performing the procured services before it awarded a noncompetitive bridge contract to the incumbent contractor. In this instance, ETA published a notice of its intent to award a sole-source contract, inviting companies to submit a statement demonstrating their capabilities within 7 days. However, a day after publishing the notice, DOL s chief procurement officer signed the justification for the sole-source contract, and DOL entered into the sole-source contract with the incumbent contractor without considering other prospective contractors capability to perform the procured services. ETA officials told us that some of the protests were caused in part by the agency s decision to set aside more Job Corps center contracts for small businesses. Federal regulations require all federal agencies with procurement authority to provide maximum practicable opportunities for small businesses to win awards for government contracts, thereby meeting specific government-wide goals. ETA officials said that the agency s decision to set aside more center contracts for small businesses precluded larger incumbent contractors some of which had historically operated centers from competing for some center contracts. In response, ETA officials said some of these contractors filed protests that challenged ETA s decisions to set aside center contracts for small businesses. <2.2.3. Other Contracting Issues> ETA identified a number of other contracting issues as reasons for using bridge contracts. For example, in the justification and approval documents we reviewed related to contracts for four centers, ETA officials said procurements for competitive Job Corps center contracts were suspended because the pre-award processes had been compromised due to the unauthorized release of confidential contractor information in 2015. This included sensitive information on the incumbent contractor s staffing levels and rates of pay, among other information. In response to this unauthorized release, ETA delayed new competitive procurements and used bridge contracts to continue services until the released information was no longer applicable and would not harm the contractor s ability to compete. <3. ETA Used Various Strategies to Decrease Its Use of Noncompetitive Bridge Contracts, but Acquisition Planning and Workforce Challenges Remain> <3.1. ETA Prioritized Competitive Awards and Used Other Strategies to Improve the Contracting Process to Reduce the Use of Noncompetitive Bridge Contracts> ETA officials said they more recently used various strategies to improve the contracting process, which allowed them to award competitive contracts more quickly and reduce their reliance on noncompetitive bridge contracts to operate Job Corps centers. According to our analysis of FPDS-NG data and contracting documentation, most of the centers (48 of 68) that operated under bridge contracts during program year 2016 transitioned to competitively awarded contracts by the end of program year 2017. The strategies ETA identified as contributing to reducing the backlog of centers awaiting contract awards included: Prioritizing staff efforts on competitive awards. Contracting officials said that they awarded competitive contracts for an average of 12 to 14 Job Corps centers in a region at the same time, which they noted is a high volume of contract activity to execute concurrently. They said that Job Corps center contracts typically can take approximately 8 to 12 months from solicitation to award for new 5- year competitive procurements. In regions without a contracting officer, officials said that they had to rely on contracting officers from other regions and the national office to handle the workload. In addition, some program officials said that they were instructed to prioritize competitive procurements over some of their other program responsibilities, such as conducting on-site visits at Job Corps centers. As of January 2019, officials said they were able to clear the entire procurement backlog for center contracts during 2018. Using oral presentations to evaluate prospective contractors. ETA officials said they increased their use of oral presentations, in accordance with FAR 15.102, from prospective contractors during the initial evaluation phase of the contract award process. In a typical initial evaluation, regional program and contracting officials assess prospective contractors ability to meet the contract requirements, among other areas. Contracting and program officials told us that reviewing technical proposals can be very time consuming because each proposal can be more than 100 pages long; thus, in ETA s view, oral presentations can streamline the proposal review process. Awarding indefinite-delivery/indefinite-quantity (IDIQ) contracts. In November 2016, ETA awarded IDIQ contracts that allow ETA to quickly award task orders in the event a center may experience a lapse in services, such as when a center contractor files for bankruptcy and abandons the center. ETA officials also said that such contracts could be used when a center contract is expiring and no follow-on contract has been awarded. According to the solicitation for the IDIQ contracts, selected contractors should be able to quickly take over center operations with limited disruption, provide the upkeep of the facility, and ensure safe living and learning environments for students, among other duties. Twelve contractors were awarded IDIQ contracts and may compete for task orders to operate specific centers. Regional contracting officials said the process for awarding a task order is generally faster than their typical competitive center contracts. They also noted that IDIQ contracts have been a helpful tool in continuing operations at centers during protests. Regional officials told us that incumbent contractors would previously file protests when they were unsuccessful in winning new center contracts because their existing contract was extended while the protest was resolved. In the future, ETA officials said they can quickly award a task order from an IDIQ contract to replace an incumbent contractor during a protest. Also, under the terms of the solicitation for the IDIQ contracts, contractors who received one of the 12 IDIQ contracts would be prohibited from competing for task orders for centers where they are the incumbent contractor. In program year 2017, ETA awarded task orders to continue services at four centers. <3.2. ETA Continues to Face Acquisition Planning and Workforce Challenges That May Hinder Its Ability to Minimize Future Use of Bridge Contracts> Despite ETA s efforts to reduce its use of bridge contracts, we identified ongoing acquisition planning and workforce challenges. These challenges fall into three categories: (1) planning for future procurements; (2) addressing acquisition workforce vacancies; and (3) implementing a new contracting approach. These areas could pose a risk to ETA s management of Job Corps center contracts, including its ability to minimize the use of bridge contracts in the future, if unresolved. <3.2.1. Planning for Future Procurements> Based on our analysis, we project that more than half (57 of 97) of Job Corps center contracts may need new contracts in program years 2021 and 2022, according to our analysis of FPDS-NG data and contract documentation (see fig. 8). Contracting officials expressed concerns about their capacity to conduct acquisition planning to award future center contracts given that two of six regions are currently without contracting officers, despite efforts to fill all vacant contracting officer positions. For the centers that we projected will need new contracts in program years 2021 and 2022, ETA will need to begin conducting acquisition planning relatively soon. According to contracting officials, acquisition planning and market research can take anywhere from 6 months to several years, depending on the requirement. Once these steps are completed, officials said it can take approximately 8 to 12 months from solicitation to award for new 5-year competitive procurements. Therefore, acquisition planning for a Job Corps center contract set to expire in January 2021 would need to begin before early 2020. We have previously reported that agencies have faced challenges allowing sufficient time to conduct acquisition planning, which can increase the risk that the government may receive services that cost more than anticipated, are delivered late, and are of unacceptable quality. According to the FAR, agencies should generally begin acquisition planning as soon as the agency need is identified, preferably well in advance of the fiscal year when the contract needs to be awarded to obtain timely services. The FAR also notes that the lack of advance planning is not a basis for justifying the use of other than full and open competition. Contracting officials said that finding ways to stagger Job Corps center contracts could help prevent a future procurement backlog. However, they had not received documented guidance from the national office on how to stagger center contracts to help mitigate this problem. In particular, national and regional contracting officials told us that one possibility for staggering center contracts is to decline to exercise option years. Officials in one region said that they are exploring this option, but noted it is still fairly uncommon for them not to exercise option years. GAO s prior work emphasized the importance of comprehensive planning to ensure agencies effectively execute their missions and are accountable for results. Also, federal internal control standards state that agency leadership should anticipate and plan for significant changes by using a forward-looking process to identify risks that would affect its ability to achieve its objectives. Without a comprehensive strategy that considers when current center contracts will expire and how or whether Job Corps staff can effectively plan for and competitively award future center contracts, ETA is at increased risk of again having a backlog of center contracts to award competitively and, in turn, needing to use bridge contracts. <3.2.2. Planning for Acquisition Workforce Vacancies> Contracting officials said that filling vacant contracting officer positions in 2015 and 2016 was essential to reducing the procurement backlog of competitive contracts to operate Job Corps centers. By the end of program year 2016, ETA officials said contracting officers were in all six regions. However, at the time of our review, ETA was again without contracting officers in two of Job Corps six regions. According to officials, staff vacancies can create workload challenges. Each region is assigned one contracting officer who is responsible for awarding contracts for center operations, among other support contracts. Most of these contracting officers oversee 15 or more centers operated by contractors. When one of the six regional contracting officer positions has a vacancy, the contracting workload for that region is redistributed to other regions and the national office, which can have significant implications. For example, at the time of our review, national contracting officials told us that they were assisting the two regions where contracting officers had recently left. They said this increased their workload, as they had to attend to the contracting needs of these two regions while fulfilling their national contracting oversight duties. Similarly, contracting officials we spoke with in five regions noted vacancies in other positions that support the contracting process, such as those for contract specialists who provide support during the contracting process and program officials who provide technical expertise during proposal evaluations. In addition, program officials we spoke with during our site visits told us that some program manager positions have been vacant for at least a year in three regions. As a result, program officials said they have to manage and oversee additional centers to ensure coverage until those positions are filled. Further, past workforce assessments of ETA indicate that staff vacancies have been a longstanding challenge. For example, a 2013 study found that there were an insufficient number of program and contracting officials to efficiently and effectively handle the workload for Job Corps. Similarly, a 2014 assessment found that the Office of Job Corps, the Office of Contracts Management, and the Office of Financial Administration were understaffed to meet their missions. ETA officials said they have not developed a written acquisition workforce strategy to address staff vacancies for Job Corps. We have previously reported on the benefits of federal agencies planning strategically for their acquisition workforces, particularly for those agencies that rely heavily on contracting personnel with the necessary experience and skills to award and oversee complex contracts to accomplish their missions. In addition, our prior work has highlighted key components of agencies strategic workforce plans, including identifying gaps between current and needed workforce capabilities and developing strategies to meet these capabilities. Agency officials stated that DOL assesses and prioritizes needs across the agency when authorizing hiring actions, including for the Job Corps program. National and regional contracting officials told us that they have not been included in decisions regarding efforts to fill vacancies in critical contracting positions or to determine the number of contracting positions and the location of those positions (i.e., among the regions). ETA officials said that DOL has a new initiative to reorganize several functions across the agency, including potentially consolidating procurement functions. As previously discussed, ETA has restructured its contracting function twice over the past 6 years, consolidating contracting positions in the national office in 2013 and then moving them back to the regions in 2015. When asked about this new reorganization and how it might affect Job Corps procurements, DOL officials responded that they are in the planning phase, which is expected to conclude in the second half of fiscal year 2019. Officials commented that the goal of the reorganization is to maximize DOL s Federal buying power through effective procurement management. According to officials, they plan to maintain a contracting office focused on supporting the Job Corps program. However, they did not provide additional information on the structure and location of this new Job Corps contracting office, or more specific time frames for when it would be established. It was unclear the extent to which the agency had evaluated how structural changes could affect its current contracting office and procurements, or whether they had consulted key stakeholders. GAO s principles for effective strategic workforce planning emphasize the need to align an agency s human capital program with its current and emerging mission and programmatic goals, and develop long-term strategies for acquiring, developing, and retaining staff to achieve those goals. Further, federal internal control standards state that agency leadership needs to demonstrate commitment to various workforce planning activities and determine the critical skills and competencies that will be needed to achieve key results. Without a comprehensive workforce strategy, ETA risks not having a sufficient number of trained acquisition personnel to ensure that it is able to adequately plan for and competitively award future center contracts as current center contracts expire. <3.2.3. Implementing a New Contracting Approach> ETA has begun awarding fixed-price contracts for Job Corps center operations, which is a significant departure from the agency s longstanding approach of using cost-reimbursement contracts, according to contracting officials. Under cost-reimbursement contracts, ETA pays allowable and reasonable costs incurred by the contractor to the extent prescribed by the contract. As of March 2019, ETA officials told us they had awarded 12 fixed-price contracts for Job Corps center operations. Officials said they did not have a timeline for transitioning other centers to fixed-price contracts for Job Corps center operations, but said that as center contracts expire, they will be reviewed to determine if a fixed-price contract would be appropriate. Regional contracting officials noted two primary advantages of using fixed-price contracts to operate Job Corps centers. First, they said fixed- price contracts reduce the government s risk because the government pays only for work that meets specifications outlined in the contract. Second, regional officials said fixed-price contracts are easier to manage and administer compared to cost-reimbursement contracts because they are less administratively burdensome and require less oversight of contractor costs. For example, under cost-reimbursement contracts, regional program officials play a role in examining and approving contractor invoices to verify that they are allowable under the contract, and reasonable for the product or service identified. Under fixed-price contracts, contractors will have to demonstrate that they delivered on the contract or otherwise become subject to default, but program officials do not need to verify each expense to the same degree, according to regional and national contracting officials. ETA officials noted that the Office of Contracts Management provided training to program and contracting officials on the overall procurement process and the transition to fixed-price contracts to ensure they understood how to administer future contracts. <4. ETA Used Various Approaches to Monitor Contractor Performance, but Regional Program and Contracting Officials Had Limited Insight into Contract Fees Used to Incentivize Performance> <4.1. ETA Used Risk-Based Monitoring and Contractual Tools to Monitor Selected Contractors and Encourage Them to Achieve Certain Program Outcomes Risk-based Center Monitoring> ETA used various approaches to monitor contractor performance to ensure selected centers were operating appropriately and to encourage contractors to achieve certain program outcomes. These approaches included (1) risk-based center monitoring and (2) contract monitoring to hold contractors accountable. ETA primarily conducts two types of center assessments as part of the agency s national risk-based monitoring strategy to identify emerging problems at Job Corps centers, including those operated by contractors. Regional office center assessments. ETA officials said they generally conduct unannounced visits to examine all aspects of center operations to ensure contractors comply with program requirements. For centers that operate for the full 5-year period of performance through a competitively awarded contract, these assessments are typically conducted twice over that time period. According to one regional director, these unannounced visits provide the opportunity to hear directly from Job Corps students and observe the conditions at the facilities. Program officials said that these visits are critical because some issues are not always apparent based on the data and reports they receive. For example, one program official said that during a center visit, she found questionable facility conditions at some student dormitories that had not been reported. Another program official said that during a center visit, she was able to observe the dynamics between students and center leadership and staff. Regional office targeted assessments. Regional program officials said they conduct onsite targeted unannounced assessments that typically focus on specific deficiencies that were identified as areas of concern in prior reviews or through other sources of information such as the student satisfaction survey. For example, contractor performance concerns could trigger this type of review. In particular, regional program officials said that center contractors who do not achieve national performance targets for student outcomes could be subject to a review. Following a center assessment, program officials prepare a report to summarize their findings and contractors may be required to submit and implement corrective action plans to address any deficiencies identified, according to Job Corps Policy and Requirements Handbook. Contractors who do not meet expected performance levels are placed on a performance improvement plan. According to some regional program officials, bridge contracts may lead to monitoring challenges. In particular, some regional program officials said that it is more difficult to address long-term challenges when centers operate under a bridge contract because the contract may only be in place for a few months while the procurement process for the next contract is underway. In some cases, they said the current contractor may not be operating the center by the time program officials conduct an assessment and issue their report. Program officials also noted that the short-term nature of bridge contracts can make it difficult for center contractors to recruit and retain high-quality staff. Some officials said that some program staff will look for a new job if they are uncertain whether a longer-term contract will be awarded. <4.1.1. Contract Monitoring> To monitor contractor performance, ETA used additional tools that generally reflect federal acquisition practices government-wide. Contractor performance assessments. ETA contracting and program officials are required to evaluate contractor performance annually and record the final assessment in the Contractor Performance Assessment Reporting System (CPARS). DOL, similar to other federal agencies, is required to use the system to document contractor performance. This system serves as a key source of information about the performance of Job Corps center contractors and includes ratings on their quality of service, management, and cost control. Based on our review of CPARS, we found that ETA completed annual contractor performance assessments during 2016- 2017 for all 10 Job Corps centers in our in-depth review. According to ETA s guidance and program officials, these assessments can include information from regional monitoring visits and performance data on student outcomes and safety. Contract option years. Job Corps center contracts may be awarded for an initial term of no more than 2 years, with three 1-year options. For each option year, ETA has an opportunity to assess the contractor s performance to determine whether to continue with the contract. ETA and regional officials said that they have typically exercised option years for Job Corps center contracts. However, in recent years, officials in one region said they have declined to exercise option years when questions are raised about a contractor s performance. Officials said they are implementing provisions under WIOA that prohibit ETA from exercising an option year in a Job Corps center contract under certain circumstances. WIOA generally prohibits ETA from exercising an option year if, in the prior 2 program years, the center: (1) has been ranked in the lowest 10 percent of all Job Corps centers; and (2) did not achieve at least an average of 50 percent of its expected level of performance with respect to each primary performance indicator. ETA officials said that to date, every contractor has exceeded these minimum performance standards and, therefore, they have not had to decline an option year on these grounds. Formal notices to contractors. When ETA finds performance challenges, it may issue formal notices to contractors starting with a letter of concern to notify contractors of the deficiencies. If deficiencies are not addressed, a formal letter referred to as a cure notice may be sent to notify contractors that their failure to perform specific contract specifications may endanger the contract. If the contractor does not correct the condition, ETA may issue a notice (referred to as a show cause ) informing the contractor that it intends to terminate the contract for default. DOL has indicated that it will terminate a contract for default if the contractor fails to satisfactorily address any serious performance challenges identified. None of the center contractors included in our in-depth review received a cure notice or a show cause notice from ETA during program year 2016. However, we found that ETA issued letters of concern to two center contractors in our in- depth review after it identified issues related to safety and student conduct. The letters of concern required the contractor to submit a corrective action plan and explain how it would address the areas of non-compliance identified by ETA, such as the presence of controlled substances at one of the centers. <4.2. ETA Included Incentive Fees to Encourage Contractor Performance but Contracting and Program Officials Had Limited Insight into Their Calculation and Payment> In the cost-reimbursement contracts for the 10 centers we reviewed, ETA generally included various incentive fees to encourage contractors to meet or exceed specific targets or technical goals, such as those for student achievement. Specifically, contracts for seven centers in our in- depth review included the following fees: Technical performance incentive fee. This fee is payable based on the contractor s performance on specific outcome measures established by ETA, such as the number of students obtaining a high school diploma or high school equivalency. These fees varied but were up to 2.4 percent. One of the 10 contracts we reviewed received slightly over half of the incentive fee they were eligible to earn. Technical performance excellence bonus. This bonus is payable to top performing center contractors that exceed Job Corps national performance targets. Contractors can earn this bonus on top of the technical performance fee that they are eligible to earn. These fees varied but were up to 0.6 percent. While all of the contracts we reviewed included this provision for program years 2016 and 2017, we found that only one of the contractors received it. Cost incentive fee. This fee is payable based on the contractor s efforts to meet the government s needs within the estimated cost of the contract. Contractors can earn higher fees by completing the work at a lower cost. The fees received varied from 3 percent to 4 percent. For example, in program year 2017, contracts for four of the centers we reviewed included cost incentive fees. Two contractors received the maximum fee of 4 percent, while the other two contractors received a fee of at least 3 percent, according to the fee information provided by ETA. For bridge contracts, ETA officials said that they did not include incentive fees, given the intended short-term nature of these contracts. Instead, they said they included fixed fees, which do not vary based on actual costs or performance. In our in-depth review, we found that seven centers that had noncompetitive bridge contracts in program years 2016 or 2017 included only fixed fees that were paid regardless of contractor performance. While each contract we reviewed included estimates of how much a contractor might earn in technical incentive fees, the final amount paid by ETA was determined by whether the contractor met or exceeded Job Corps national center performance targets, which ETA shares with the Job Corps community. ETA officials noted that performance targets can vary from year to year based on the national goals of the program. As a result, they said a contractor with the same performance in two years, as measured by ETA performance targets, may qualify for a technical incentive fee in one year but not in another. Contracting and program officials at the national and regional levels with contract oversight responsibilities reported having limited or no insight into how contractors earn incentive fees to operate Job Corps centers, despite the critical role these fees can play in motivating contractor performance. During our interviews, program and contracting officials said they were unaware of how the final fee amounts were calculated, and noted that ETA s Office of Financial Administration is currently responsible for making these determinations. In particular, some contracting officials said that they simply execute the contract actions calculated and approved by ETA s Office of Financial Administration. Because of their limited insight, some program officials said that it is difficult for them to address questions from contractors about how fees are calculated. National officials from ETA s Office of Financial Administration expressed concern and said they were somewhat surprised that program and contracting officials told us that they were unaware of how contractor fees were determined and calculated. ETA officials said that budget analysts currently perform the fee calculations in a worksheet, which is later reviewed by their supervisor, and that ETA officials expected program and contracting officials to be familiar with the process. Officials from the Office of Financial Administration provided the fee calculations for the centers in our in-depth review, and noted that Job Corps Policy and Requirements Handbook includes some publicly-available information about fee calculations. However, at the time of our review, the Office of Financial Administration had not developed an internal documented process to share information about its fee calculations on specific Job Corps center evaluations with program and contracting officials. Further, in one region, program officials monitoring contractors described what they see as a potential disconnect between the incentive fees paid to a Job Corps center contractor and the contractor s performance assessment. In this case, two contractors were paid an incentive fee for meeting performance targets, and received a marginal rating on an annual performance assessment, according to the program official monitoring the contractors. Without a coordinated and documented process, program and contracting officials may continue to have a limited awareness of how incentive fees are earned by contractors. In 2009, OFPP developed guidance that states incentive strategies should be developed through close collaboration among the contracting officer, program officials, and other key staff. Further, federal internal control standards state that agency leadership should document operational processes in policies, and communicate these policies to key personnel so that they can implement their assigned responsibilities. The questions raised by program and contracting officials in our discussions about how Job Corps contracts incentive fees are structured and related to certain outcomes increases the risk that ETA, including its contracting and program officials, will miss opportunities to maximize the use of incentives to help monitor and improve the performance of center contractors. <5. Conclusions> Contracts are key means through which ETA secures operators for Job Corps centers across the country and delivers comprehensive services to Job Corps students. ETA has implemented some strategies to address the contracting challenges that led to the widespread use of bridge contracts during program year 2016. While bridge contracts can be a useful tool to ensure that there is no lapse in services provided to Job Corps students, our work has found that when noncompetitive bridge contracts are used frequently or for prolonged periods of time, the government is at risk of paying more than it should for products and services. Further, ongoing acquisition planning and workforce challenges, which our work has found are associated with the use of bridge contracts, could pose risks to its ability to manage and award future Job Corps contracts in a way that avoids a reliance on bridge contracts in the future. Further, ETA s efforts to reduce its reliance on bridge contracts in program year 2016 a step in the right direction may result in an unintended consequence later down the road. Specifically, we project that more than half of the recently awarded competitive contracts may expire and services will need to be re-solicited in program years 2021 and 2022. A comprehensive strategy that accounts for Job Corps current and future workload could help ETA better anticipate its workforce needs in critical positions, and thereby helping to reduce its risk of relying on bridge contracts in the future. In the absence of such a strategy, ETA is likely to be back in the same position it was 3 years ago, when more than two- thirds of its Job Corps centers were operating under some form of bridge contract. ETA used various monitoring and contracting tools, including incentive fees, to encourage Job Corps center contractors to meet or exceed performance outcomes. However, contracting and program officials we spoke with were not aware of how these incentive fees had been calculated and paid. Additionally, ETA s Office of Financial Administration had no documented process for sharing information with ETA s program and contracting officials about the calculation and payment of these fees or how a contractor s performance impacted these fees. In the absence of a coordinated and documented process, program and contracting officials may lack key information regarding contractor performance. <6. Recommendations for Executive Action> We are making the following two recommendations to ETA: The Assistant Secretary of ETA should develop, document, and implement a comprehensive strategy that (1) accounts for Job Corps projected workload requirements and (2) considers its acquisition workforce needs including the number of staff, skills, and other supports necessary to plan, award, and monitor Job Corps center contracts to enable it to effectively plan for and competitively award future Job Corps center contracts. (Recommendation 1) The Assistant Secretary of ETA should develop a coordinated and documented internal process to share relevant information on incentive fees paid to contractors with staff in its key offices. (Recommendation 2) <7. Agency Comments and Our Evaluation> We provided a draft of this report to DOL for its review and comment. We received written comments from DOL, which are reprinted in appendix IV. In addition, DOL provided technical comments which we incorporated as appropriate. DOL concurred with our two recommendations. DOL stated that it will develop, document, and implement a comprehensive strategy that accounts for Job Corps projected workload requirements and considers its acquisition workforce needs. DOL noted that it has released a new procurement plan which reflects its decision to re-procure 28 Job Corps centers prior to the final option year of their contract. DOL said that this action would result in each region having no more than five procurements each year, which it considers a manageable procurement workload for its current staffing level. DOL also stated that it would develop a written process for determining and awarding incentive fees to Job Corps contractors. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Labor. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Cindy S. Brown Barnes at (202) 512-7215 or brownbarnesc@gao.gov, or Timothy J. DiNapoli at (202) 512-4841 or dinapolit@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report examines (1) the extent to which, and why, the Employment and Training Administration (ETA) used bridge contracts to operate Job Corps centers during program year 2016; (2) the strategies ETA used to decrease its use of noncompetitive bridge contracts; and (3) how ETA monitored contractor performance at selected Job Corps centers. To address these three objectives, we used several data collection methods, which are described in greater detail below. These methods include analyzing data from the Federal Procurement Data System-Next Generation (FPDS-NG), conducting a nongeneralizable review of 10 Job Corps centers that operated under bridge or noncompetitive contracts, and conducting interviews with ETA regional and national officials. In addition, we reviewed relevant federal laws and regulations, and agency policies and procedures such as Job Corps Policy and Requirements Handbook, the Acquisition Handbook for Job Corps Regional Contracts, and other information ETA provided related to incentive fees and the number of staff vacancies and protests filed in program years 2012 to 2016. We also reviewed ETA s evaluations of contractor performance, and past GAO reports on the use of bridge and noncompetitive contracts, and the evaluation of contractor performance. <8. Analysis of Job Corps Bridge Contracts> To identify the extent to which ETA used bridge contracts to operate Job Corps centers, we analyzed FPDS-NG data for center contracts that were in effect that is, contracts that were newly awarded or ongoing in program year 2016. We selected this program year because it reflected the most recent year with complete available data at the time we began our review. We did not review data for centers operated by the U.S. Department of Agriculture (USDA) because they are operated through an interagency agreement between DOL and USDA and are therefore not relevant for the purpose of this review. We also used FPDS-NG data to identify centers that appeared to have operated under bridge contracts at some point during program year 2016. Since there is no government-wide definition for bridge contracts and ETA does not have a documented definition, we used GAO s definition that has defined them as an extension to an existing contract beyond the period of performance (including base and option years), or a short-term stand-alone contract awarded to an incumbent contractor to avoid a lapse in service. We acknowledge that in the absence of a government-wide definition, agencies may have differing views of what constitutes a bridge contract. Contracts and extensions (both competitive and non-competitive) are included in GAO s definition for bridge contracts. While ETA does not consider contracts that exercise the Option to Extend Services under Federal Acquisition Regulation (FAR) 52.217-8 to be bridge contracts, we include these contracts because our definition is focused on the intent of the contracts or extensions that is, whether they serve as a mechanism to bridge services until the next follow-on contract can be competitively awarded. Based on our definition, we identified 68 centers that operated under bridge contracts in program year 2016. We verified our contract selections with ETA officials to ensure we identified all centers contracts that were in effect that is, contracts that were newly awarded or ongoing in program year 2016. We also reviewed relevant contracting documentation, such as justification and approval documents for noncompetitive contracts and contract modifications. To calculate the length of time ETA used bridge contracts to operate Job Corp centers, we included those centers that had a bridge contract at some point during program year 2016. We report the length of time that ETA used bridge contracts to operate Job Corps centers as the minimum amount of time these contracts were in use. We did not review bridge contracts that were completed prior to program year 2016 because it was outside the scope of our review. Therefore, our analysis may underestimate the length of time ETA operated some centers under bridge contracts. Based on our electronic testing, review of contract files and documentation, and discussions with ETA officials, we determined that the data were sufficiently reliable for the purposes of assessing ETA s use of bridge contracts for Job Corps center operations, and the characteristics of these contracts. To estimate upcoming center procurements from program years 2019 to 2023, we used FPDS-NG data and information from agency officials to determine when the period of performance might end for certain center contracts. In this analysis, we excluded centers that were still operating under noncompetitive bridge contracts, operating under task orders, or were no longer open. Competitively awarded Job Corps center contracts generally have periods of performance that total a maximum of 5 years, which includes a 2-year base and three 1-year options. GAO s analysis accounts for this complete period of performance; however, if all three option years are not exercised, the center would need a new contract sooner. To identify the strategies that ETA used to decrease its use of noncompetitive bridge contracts, we reviewed FPDS-NG data to identify the number of the bridge contracts ETA used in program year 2016 that transitioned to competitive follow-on contracts by the end of program year 2017. We also reviewed agency guidance and contracting documentation, and followed up with ETA contracting and program officials at the national and regional levels to verify our contract selections. <9. Review of Selected Job Corps Centers> We conducted a nongeneralizable in-depth review of 10 Job Corps centers that operated under bridge or noncompetitive contracts during program year 2016 to provide illustrative examples. The 10 centers we selected were Alaska, Carville, Cassadaga, Keystone, Milwaukee, Northlands, Paul Simon, Pinellas, Turner, and Woodland. We selected these 10 centers because (1) they were operated by contractors with varying levels of success in achieving ETA s student performance indicators, according to ETA s performance data, and (2) to ensure we included at least one center from each of Job Corps six regions. Specifically, we selected 6 of the 10 Job Corps centers because they were generally the lowest performing contract center in their region based on ETA s performance data from program year 2015. We reviewed performance data for this program year because it allowed us to identify the actions, if any, ETA took to help improve low performing centers in program years 2016 and 2017. The other four Job Corps centers were randomly selected from the remaining Job Corps centers, which reflected a mix of center performance levels. We excluded from our selection centers that were not operational or were closed in program years 2016 or 2017, operated under a task order, or that had an open protest as of June 30, 2018. In addition, we excluded centers with a competitive, non- bridge contract, and centers operated by the U.S. Department of Agriculture. After selecting the 10 centers, we reviewed the contract file for all bridge contracts, the contract preceding the bridge contracts, and, if awarded by the time of our review, the competitive follow-on contract. We also interviewed contracting and program officials to understand the reasons why ETA used bridge contracts and any challenges related to their use. In addition, we obtained and reviewed ETA s evaluations of contractor performance from the Contractor Performance Assessment Reporting System (CPARS) for these centers to understand how ETA monitored contractor performance. We also examined other information related to incentive fees paid to contractors for the 10 centers in our in-depth review. The results of our in-depth review provide insight into ETA s contracting practices for Job Corps center operations contracts but cannot be generalized to all Job Corps centers. <10. Regional and National Interviews> We conducted site visits to three of Job Corps six regional offices: Atlanta, Boston and Dallas. We selected these offices to capture the regions that awarded a large number of bridge or noncompetitive contracts, and to reflect both geographic diversity and a mix of contractor performance. For the remaining three regions Chicago, Philadelphia, and San Francisco we conducted phone interviews. For each regional visit or call, we interviewed program officials in the Office of Job Corps, including the regional director and program managers (who may serve as contracting officer representatives). In addition, we interviewed regional contracting officials in the Office of Contracts Management, including the regional contracting officer and contract specialists who support the contracting officer in carrying out their responsibilities. Additionally, we interviewed national officials in ETA s Office of Job Corps and Office of Contracts Management to better understand ETA s process for awarding and monitoring Job Corps center contracts at the national level. We also interviewed budget officials in ETA s Office of Financial Administration to better understand how incentive fees are calculated and paid to contractors. We conducted this performance audit from February 2018 to August 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Job Corps Center Performance Measures for Program Years 2016 and 2017 Appendix III: Employment and Training Administration s (ETA) Monitoring of Job Corps Centers and Contractors In January 2015, ETA national and regional officials implemented a national risk-based monitoring strategy to identify emerging problems at Job Corps centers, including those operated by contractors. We reported on this strategy as part of our prior work. Table 2 provides a summary of ETA s monitoring strategy. Appendix IV: Comments from the Department of Labor Appendix V: GAO Contact and Staff Acknowledgements <11. GAO Contact> <12. Staff Acknowledgements> In addition to the contact named above, Mary Crenshaw (Assistant Director), Janet McKelvey (Assistant Director), Ashanta Williams (Analyst- in-Charge), Anna Blasco, LaToya Jeanita King, Matthew Saradjian, Lindsay Taylor, Tom s Wind, and Jocelyn Yin made key contributions to this report. Additional assistance was provided by Sandra Baxter, James Bennett, Sarah Cornetto, Caitlin Croake, Andrea Dawson, David Forgosh, Lauren Gilbertson, Kurt Gurka, Julia Kennon, Sheila R. McCoy, Corinna Nicolaou, Monica Savoy, Ben Sinoff, Kathleen van Gelder, Almeta Spencer, Walter Vance, and Alyssa Weir. Related GAO Products Information Technology: Agencies Need Better Information on the Use of Noncompetitive and Bridge Contracts. GAO-19-63. Washington, D.C.: December 11, 2018. Job Corps: DOL Could Enhance Safety and Security at Centers with Consistent Monitoring and Comprehensive Planning. GAO-18-482. Washington, D.C.: June 15, 2018. Defense Contracting: Use by the Department of Defense of Indefinite- Delivery Contracts from Fiscal Years 2015 through 2017. GAO-18-412R. Washington, D.C.: May 10, 2018. New Trauma Care System: DOD Should Fully Incorporate Leading Practices into Its Planning for Effective Implementation. GAO-18-300. Washington, D.C.: March 19, 2018. Defense Contracting: DOD Needs Better Information on Incentive Outcomes. GAO-17-291. Washington, D.C.: July 11, 2017. Job Corps: Preliminary Observations on Student Safety and Security Data. GAO-17-596T. Washington, D.C.: June 22, 2017. Federal Contracts: Agencies Widely Used Indefinite Contracts to Provide Flexibility to Meet Mission Needs. GAO-17-329. Washington, D.C.: April 13, 2017. Elections: DOD Needs More Comprehensive Planning to Address Military and Overseas Absentee Voting Challenges. GAO-16-378. Washington, D.C.: April 20, 2016. Defense Acquisition Workforce: Actions Needed to Guide Planning Efforts and Improve Workforce Capability. GAO-16-80. Washington, D.C.: December 14, 2015. Sole Source Contracting: Defining and Tracking Bridge Contracts Would Help Agencies Manage Their Use. GAO-16-15. Washington, D.C.: October 14, 2015. Federal Construction Subcontracting: Insight into Subcontractor Selection Is Limited, but Agencies Use Oversight Tools to Monitor Performance. GAO-15-230. Washington, D.C.: January 29, 2015. Job Corps: Assessment of Internal Guidance Could Improve Communications with Contractors. GAO-15-93. Washington, D.C.: January 22, 2015. Standards for Internal Control in the Federal Government. GAO-14-704G. Washington, D.C.: September 2014. Market Research: Better Documentation Needed to Inform Future Procurements at Selected Agencies. GAO-15-8: Washington, D.C.: October 9, 2014. Contractor Performance: Actions Taken to Improve Reporting of Past Performance Information. GAO-14-707. Washington, D.C.: August 7, 2014. Federal Contracting: Noncompetitive Contracts Based on Urgency Need Additional Oversight. GAO-14-304: Washington, D.C.: March 26, 2014. Acquisition Workforce: Federal Agencies Obtain Training to Meet Requirements but Have Limited Insight into Costs and Benefits of Training Investment. GAO-13-231. Washington, D.C.: March 28, 2013. Defense Contracting: Competition for Services and Recent Initiatives to Increase Competitive Procurements. GAO-12-384. Washington, D.C.: March 15, 2012. Acquisition Planning: Opportunities to Build Strong Foundations for Better Service Contracts, GAO-11-672. Washington, D.C.: August 9, 2011. Federal Contractors: Better Performance Information Needed to Support Agency Contract Award Decisions. GAO-09-374. Washington, D.C.: April 23, 2009. 2010 Census: Census Bureau generally Follows Selected Leading Acquisition Planning Practices, but Continued Management Attention is Needed to Help Ensure Success. GAO-06-277. Washington, D.C.: May 18, 2006. Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66. Washington, D.C.: December 19, 2005. Human Capital: Framework for Assessing the Acquisition Function at Federal Agencies. GAO-05-218G. Washington, D.C.: September 2005. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003.

Why GAO Did This Study Job Corps' 119 centers, which are operated primarily by contractors, provide an array of services to help low-income youth find a job, go to college, or enter the military. ETA is generally required to award competitive contracts, but can award noncompetitive contracts in certain instances. Some noncompetitive contracts act as bridge contracts—which can be a useful tool to avoid a lapse in service but, when used frequently and for prolonged periods, can increase the risk of the government overpaying for services. This report examines (1) the extent to which ETA used bridge contracts to operate Job Corps centers in program year 2016; (2) strategies ETA used to decrease the use of noncompetitive bridge contracts; and (3) how ETA monitored contractor performance at selected Job Corps centers. GAO analyzed data from program years 2016 and 2017(the most current data available at the time we began our review) from the Federal Procurement Data System-Next Generation, and reviewed contract documents. GAO also conducted an in-depth review of 10 centers that reflected a mix of contractor performances and at least one center from Job Corps' six regions, and interviewed ETA officials. What GAO Found In program year 2016, the Department of Labor's (DOL) Employment and Training Administration (ETA) operated 68 of its 97 Job Corps centers using bridge contracts. GAO has generally defined a bridge contract as an extension to an existing contract or a new noncompetitive contract awarded to the current contractor to avoid a lapse in service. GAO found that ETA operated most of these Job Corps centers (49 of 68) under bridge contracts for at least a year, with over a third operating under bridges for 2 years or potentially longer. ETA cited workforce challenges such as staff vacancies and the need to address issues raised in protests as contributing to its use of bridge contracts. ETA officials said they used various strategies to decrease their use of noncompetitive bridge contracts, including prioritizing efforts to award more contracts competitively. By the end of program year 2017, most of the centers operating under bridge contracts during program year 2016 (48 of 68) had transitioned to competitive contracts. Despite these efforts, ETA continues to face workforce challenges. Contracting officials expressed concern about having sufficient staff to award a large group of contracts that will begin to expire in program years 2021 and 2022 (see figure). ETA officials said it takes about 8 to 12 months from solicitation to contract award for new 5-year competitive procurements. Therefore, acquisition planning for a center contract set to expire in January 2021 would usually need to begin early 2020. However, ETA does not have a comprehensive workforce strategy to address its workforce challenges or support these new contract awards. As a result, ETA risks relying on noncompetitive bridge contracts again in the future. Note: Centers are operated on a program year basis, which runs from July 1 of a given year to June 30 of the following year. ETA used various strategies to monitor and incentivize contractor performance at the 10 centers GAO reviewed, including conducting onsite visits to Job Corps centers and paying incentive fees to contractors. However, contracting and program officials GAO interviewed had limited or no insight into how ETA calculates and pays incentive fees. Without coordinating and documenting the process for calculating incentive fees, ETA's program and contract officials may lack key information regarding contractor performance. What GAO Recommends GAO is making two recommendations, including that ETA develop (1) a comprehensive strategy to account for workforce needs and future center contracts, and (2) a coordinated and documented process for sharing information on incentive fees paid to contractors. DOL agreed with GAO's recommendations.

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<1. Background> <1.1. TSA s Secure Flight Program> TSA began implementing its Secure Flight program in 2009 to identify passengers who may pose security risks before boarding an aircraft. The program requires U.S. and foreign commercial aircraft operators traveling to, from, within or overflying the United States, as well as U.S. commercial aircraft operators with international point-to-point flights, to collect information from passengers and transmit it electronically to TSA. This information includes personally identifiable information, such as full name, gender, date of birth, passport information (if available), and certain non-personally identifiable information, such as itinerary information and the unique number associated with a travel record (record number locator). The Secure Flight program matches the passenger-provided personally identifiable information against federal government watchlists and other information to determine if passengers may pose a security risk and to assign them a risk category. Since January 2009, Secure Flight has matched passengers to two subsets of the Terrorist Screening Database the No Fly List, composed of individuals who should be precluded from boarding an aircraft or entering the sterile area of a U.S. airport, and the Selectee List, composed of individuals who should receive enhanced screening prior to boarding an aircraft or entering an airport sterile area. The risk categories are not specifically communicated to the air carriers, but for each passenger Secure Flight provides responses to air carriers commensurate with the risk levels identified (e.g., an air carrier will receive a response of inhibited if the passenger was identified as being in the highest-risk category, or the boarding pass printed for a high-risk passenger will identify that passenger as a selectee for enhanced screening at the security checkpoint). In April 2011, in response to the December 25, 2009 attempted attack, TSA also began matching passengers to a third subset of the Terrorist Screening Database the Expanded Selectee List to designate known or suspected terrorists not otherwise included on the No Fly or Selectee Lists as selectees for enhanced screening. The Expanded Selectee List, in general, includes all records in the Terrorist Screening Database with a full name (first name and surname) and full date of birth not otherwise included on the No Fly or Selectee Lists. The Secure Flight system, which also screens passengers against the Silent Partner and Quiet Skies Lists, among others, results in passengers receiving one of four prescreening outcomes: Low risk (expedited screening). Passengers who are eligible for expedited screening, such as those with TSA Pre , Unknown Risk (standard screening). Passengers who warrant standard screening, High Risk (enhanced screening). Passengers who receive enhanced screening such as a pat down and explosives trace detection, because they have been identified as matches to government watchlists, including the Selectee, Expanded Selectee, Silent Partner and Quiet Skies Lists, or Highest Risk (denied boarding). Passengers who are not permitted to board a commercial aircraft, such as passengers who are on the No Fly List or the Centers for Disease Control and Prevention Do Not Board List (see fig. 1). Secure Flight also randomly identifies passengers for enhanced screening. Although subject to the same screening measures as high risk passengers, they have not been determined to be high risk. Similarly, individuals included on the Silent Partner and Quiet Skies Lists have not been determined to be of high risk, but rather have been identified using rules based on current intelligence and other factors that may indicate an elevated risk. <1.2. The Silent Partner List> TSA leverages CBP information and targeting capabilities to create the Silent Partner List. Specifically, TSA leverages (1) data CBP collects regarding passengers traveling internationally (such as citizenship, passport country of issuance, and address information), and (2) CBP s Automated Targeting System. CBP uses the Automated Targeting System to identify potentially high risk passengers arriving or departing the United States by comparing passenger information with law enforcement, intelligence, and other enforcement data using risk-based targeting scenarios and assessments. Analysts within TSA I&A s Threat Analysis Division review intelligence to identify factors that may indicate elevated passenger risk. TSA works with CBP to create Silent Partner and Quiet Skies rules in the Automated Targeting System based on these factors. The system returns information on passengers who match with the rules and are scheduled to fly on U.S.- bound flights. TSA then omits any individuals on the Silent Partner cleared list (i.e. travelers exempted from further enhanced screening based on a specific rule) before placing the remaining passengers on the Silent Partner List. The Secure Flight program designates passengers who are on the Silent Partner List as selectees for enhanced screening for a particular international flight. <1.3. The Quiet Skies List> In April 2012, TSA s Quiet Skies List became fully operational. The Quiet Skies List is a subset of passengers on the Silent Partner List. Specifically, TSA identifies certain Silent Partner rules that warrant continued enhanced screening for passengers subsequent domestic or outbound travel after arriving in the United States. Passengers identified via these rules the Quiet Skies rules comprise the Quiet Skies List. Passengers matched to the Quiet Skies List are designated as selectees and receive enhanced screening on any subsequent domestic flights for a designated period of time, or for a designated number of flights, whichever comes first. After the designated time period has elapsed (or number of flights is flown), passengers names and identifying information are moved to a cleared list. <1.4. TSA Modernization Act Requirements> Pursuant to the TSA Modernization Act, TSA I&A is to identify and review its Silent Partner and Quiet Skies screening rules, in coordination with DHS and TSA stakeholders, every 120 days and provide notification to these stakeholders no later than two days after making a change to a rule. Table 1 lists the DHS and TSA stakeholders TSA I&A must coordinate with under the Act. <2. TSA Coordinates with Stakeholders as Required, but TSA Guidance Is Not Clear About Criteria for Review of Rule Changes TSA I&A Coordinates Quarterly Rule Reviews and Notifies Oversight Offices of Rule Changes> According to DHS and TSA officials, TSA has coordinated quarterly rule review meetings with DHS and TSA stakeholders since the inception of the Silent Partner and Quiet Skies programs. We reviewed documentation of the reviews that occurred from December 2018 through March 2019. The quarterly review meetings are called for in DHS s Automated Rule Review SOP and its Quiet Skies Implementation Plan. Pursuant to the TSA Modernization Act, TSA I&A is to identify and review its screening rules in coordination with DHS and TSA stakeholders every 120 days or at least three times a year. TSA I&A officials stated that they plan to continue convening four times a year because, given the difficulty of scheduling these large meetings, it will help them ensure they meet the 120 day requirement. Since October 2018, TSA I&A has also included representatives of DHS s Traveler Redress Inquiry Program and the Federal Air Marshal Service in these quarterly review meetings, as required by the Act. Officials from these offices told us in August 2019 that they are still determining their role in the rule review process, but expect the coordination to be beneficial. DHS and TSA SOPs set forth the process for the quarterly review meetings. TSA I&A and stakeholder officials stated that the process generally happens as described in the SOP. Two weeks prior to the meeting, TSA I&A sends out materials including a list of new rules, rule changes, archived (discontinued) rules, and the rationale and links to the underlying intelligence supporting each rule change. According to TSA officials, TSA and DHS stakeholders review the rules from their particular areas of expertise. For example, TSA Chief Counsel officials reported that they review rules and the supporting intelligence to ensure that the rules meet legal sufficiency standards. A TSA Privacy official stated that they review rules and the supporting intelligence to ensure rules do not violate passengers rights. All stakeholders review the rules to ensure they are based on current intelligence that identify specific threats. If a stakeholder finds that there is insufficient current intelligence to support the rule, TSA I&A officials stated that they would modify it to ensure it is tailored to current intelligence or archive a rule when the intelligence- based threat is no longer relevant. For example, during the March 2019 quarterly review meeting TSA I&A officials discussed archiving a Silent Partner rule due to insufficient current intelligence to support it. According to TSA I&A officials, the rule was archived in April 2019. TSA I&A officials and stakeholders generally agreed that the quarterly reviews provide a good mechanism for oversight of both programs. Stakeholders told us these meetings provide a forum to discuss the scope of the rules and whether or not they were supported by current intelligence or if they are sufficiently specific. For example, a TSA stakeholder questioned the basis for a rule that identified a particular travel pattern as a high risk factor. As a result, TSA I&A officials reviewed the intelligence and revised the rule. TSA I&A officials stated that since enactment of the TSA Modernization Act in October 2018, they have also notified DHS and TSA stakeholders within two days of making changes to a rule. We reviewed the eight notifications that TSA I&A sent to stakeholders regarding rule changes during the period from October 2018 through May 2019. These notifications detailed changes to rules, new rules, and rules that were archived. DHS and TSA stakeholders we spoke with said that the two day notifications are helpful in keeping them informed in between quarterly meetings. In addition, stakeholders said it allowed them to proactively reach out to TSA I&A to ask questions and share more timely feedback about rule changes. TSA I&A has implemented the two day notifications and other steps required in the TSA Modernization Act, but TSA I&A s Standard Operating Procedures have not yet been updated to reflect these changes. TSA I&A officials stated that they have plans to do so in fall 2019. <2.1. TSA Has a Standard and Expedited Rule Review Process, but TSA Guidance Is Unclear about Criteria for Each Process> TSA I&A s standard operating procedures establish two situation- dependent processes for reviewing and approving rule changes, as shown in figure 2. First, under standard circumstances, TSA I&A s standard operating procedures detail a four-part vetting process by which TSA I&A drafts support for the rule change and it is subsequently approved by TSA Chief Counsel, the TSA I&A Assistant Administrator, and ultimately TSA senior leadership. TSA procedures specify that in standard circumstances, all rule changes are to be supported and approved in writing prior to implementation. Specifically, TSA I&A is to draft a memo with the nature of the threat and how all components of the rule address the concerns from intelligence reporting. The memo, along with all pertinent intelligence sources, is then required to be routed through TSA Chief Counsel and TSA leadership for intelligence, legal, and policy review. TSA s April 2012 Quiet Skies Implementation Plan specified that the Chief Counsel s review is to ensure that the proposed rule targets the threat presented in the assessment, the assessment properly documents the reasons for the recommendation, and the recommendation is in compliance with relevant legal authorities, regulations, and DHS policies. Upon approval, the memo is referred to TSA senior leadership the TSA Administrator or TSA Deputy Administrator for final written approval. Following this, the rule change can be implemented. A second process, called exigent, is also briefly described in the SOPs. In exigent circumstances circumstances requiring immediate action the TSA I&A Assistant Administrator or his or her designee may direct that the rule be implemented immediately without a signed decision memo. The signed memo is still required, but can be drafted, reviewed, and approved after the change is implemented. TSA I&A officials stated that the exigent process entails verbal direction to implement a rule. It is unclear if TSA I&A has followed the exigent rule review process in standard circumstances because the SOP is unclear on the criteria for each process. TSA s SOP states that the exigent review process may be used if TSA determines that exigent circumstances require immediate implementation of a Silent Partner rule. However, the SOP does not clarify who or which office within TSA makes this determination or what types of circumstances would be appropriately characterized as exigent. TSA I&A officials told us that exigent circumstances were very rare. They estimated that in the last 3 years exigent circumstances had occurred once. Yet, the same officials also estimated that they implemented approximately 90 percent of the rule changes following verbal approval from either TSA or I&A leadership and drafted the required memos after the fact. This indicates that TSA I&A officials have not followed the standard review process when implementing rule changes in circumstances they regard as standard, and the process followed appears to be closer to what would occur in exigent circumstances. These TSA I&A officials explained that drafting and processing the approval memo after they implement a rule change allows them to more quickly respond to changing intelligence. TSA s SOP provides flexibility for this in exigent circumstances. However, given the absence of clarity in the SOP about when the exigent process is to be used and who is to make that decision, it is unclear whether or not TSA I&A used the exigent review process a process which is not, initially, contingent upon TSA s legal review or I&A s written support in circumstances that DHS and TSA leadership who oversee the program would regard as standard. According to Standards for Internal Control in the Federal Government, management should implement control activities through policies by, for example, documenting responsibilities in policies and periodically reviewing policies and procedures for continued relevance and effectiveness. As TSA I&A updates its Silent Partner and Quiet Skies SOPs in fall 2019, clarifying the criteria for standard and exigent rule review procedures would provide greater assurance that screening rule changes are reviewed as intended. TSA I&A officials further told us that they do not document or otherwise have a way of determining what proportion of rule changes have been reviewed in accordance with the standard process versus the exigent process because they had not identified a need to do so. According to the 2012 TSA memo establishing Quiet Skies as a permanent program, at the program s outset a working group of DHS and TSA stakeholders identified the need for transparency as the first of seven key areas of consensus. Further, DHS s Integrated Risk Management Framework establishes transparency and documentation as important characteristics of homeland security risk management. Documenting which review process TSA I&A uses for each rule change could improve transparency. <2.2. TSA Tracks Some Data on Rule Implementation, but Has Not Comprehensively Assessed Effectiveness TSA Has Monitored List Size and Number of Rule Matches, but Has Not Identified a Means to Comprehensively Measure Rule Effectiveness> TSA I&A monitors some operational data on its passenger screening rules. For example, TSA I&A officials track the number of individuals on the Silent Partner and Quiet Skies Lists, and the number of Silent Partner and Quiet Skies rules triggered by the passengers travel. TSA I&A officials stated that rule matches and list size are helpful for oversight purposes because they allow TSA I&A to monitor for Secure Flight system errors. Officials identified one example in which a Secure Flight software update created a system error that prevented 808 passengers from being moved to the Quiet Skies cleared list after a designated number of flights. According to the officials, monitoring list size and the number of rules triggered by passengers travel allowed them to identify and correct this error within 10 days of identifying the system error. TSA I&A has not identified a means to comprehensively measure rule effectiveness. TSA I&A officials explained that they would find it helpful to demonstrate the effectiveness of the program, but had not yet done so because it was difficult to measure. TSA I&A officials reported that the approach they have used was to count the number of Quiet Skies passengers who were later identified as a known or suspected terrorist and added to the Terrorist Screening Database. TSA I&A officials reported that in January 2019 they reviewed all Quiet Skies passengers from January 2014 through July 2018 to determine how many were subsequently added to the Terrorist Screening Database. However, because it included Quiet Skies only, this analysis excluded about 93 percent of the rules. TSA officials reported that it is not feasible to do a similar analysis for Silent Partner rules because of the higher numbers of rules and matches and the difficulty matching Silent Partner rules to data in the Terrorist Screening Database. Further, TSA officials noted that without comparable information on the rate that non-Quiet Skies passengers were added to the Terrorist Screening Database during that time period, it is difficult to interpret what the results indicate about rule effectiveness. TSA s April 2012 Quiet Skies Implementation Plan established that TSA would continually evaluate the performance of the rules in the Silent Partner and Quiet Skies programs. Further, GAO and the Office of Management and Budget have previously identified useful practices to enhance performance management and measurement processes. GAO has previously reported that measuring performance allows organizations to track the progress they are making toward their goals and gives managers critical information on which to base decisions for improving their progress. Office of Management and Budget guidance has also focused specifically on common challenges associated with measuring effectiveness, including data availability and identifying measurable outcomes for a program. This guidance suggests using a variety of approaches such as outlining short-term milestones, identifying target outcomes, and using proxy measures to assess these programs. Assessing the effectiveness of Silent Partner and Quiet Skies rules may be difficult, but I&A could explore using other data sources to assess program effectiveness in addition to further developing their consideration of Terrorist Screening Database additions. For example, TSA I&A could consider analyzing TSA data on the outcomes of the enhanced screening of Silent Partner and Quiet Skies passengers at passenger security checkpoints. CBP officials said that they review secondary inspection results to help them assess CBP s rules-based program. TSA I&A officials noted that they were considering this measure and would need to determine what comparison group would make sense, and if they want to focus on specific screening outcomes versus all outcomes. TSA I&A could also consider using the results of air marshals monitoring of Quiet Skies passengers. According to senior Federal Air Marshal Service officials, the service with a budget of approximately $780 million for fiscal year 2019 began deploying air marshals on as many flights as possible with Quiet Skies passengers in March 2018. According to TSA s Privacy Impact Assessment for Silent Partner and Quiet Skies and a Federal Air Marshal Service official, after air marshals complete a flight with a Quiet Skies List match, they file a report saying either nothing to report or, if they observe that the individual was involved in a security incident or suspicious activity, they will describe this in an after-action report. TSA I&A officials told us that while they have seen individual after-action reports, they do not review them regularly. These after-action reports are another source of information TSA I&A could consider using to gauge program effectiveness. Given the TSA resources being devoted to the enhanced screening and in-flight monitoring of many passengers matching the Silent Partner and Quiet Skies Lists, and the burden on the traveling public, it is important that TSA understand the value of its screening rules programs. Exploring additional data sources such as checkpoint screening results and Federal Air Marshal Service after-action reports could help TSA refine and supplement their existing efforts to measure program effectiveness. <3. Conclusions> The attempted attack of December 25, 2009, highlighted the unknown threats to U.S. civil aviation. TSA has created the Silent Partner and Quiet Skies Lists to help address these unknown threats by ensuring that certain potentially higher risk passengers receive enhanced screening when traveling to, from, or within the United States. TSA created an oversight process that was further bolstered by the TSA Modernization Act, and DHS and TSA officials we met with generally regard the process as effective. However, TSA SOPs are not clear about when it is appropriate for TSA to use an expedited review process and they do not document which review process they used. The lack of clear SOPs inhibits program oversight. By establishing clear criteria for and documentation of each review process, TSA could increase transparency and ensure rule changes are reviewed as intended. Moreover, TSA has not identified a means to comprehensively measure the effectiveness of its Silent Partner and Quiet Skies rules. Exploring additional data sources such as checkpoint screening results and Federal Air Marshal Service after-action reports could help TSA refine and supplement their existing efforts to measure program effectiveness. <4. Recommendations for Executive Action> We are making the following three recommendations to TSA: The Administrator of TSA should clarify the criteria for exigent circumstances and standard rule review procedures; (Recommendation 1) The Administrator of TSA should document which rule review process TSA I&A uses (exigent or standard) for each new rule or rule change; (Recommendation 2) The Administrator of TSA should explore additional data sources measuring the effectiveness of Silent Partner and Quiet Skies rules. (Recommendation 3) <5. Agency Comments> We provided a draft of our report to DHS for comment. In written comments, which are included in appendix I, DHS concurred with our three recommendations and described steps they plan to take to address them. DHS also provided technical comments, which we have incorporated, as appropriate. We are sending copies of this report to the appropriate congressional committees and to the Acting Secretary of Homeland Security. In addition, this report is available at no charge on the GAO website at http://gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8777 or russellw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in Appendix II. Appendix I: Comments from the Department of Homeland Security Appendix II: GAO Contacts and Staff Acknowledgments Appendix II: GAO Contacts and Staff Acknowledgments Error! No text of specified style in document. <6. GAO Contact> William Russell, (202) 512-8777 or russellw@gao.gov. <7. Staff Acknowledgments> In addition to the contact named above Claudia Becker, Assistant Director; Imoni Hampton, Analyst-in-Charge; Melissa Greenaway, John De Ferrari, Michele Fejfar, Eric Hauswirth, Tom Lombardi, and Kevin Reeves made key contributions to this work.

Why GAO Did This Study On December 25, 2009, while on a flight from Amsterdam to Detroit, a person attempted to detonate explosives hidden in their underwear. This person was not included in the government's consolidated database of known or suspected terrorists at the time. In response, in 2010, TSA began identifying passengers who are not known or suspected terrorists, but who TSA determined should receive enhanced screening. Specifically, TSA identifies passengers for enhanced screening through the application of screening rules, which TSA develops by considering current intelligence and other factors. TSA refers to these rules and lists as Silent Partner and Quiet Skies. The TSA Modernization Act includes a provision for GAO to review the current oversight mechanisms and effectiveness of Silent Partner and Quiet Skies. This report examines the extent to which TSA has (1) coordinated with relevant DHS and TSA stakeholders to review passenger screening rules; and (2) assessed the effectiveness of these rules. GAO analyzed TSA documents, including standard operating procedures, and interviewed senior DHS and TSA officials involved in managing and overseeing the programs. What GAO Found The Transportation Security Administration (TSA) coordinates reviews of its intelligence-based screening rules known as Silent Partner and Quiet Skies. Specifically, TSA's Intelligence and Analysis office (I&A) coordinates quarterly rule reviews and notifies Department of Homeland Security (DHS) and TSA stakeholders of rule changes. According to stakeholders, these review processes provide a good mechanism for program oversight. TSA has established guidance for rule changes that involve TSA stakeholders reviewing rules in advance of their implementation. In some instances, TSA uses an alternate process, allowed by guidance in exigent circumstances, where rule changes go into effect before some stakeholders review them. However, agency guidance does not define the conditions for using the standard or exigent processes. Further, TSA officials do not document which review process—standard or exigent—they use for each rule change. Clarifying guidance and documenting which review process is used could improve transparency and better ensure screening rule changes are adequately reviewed. TSA tracks some data on rule implementation, but has not identified a means to comprehensively measure rule effectiveness. TSA officials explained that they had not yet fully assessed the rules' effectiveness because it was difficult to measure. Silent Partner rules identify passengers for enhanced screening on inbound flights to the United States. Quiet Skies rules—a subset of the Silent Partner rules—identify passengers for enhanced screening on subsequent domestic and outbound flights. TSA officials said that the one method they had used to assess effectiveness was to count Quiet Skies passengers who were later added to the government's watchlist of known or suspected terrorists. However, because this analysis was limited to Quiet Skies, it excluded 93 percent of the screening rules, making it difficult to interpret what the results indicate about effectiveness. TSA has access to data, such as the outcomes of enhanced screening of Silent Partner and Quiet Skies passengers, that could be explored to better assess rule effectiveness. Exploring additional data sources could help TSA refine and supplement their existing efforts to measure program effectiveness. What GAO Recommends GAO is making three recommendations. DHS should (1) clarify the criteria for exigent and standard rule review procedures; (2) document which review process is used for each new rule or rule change; and (3) explore additional data sources for measuring rule effectiveness. DHS concurred with these recommendations.

gao_GAO-20-463T

gao_GAO-20-463T_0

<1. Background> VA provides or pays for long-term care ranging from assistance with dressing and bathing to clinical care for spinal injuries or dementia through three institutional and 11 noninstitutional programs. (See fig. 1 for a list of VA s institutional and noninstitutional long-term care programs and app. I for brief descriptions of these programs.) VA s long-term care programs serve over 500,000 veterans with a wide range of characteristics and needs. Further, certain Community Nursing Homes, Adult Day Health Care, and Hospice and Respite Care programs have specially trained staff to serve veterans with dementia, and the Spinal Cord Injury and Disability Home Care program and certain VA Community Living Centers are equipped to serve veterans needing ventilator care. All veterans enrolled in the VA health care system are eligible for VA s basic medical benefits package, which includes coverage for certain institutional and noninstitutional long-term care services. A veteran s eligibility for fully or partially covered nursing home care is determined by the veteran s priority for care, which is generally based on the veteran s service-connected disability status. VA must cover the full cost of nursing home care for veterans who need this care for a service-connected disability and for veterans with service-connected disabilities rated at 70 percent or more. Veterans placement into particular long-term care programs may depend on their clinical needs, disability ratings, preferences, and the availability of VA programs. When funds are limited, the agency may prioritize program placement based on veterans service- connected disability ratings. Decisions about which long-term care programs may be the best fit are made at the VA medical center (VAMC) level between VA providers, veterans, and their families. <2. Utilization of and Spending for VA Long-Term Care Have Increased in Recent Years and Are Projected to Increase> As we reported in February 2020, VA data shows that utilization of and spending for VA long-term care programs generally increased from fiscal years 2014 through 2018. Specifically, the number of veterans receiving care in VA s long-term care programs increased 14 percent from fiscal years 2014 through 2018, from 464,071 to 530,327 veterans, while spending grew 33 percent from $6.8 billion to $9.1 billion. Further, we found that VA projects utilization and expenditures for long-term care to increase for most of the programs included in VA s EHCPM from fiscal years 2017 through 2037. Specifically, over that time period VA s model projects the following: Utilization of long-term care in terms of various VA workload units is projected to grow in one of the two institutional programs and nine of the 10 noninstitutional programs included in the EHCPM from fiscal years 2017 through 2037. Spending, which VA reports as expenditures, is projected to more than double from fiscal years 2017 through 2037, increasing from $6.9 billion to $14.3 billion. (See fig. 2.) VA also projects that the proportion of expenditures for institutional long-term care will decrease from 63 percent to 53 percent while the proportion of noninstitutional program expenditures is projected to grow from 37 percent to 47 percent in that same time period. According to VA officials, these projected increases are due to a variety of factors, including that VA plans to continue expanding the availability of noninstitutional care, and plans on providing care to an increasing number of aging veterans and veterans rated in the highest service- connected disability groups. Officials also noted that expanding veterans access to noninstitutional care programs is less costly than institutional care, and veterans prefer to delay or reduce the amount of institutional care they receive. VA s strategies to meet the growing demand for long- term care are operationalized by GEC at the program level and implemented at the regional and VAMC level. <3. VA Has Identified Several Key Challenges to Meeting the Demand for Long-Term Care, but Lacks Measurable Goals for Addressing Them> In our February 2020 report, we found that VA faces a number of key challenges in meeting veterans growing demand for long-term care: workforce shortages, geographic alignment of care, and difficulty meeting veterans needs for specialty care. While GEC recognizes and has taken some steps to address the challenges it faces, it has not established measurable goals for its efforts to address these three key challenges: GEC has not established measurable goals to address workforce shortages, such as staffing targets to address the waitlist for the Home-Based Primary Care program. GEC has not established measurable goals for its efforts to address the geographic alignment of care, such as specific targets for providing long-term care within the Home Telehealth and Veteran Directed Care programs. GEC has not established measurable goals for its efforts to address difficulties meeting veterans needs for specialty care, such as specific targets for the number of available ventilators or the number of caregivers educated to help veterans with dementia. As we noted in our report, without measurable goals, VA is limited in its ability to better plan for and understand progress towards addressing the challenges it faces meeting veterans long-term care needs. To address this issue, we recommended that GEC develop measurable goals for its efforts to address these key long-term care challenges. VA concurred with this recommendation. In our February 2020 report we also found that VA had identified, but had not planned to take steps to fully address, challenges at the VAMC level that affect VA s ability to meet veterans long-term care needs: VA identified that VAMCs do not have a consistent approach to managing VA s 14 long-term care programs. At VAMCs where there are not GEC staff, long-term care programs could be run by one or more departments within the VAMC, for example the Nursing department or the Social Work department. GEC officials told us that this fragmentation hinders standardization and the ability to get veterans the appropriate care. VA also identified that VAMCs use different approaches to assess the amount of noninstitutional long-term care services veterans need. While GEC has developed a tool to improve the consistency in these determinations, VA has not required the tool be used in all VAMCs, as of October 2019. As a result, decisions about the amount of services veterans receive may vary by VAMC. To address these issues, we recommended that GEC leadership set time frames for and implement (1) a consistent GEC structure at the VAMC level and (2) VAMC-wide standardization of the tool for assessing noninstitutional program needs of veterans. VA concurred with our recommendations. Chairwoman Brownley, Ranking Member Dunn, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. GAO Contacts and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact A. Nicole Clowers, Managing Director, Health Care at (202) 512- 7114 or clowersa@gao.gov or Sharon Silas, Director, Health Care, at (202) 512-7114 or silass@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. In addition to the contacts named above, key contributors to this statement were Karin Wallestad (Assistant Director), Luke Baron (Analyst-in-Charge), Summar C. Corley, and Laurie Pachter. Also contributing to the underlying report for this statement were Kye Briesath, Vikki Porter, Corinne Quinones, and Jennifer Rudisill. Appendix I: Department of Veterans Affairs (VA) Institutional and Noninstitutional Long- Term Care Program Descriptions Appendix I: Department of Veterans Affairs (VA) Institutional and Noninstitutional Long- Term Care Program Descriptions This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

What GAO Found The Department of Veterans Affairs (VA) provides or purchases long-term care for eligible veterans through 14 long-term care programs in institutional settings like nursing homes and noninstitutional settings like veterans' homes. From fiscal years 2014 through 2018, VA data show that the number of veterans receiving long-term care in these programs increased 14 percent (from 464,071 to 530,327 veterans), and obligations for the programs increased 33 percent (from $6.8 to $9.1 billion). VA projects demand for long-term care will continue to increase, driven in part by growing numbers of aging veterans and veterans with service-connected disabilities. Expenditures for long-term care are projected to double by 2037, as shown below. According to VA officials, VA plans to expand veterans' access to noninstitutional programs, when appropriate, to prevent or delay nursing home care and to reduce costs. VA currently faces three key challenges meeting the growing demand for long-term care: workforce shortages, geographic alignment of care (particularly for veterans in rural areas), and difficulty meeting veterans' needs for specialty care. VA's Geriatrics and Extended Care office (GEC) recognizes these challenges and has developed some plans to address them. However, GEC has not established measurable goals for these efforts, such as specific staffing targets for programs with waitlists or specific targets for providing telehealth to veterans in rural areas. Without measurable goals, VA is limited in its ability to address the challenges it faces meeting veterans' long-term care needs.

gao_GAO-20-182

gao_GAO-20-182_0

<1. Background> <1.1. Drawback Program> Drawback refunds are a remittance of up to 99 percent of duties, taxes, or fees previously paid by an importer. CBP makes these refunds on imported goods on which the importer previously paid duties, taxes, or fees, and subsequently exported from the United States or destroyed. (See fig. 1.) According to CBP, the rationale for the drawback program was to encourage American commerce and manufacturing. It permits American manufacturers to compete in foreign markets without the handicap of including in their costs, and consequently in their sales price, the duty they paid on imported merchandise. Claimants can apply for and obtain the privilege of accelerated payment of drawback refunds. Accelerated payment allows estimated drawback refunds to be paid prior to liquidation of the drawback entry, provided that, among other things, claimants have acquired and posted with CBP a bond in an amount sufficient to cover the estimated amount of drawback to be claimed. <1.2. Types of Drawback Refunds> There are three main categories of drawback refunds: (1) manufacturing drawback (direct identification and substitution), (2) unused merchandise drawback (direct identification and substitution), and (3) rejected merchandise drawback. Within each category, there are variations in drawback eligibility, such as the ability to substitute imported merchandise. a. Direct identification manufacturing drawback may be claimed on exported or destroyed articles that have been manufactured or produced in the United States with imported duty-paid merchandise, if those articles have not been used in the United States prior to export or destruction under CBP supervision. For example, a claimant could claim a drawback refund on exported pants made in the United States using imported foreign fabric. (See fig. 2.) b. Substitution manufacturing drawback may be claimed on exported or destroyed articles that have been manufactured or produced in the United States using domestic merchandise substituted for imported duty-paid merchandise meeting the statutory criteria, where the articles have not been used in the United States. As a result, domestic producers can select the most advantageous sources for their raw materials and components without regard to duties, saving them production costs. For example, a claimant could claim a drawback refund on exported pants made in the United States using domestic fabric substituted for imported foreign fabric. (See fig. 3.) a. Direct identification unused merchandise drawback may be claimed on imported merchandise that was exported or destroyed under CBP supervision, without having been used within the United States. For example, a claimant could claim a drawback refund on unused imported designer dresses upon their destruction. (See fig. 4.) b. Substitution unused merchandise drawback may be claimed on goods that were exported or destroyed under CBP supervision, without being used, and were substituted for imported merchandise meeting the appropriate criteria. For example, a claimant could claim a drawback refund on exported cars substituted for imported foreign-made cars. (See fig. 5.) 3. Rejected merchandise drawback may be claimed upon the exportation or destruction under CBP supervision of imported duty- paid merchandise entered or withdrawn for consumption, provided it meets the statutory criteria (i.e., not conforming to sample or specifications, shipped without consent, determined to be defective at the time of import, or ultimately sold at retail and returned). For example, a claimant could claim a drawback refund on foreign fabric it imported but returned to the seller because the fabric did not conform to the specification of the claimant s order. (See fig. 6.) <1.3. Drawback Refunds Claimed Annually Ranged from $631.6 Million to $1.4 Billion from 2009 through August 21, 2019> During calendar years 2009 through August 21, 2019, the total amount of drawback refunds claimed ranged from $631.6 million to $1.4 billion. The amount of drawback refunds claimed varied from year to year, but generally rose between 2011 and 2016. Overall, in dollar terms, substitution unused merchandise drawback remained the largest category of drawback refund, as shown in table 1. <1.4. CBP s Transition to Drawback Modernization> As originally enacted in 1789, the drawback program was limited to duties paid on certain imported merchandise if the merchandise was exported within a year. In the 1930s, drawback claimants could use substituted merchandise for imported merchandise in specified circumstances. Congress has continued to allow substitution for drawback refunds in various forms. (See fig. 7.) The U.S. International Trade Commission publishes and maintains the HTS. The HTS is used to determine tariff classifications for goods imported into the United States. Each item imported into the United States is classified in a category with an assigned 8-digit HTS subheading number. The category may be subdivided into 10-digit HTS subheading numbers for statistical purposes. The 4-digit and 6-digit nomenclature is consistent internationally. CBP is responsible for fixing the final classification. For unused merchandise substitution drawback claims, TFTEA also allows drawback using the U.S. Department of Commerce Schedule B commodity number. Pub. L. No. 114-125, 906(e)(4). We do not discuss the use of the Schedule B commodity number in this report because, according to CBP, it is very rare that the Schedule B commodity number is not identical to the HTS number. stating that importers are now jointly and severally liable with claimants for refunds associated with their imported goods. Treasury and CBP had 2 years from the date of enactment of TFTEA to promulgate regulations implementing the TFTEA drawback provisions. TFTEA also provided for an additional 1-year transition period (February 24, 2018 February 23, 2019) during which drawback claimants could file under either the amended provisions or the drawback law as it previously existed. When the government did not meet the 2-year deadline for issuing regulations, which lapsed on February 24, 2018, a number of companies filed suit. Subsequently, Treasury and CBP published the Modernized Drawback Notice of Proposed Rulemaking in the Federal Register on August 2, 2018 and separately published the Regulatory Impact Analysis of the Modernized Drawback Notice of Proposed Rulemaking. In an October 12, 2018 order, the Court of International Trade ordered the United States to file the final rule developed pursuant to the Modernized Drawback Notice of Proposed Rulemaking with the Office of the Federal Register by December 17, 2018. The government met that deadline, publishing the Modernized Drawback Final Rule in the Federal Register and the Regulatory Impact Analysis of the Modernized Drawback Final Rule (RIA). In the final rule, CBP summarized and responded to public comments received on the Modernized Drawback Notice of Proposed Rulemaking and established new policies and procedures for the drawback program pursuant to TFTEA. In the RIA, CBP provided its predictions of the impact primarily in terms of costs, benefits, and revenue transfers of key changes to the drawback program on industry and the U.S. government. CBP did not make accelerated payments on or liquidate any TFTEA drawback claims until the final rule was issued. CBP also did not make any drawback payments during the partial federal government shutdown (December 22, 2018 January 25, 2019). Under drawback modernization, CBP transitioned its filing process for making claims for payment under the drawback program from its Automated Commercial System (ACS) to its Automated Commercial Environment (ACE). Previously, CBP required claimants to file a paper claim, and electronic transmission of a claim summary through ACS was optional. TFTEA required claimants to file all claims electronically on and after February 24, 2018, but also allowed for a 1-year transition period where claims could be filed under the existing drawback statute or under the statute as amended by TFTEA. CBP designated ACE as the electronic system for filing drawback claims. CBP initially partially deployed ACE for the drawback program on February 24, 2018, to allow electronic filing of claims. During the transition period, claimants could file claims under the existing drawback process (detailed in 19 C.F.R. part 191) or under the new drawback process (detailed in 19 C.F.R. part 190). CBP fully deployed ACE for the drawback program on February 24, 2019, the first day after the transition period when all drawback claims had to be filed under the amended statute and implementing regulations. After CBP mandated electronic filing in ACE, drawback entry summary data had to be filed at the more detailed line item level. ACE has expanded capabilities, such as accounting for line item reporting for drawback claims and automatically validating drawback claims against underlying import entries. Changes in the broader trade policy context may also impact CBP s drawback program. In particular, 2018 witnessed a series of presidential and agency actions that resulted in higher tariffs on a range of goods. For example, in January 2018, the President issued Presidential Proclamation 9693 and Presidential Proclamation 9694, imposing tariff rate quotas and increased duties on imports of solar cells and panels, and washing machines and parts, effective February 7, 2018. Further, at the direction of the President, the United States Trade Representative has imposed additional duties on products of China in four tranches, in June 2018, August 2018, September 2018, and August 2019. According to the United States Trade Representative request for comments on a modification to the fourth tranche, the four tranches cover an annual aggregate trade value of approximately $550 billion. CBP has determined that the aforementioned tariffs (commonly referred to as section 201 and 301 duties, respectively) are eligible for drawback refunds and issued guidance on how to make such claims. For fiscal year 2019, Treasury reported that it collected $70.8 billion in customs duties, as compared to $41.3 billion in fiscal year 2018. <1.5. CBP Offices Responsible for Drawback Program> Within the Department of Homeland Security, CBP s Office of Trade is primarily responsible for managing the drawback program. CBP officials described the roles and responsibilities of the several offices within CBP that are involved, as follows: Trade Policy and Programs. The Office of Trade Policy and Programs provides policy and program oversight for the drawback program. Field Operations. The Office of Field Operations is responsible for implementing the drawback program, including ensuring that the Drawback Centers have the resources allocations, staffing, equipment to perform their duties and meet CBP s trade mission. Drawback Centers. Drawback specialists located in one of the four Drawback Centers in Chicago, Houston, Newark, or San Francisco are responsible for reviewing and processing drawback claims. They review claims, in whole or in part, to determine eligibility for drawback refunds. (Appendix II describes CBP s steps for filing and processing drawback claims.) They also review and make determinations concerning claimants (1) requests for drawback privileges for accelerated payment and waiver of prior notice, (2) applications for certain manufacturing rulings, and (3) protests of denied claims. Regulations and Rulings. The Office of Regulations and Rulings is responsible for issuing various types of binding rulings and decisions on drawback refunds. These include decisions on protest applications flagged for further review by the Drawback Centers as well as prospective ruling requests filed by drawback applicants, such as rulings on specific manufacturing drawback rulings and on the proper classification of merchandise for substitution manufacturing drawback. In addition to issuing binding rulings, the Office of Regulations and Rulings is responsible for drafting any regulatory changes involving the drawback program and provides technical advice for drawback policy and litigation. <2. TFTEA Generally Expanded Eligibility for Drawback Refunds, but CBP Has Not Adequately Managed Its Growing Workload> TFTEA generally expanded eligibility for drawback refunds, with some caveats, but CBP is not adequately managing its growing workload of claims resulting from the changes. The substitution standard for drawback claims under TFTEA generally allowed more merchandise to potentially qualify for drawback refunds. However, it also limited the eligibility of certain broadly categorized merchandise. TFTEA also expanded the scope of the refund of taxes and fees for manufacturing claims and standardized time limits to file claims. On balance, these changes, along with certain limitations in CBP s Automated Commercial Environment (ACE), have led to an increase in the workload of drawback specialists. However, CBP did not anticipate the increased workload and does not have a plan to manage the increased workload, which has caused delays resulting in uncertainty for industry potentially impeding trade. <2.1. TFTEA Generally Expanded Eligibility for Drawback Refunds> <2.1.1. Substitution Standard under TFTEA Generally Expanded Drawback Refund Eligibility, but Also Limited the Eligibility of Some Merchandise> Change of substitution standard: According to CBP officials, the most significant change resulting from TFTEA is that it is now easier to substitute merchandise and still qualify for drawback refunds. TFTEA changed the substitution standard for certain drawback types, with new rules reflecting a shift from a subjective to a more objective standard. Previously, CBP applied a subjective same kind and quality standard for manufacturing substitution drawback and commercially interchangeable standard for unused merchandise drawback. For example, CBP did not permit a U.S.-based clothing manufacturer, Jockey, to substitute light blue underwear for dark blue underwear for an unused merchandise drawback claim before modernization. In 1995, Jockey submitted a request to CBP for a commercially interchangeable ruling to permit it to substitute underwear that is the same size, style, and specification, but different in color and part number for example, substitute light blue underwear for dark blue underwear. CBP ruled that Jockey underwear was not commercially interchangeable for the purpose of the unused merchandise substitution drawback. Under the new substitution standard for manufacturing drawback and unused merchandise drawback, both the imported merchandise and the substituted merchandise generally must match at the 8-digit or 10-digit HTS classification to be eligible for drawback refunds. The new substitution standard has made more merchandise eligible for drawback refunds, such as the Jockey underwear that would now be eligible for unused merchandise substitution drawback, as shown in the example for one type of product in figure 8 below. It has also enabled automatic acceptance and verification of drawback claims in ACE. CBP officials told us that they had seen an increase in new claimants as a result of the changes to the substitution standard, among other factors. According to industry representatives we interviewed, the changes to the substitution standard have enabled new companies to file for drawback refunds and have expanded eligibility for existing clients. For example, they stated that the changes to the substitution standard have allowed the automotive industry to substitute domestic car exports for imported foreign-made cars, as mentioned earlier. One industry representative noted that as a result of the new substitution standard, an automotive company that had been recovering about $2 million in drawback refunds per year before TFTEA can now recover about $20 million a year. Drawback trading: The new substitution standard may also broaden the scope for drawback trading, according to industry representatives we interviewed. They described drawback trading as matching excess import and export activity through the use of a third-party special purpose entity that exists for the sole purpose of maximizing drawback refund recovery between currently unrelated importers and exporters with no existing commercial relationship. CBP officials we spoke to did not think the new substitution standard should have any bearing on the potential for drawback trading. CBP officials explained that although the substitution standard for certain drawback claims had changed, TFTEA should not significantly affect drawback trading because, as before TFTEA, the claimant would still need to fulfill the possession and assignment standards. Finished petroleum derivative drawback claims do not have a possession requirement. CBP has permitted drawback where a company set up relationships with the importer and exporter expressly to maximize drawback for finished petroleum derivatives. Limitation of basket provisions from unused merchandise substitution drawback: While TFTEA s change to the use of HTS classifications generally expanded eligibility for certain drawback substitution claims, it concurrently limited eligibility in certain situations. Specifically, TFTEA prohibited eligibility for unused merchandise substitution of merchandise that is classified as other at both the 8-digit and 10-digit HTS subheadings for drawback refunds. Such classifications are considered basket provisions. For example, shrimps and prawns that fall under the HTS 1605.21.10.30 basket provision, as shown in figure 9, are not eligible for substitution unused merchandise drawback, as follows. If the shrimps and prawns are not in airtight containers, and are not products containing fish meat or prepared meals, they fall under other at the 8-digit HTS subheading (1605.21.10). If these shrimps and prawns are also frozen but not breaded, they fall under other at the 10-digit HTS statistical suffix (1605.21.10.30), categorizing them in a basket provision. According to CBP, the products most affected by the limitation on basket provisions from unused merchandise substitution drawback based solely on 2016 HTS counts will be screws, nuts, and bolts; motor vehicle parts and accessories; and transmission shafts. One company we spoke with had been able to claim over $1 million in unused merchandise substitution drawback a year prior to modernization, for an imported ceramic substrate used for cleaning emissions in cars. The company also makes domestically sourced ceramic substrate, which it exports. CBP considered these two products commercially interchangeable. However, according to the company, the ceramic substrate is classified as a basket provision and the company is no longer eligible for drawback refunds. from the same inventory. If the imported item is substituted for an exported item that is not fungible with the imported item, it does not qualify for direct identification. able to administer the new statistical reporting number. For example, the article description must be clear, the HTS classification must be correct, and the new number must not require difficult or prohibitively expensive laboratory or other testing. If merchandise is not eligible for direct identification drawback but is classified as a basket provision, it may still qualify for a drawback refund if a company can successfully petition the Committee for Statistical Annotation of Tariff Schedules for new 10-digit HTS statistical breakouts. However, such a workaround is time-intensive and not guaranteed, according to an industry representative. In one example, the representative explained that a chemical company with a product classified as a basket provision successfully petitioned for a new statistical breakout. The company produces chemical methanol and was unable to file a TFTEA drawback claim in 2018 because of the basket provision restriction. Such requests are generally considered by the committee twice a year. Standardizing time limits: TFTEA also expanded eligibility for drawback refunds by standardizing the drawback filing deadline. Previously, drawback claim filing deadlines varied based on type of claim and time between import and export or destruction, ranging from 3 years to 5 years from importation to exportation or destruction, followed by a 3-year window to file a claim. TFTEA generally standardized the timelines for the acceptance of claims to be up to 5 years from import. CBP expects the new eligibility time frames will give some drawback claimants more time to file for drawback and potentially increase drawback eligibility for some claimants. Expanding taxes and fees: TFTEA expanded the scope of drawback refunds by explicitly including taxes and fees for manufacturing drawback claims. Prior to TFTEA, the drawback statute did not specify that taxes and fees were eligible for manufacturing drawback. TFTEA extended drawback refunds to taxes and fees for manufacturing claims. Some industry representatives we spoke to told us they were benefiting from this expansion. For example, a representative from the U.S. oil industry noted that the new law is much more lucrative for oil companies that refine crude oil because they can now get drawback refunds on the oil spill tax and harbor maintenance fee. <2.2. CBP Has Not Adequately Managed the Growing Workload Resulting from TFTEA> CBP has not adequately managed the growing workload drawback specialists have been experiencing since TFTEA. Drawback specialists told us that they had been experiencing increasing workloads since CBP implemented the changes from TFTEA. The largest Drawback Centers expect their backlog of old claims will take about 5 years to work through. This workload is the cumulative result of various factors that have caused delays with processing claims, rulings, and privileges applications. The workload of the Drawback Centers is growing because of a learning curve related to the switch from a paper-based to an electronic process, delays in processing claims, and an increase in the number of claims, as discussed below. Further, the Drawback Centers continue to face staffing shortages. Learning curve: According to CBP officials, drawback specialists face a learning curve as they become familiar with ACE and the new rules for drawback refunds. They explained that drawback specialists are still working through pre-TFTEA claims that were migrated into ACE. From January 1, 2019 to September 13, 2019, CBP Drawback Centers liquidated about 18 percent of the value of the remaining claims filed in CBP s Automated Commercial System (ACS) and about 27 percent of the number of remaining claims filed in ACS. For TFTEA claims, CBP provided in-person training to drawback specialists before the final regulations were issued, as well as in May 2019 and September 2019. CBP has also been updating its guidance for processing claims, and, according to officials, plans to continue to offer trainings for drawback specialists as it finalizes the guidance. Nevertheless, adjusting to the changes has hampered the efficiency of drawback specialists. For example, drawback specialists explained that they had to learn to toggle between different systems that require separate logins to review event history, file uploads, and tax information within ACE in order to fully process a claim. Delays in processing claims: CBP faced a delay in processing drawback claims because of a hold relating to the issuance of the drawback final rule. Claimants could begin filing TFTEA claims on February 24, 2018, but CBP did not process any of these claims pending the final rule which CBP issued on December 17, 2018. As a result, all 18,319 claims filed during this 10-month period were put on hold. CBP lifted the hold when the final rule was issued. CBP s workload continued to grow because certain TFTEA manufacturing claims were on hold. Following TFTEA, the proposed and final rule required claimants who wanted to operate under an existing manufacturing ruling to file a supplemental application for a limited modification to the existing ruling, as previously discussed. According to CBP interim guidance, to ensure compliance with TFTEA drawback requirements, a limited modification must include a bill of materials or formula, annotated with the applicable HTS subheading numbers. Claimants who did not apply for a limited modification by February 23, 2019, would need to apply for a new manufacturing ruling. CBP received about 800 applications for limited modifications, which it began approving on September 16, 2019. Between February 2019 and July 2019, CBP also received about 50 applications for new manufacturing rulings, which it has not yet begun to process. These processes remain paper-based (see fig. 10). CBP officials explained that CBP generally does not process manufacturing drawback claims until claimants are issued up-to-date ruling numbers. Until the new or modified manufacturing rulings are approved, CBP officials explained, they will not provide accelerated payment or process manufacturing claims. Moreover, some manufacturing rulings can take years to finalize. For example, one chemical company noted that CBP s lab analyzes every piece of the manufacturing process, and as a result, it is awaiting final decisions on new manufacturing rulings from 2013. Increase in number of claims: CBP has also seen an increase in the number of drawback claims because of TFTEA s changes to the drawback program and limitations in ACE. Prior to TFTEA, the number of drawback claims per calendar year ranged from 11,690 to 13,291. CBP saw a large increase in the number of drawback claims in 2018 and 2019. (See table 2.) CBP limited the number of lines in a drawback claim in ACE, which increased the number of drawback claims filed. Prior to TFTEA, claims were not limited by line. Because of system constraints, claims filed in ACE are restricted to 10,000 lines per claim. CBP had predicted that this ACE line limitation would increase the number of claims by a factor of four. Evidence to date indicates a significant increase in workload for certain Drawback Centers. For example, the Chicago Drawback Center noted that two claimants had filed over 4,000 claims between February 24, 2018 and February 23, 2019, whereas these same claimants had filed less than 50 claims in the prior year. According to the industry representatives we spoke with, the line limit in ACE added more work for industry and CBP because it made it necessary for claimants to break up the volume of their claims into different applications. For example, one broker used to file drawback claims four times a year on behalf of one refinery, but now has to file 300 times per year to account for the line limit. Drawback specialists pointed out that each claim stands on its own. As a result, they explained that they must liquidate each claim in ACE, which involves a number of quality control steps such as verifying that the claim is ready to be liquidated, relevant rulings are valid, and all validation activities are complete. As discussed earlier, the changes to the substitution standard have also led to an increase in new drawback claimants, according to CBP officials. CBP has received applications from over 500 new claimants since February 24, 2018. New claimants require additional work, including drawback specialists manual reviews of claims, privilege applications, and ruling requests, as follows. Claims. Drawback specialists explained that drawback claims from new claimants are subject to a full desk review. The specialists will request supporting documentation to ensure that the appropriate statutory and regulatory requirements are met. They also determine drawback due on the basis of the completed drawback claim, the applicable general manufacturing drawback ruling or specific manufacturing drawback ruling, and any other relevant evidence or information. According to CBP, the time it takes a drawback specialist to conduct a full desk review varies by claim, based on the nature of the claim and the experience of the drawback specialist. CBP reported that it could take more than 3 years for CBP to conduct a full desk review and determine the final disposition of a drawback claim. Privilege applications. Claimants can also apply for privileges including accelerated payment privileges, a waiver of prior notice of intent to export or destroy, or a one-time waiver of prior notice of intent to export or destroy. Claimants must continue to submit paper applications for such privileges and drawback specialists must manually review the privilege applications. According to CBP, most claims are eligible for accelerated payment of drawback refunds. Manufacturing rulings. Lastly, if a claimant is seeking either a direct identification manufacturing drawback or a substitution manufacturing drawback, it must manually apply for a manufacturing ruling using a paper form submitted through email, which may require significant documentation and review, as discussed earlier. CBP maintains the manufacturing rulings as paper files. For example, the Drawback Center in Newark stores manufacturing rulings in rows of filing cabinets. (See fig. 11.) Additionally, CBP has not been able to respond to all privilege applications within 90 days, as set forth in the regulations. Between February 2018 and July 2019, CBP received almost 600 new privilege applications. CBP missed the 90-day deadline about 60 percent of the time. According to drawback specialists, they missed this deadline because of their workload. According to an industry representative, delays in processing privilege applications mean companies cannot receive their drawback money in a timely manner. Such delays cause uncertainty for industry, potentially impeding trade. Drawback specialists face new obstacles to managing automatic liquidation of drawback claims in ACE. According to CBP officials, previously, drawback specialists had at least 10 days of lead time to address an automatic liquidation. Now, Drawback Centers must continually monitor the automatic liquidation reports. Because of the way ACE operates, drawback specialists may only have 1 day of lead time before a claim automatically liquidates. According to drawback supervisors, such monitoring is significantly increasing their workload. Further, drawback specialists told us that one way they were managing their increased workload was by extending automatic liquidation, which can be done up to three times, as discussed in appendix II. This practice goes directly against CBP s guidance. Moreover, if they continue this practice, specialists may be forced to liquidate claims at zero if they run out of extensions. Further, as the workload continues to grow, Drawback Centers continue to face staffing shortages. As of October 26, 2019, CBP met the congressionally mandated staffing level for drawback specialists of 37 for the first time in over 5 years. In CBP s 2017 Resource Optimization Model, it reported an optimal staffing level of 40 to meet its drawback staffing needs. CBP s staffing level of 37, as of October 2019, did not meet this target. According to CBP officials, although Drawback Centers are utilizing overtime, the drawback specialists are not able to keep up with the influx of work. CBP has not adequately managed its drawback workload because it did not anticipate the increase in workload and did not plan for the increase accordingly. Federal standards for internal control note that management should evaluate performance and hold individuals accountable for their internal control responsibilities, which include evaluating pressure on personnel to help personnel fulfill their assigned responsibilities in accordance with the entity s standards of conduct. Management can adjust excessive pressures using many different tools, such as rebalancing workloads or increasing resource levels. However, CBP has not brought staffing to its optimal level, and has not adjusted the workload in Drawback Centers through ACE to account for the increase in claims, rulings, and privilege applications. Prior to TFTEA, CBP officials explained that CBP could not control the workload of the Drawback Centers because claimants mailed their paper-based claims to the Drawback Center of their choice. Now, CBP has greater visibility and flexibility to potentially control the work flow to the Drawback Centers through ACE, but has not done so. CBP officials said they had anticipated that ACE automation would reduce drawback specialists workload, but experience, to date, indicates that workload increased. Until CBP develops a plan for managing its increased workload, it risks further delays in drawback claim processing that result in uncertainty for industry, potentially impeding trade which runs counter to its strategic goal of enhancing U.S. competitiveness by enabling lawful trade and travel, such as by reducing barriers to the efficient flow of trade and streamlining and unifying processes and procedures. <2.3. CBP Has Taken Steps to Address Certain Risks of Improper Payments in the Drawback Program under Modernization, but Has Not Addressed Others TFTEA Made Three Key Changes to the Drawback Process That CBP Expects to Strengthen Its Ability to Validate Claims and Recover Inaccurately Claimed Drawback Refunds> CBP has taken steps to mitigate improper payment risks in the drawback program. Specifically, CBP expects three key changes to the drawback process under modernization will strengthen its ability to validate claims and recover inaccurately claimed drawback refunds: (1) requiring electronic filing in ACE, (2) extending the record retention period, and (3) broadening liability. However, CBP has not addressed several other risks for improper payments in the drawback program. These risks relate to (1) limitations in CBP s existing desk review process, (2) establishing electronic proof of export, and (3) targeting a selection of claims for review. TFTEA contained provisions amending the drawback statute that CBP expects will help it to remediate certain internal control deficiencies over drawback claim processing. Prior independent audits identified significant or material internal control weaknesses related to CBP s processing of drawback claims, including that CBP s drawback system lacked effective automated controls to prevent the overpayment of drawback claims and that the record retention period was not appropriate to ensure that support for drawback claims was maintained for the length of the drawback claim lifecycle. CBP expects that three key changes to the drawback process under modernization will strengthen its ability to validate claims and recover inaccurately claimed drawback refunds, as follows. Requiring the electronic filing of drawback claims. On February 24, 2019, the drawback program fully transitioned to ACE. Specifically, all drawback claims are now required to be filed electronically in ACE and include drawback entry summary data at the more detailed line item level. Line item reporting requires claimants to provide certain relevant information for the designated imported merchandise on a drawback claim associated with the line item on an import entry summary, including the tariff classification, quantity, and value, as well as the duties, taxes, and fees assessed thereon. With electronic filing and line item reporting, CBP can now automatically compare and verify the amounts of duties, taxes, and fees claimed on the drawback claim against the amounts paid on the import entry summary, which CBP expects will help ensure that it does not overpay funds. CBP s prior system for filing drawback claims did not have the capability to electronically compare and verify claims against underlying import entries upon which the drawback claim was based to determine whether an excessive amount had been claimed at the individual line item level, according to prior independent audits. CBP s transition to ACE is intended to mitigate risks of improper payments on drawback-related imports, by helping to ensure through automated validations that the amount paid for drawback claims against a given import entry does not exceed 99 percent of the duties, taxes, and fees collected at the individual line item level. Extending the record retention period for certain drawback claims. For all TFTEA drawback claims, supporting records must now be maintained for a period of 3 years from the date of liquidation of the claim, rather than 3 years from the date CBP pays a drawback claimant. This new time frame requires claimants with accelerated payment privileges to maintain supporting records for a longer period than before modernization. Prior to modernization, the drawback record retention period sometimes fell short of the time in which CBP liquidated a drawback claim, preventing CBP from substantiating a claim with complete documentation. The extension of the record retention period provides CBP with more time to request documents needed to verify claims during desk reviews, which in turn should strengthen its ability to recoup over claimed drawback refunds. According to CBP officials, if a claimant fails to provide documents as directed, or if the documents do not support the claim as presented, CBP can liquidate the claim at $0, or other diminishment as appropriate, and ACE will then issue a bill for outstanding funds owed. Broadening liability for drawback claims. Following TFTEA, liability for the full amount of a drawback claim shifted from the claimant to both the claimant and the importer of the designated imported merchandise upon which drawback refunds are claimed. CBP expects that establishing joint and several liability, consistent with TFTEA, will help it to recoup over claimed drawback refunds by holding the importer of record, in addition to the claimant, responsible for payment of erroneous or false drawback claims. According to the industry representatives we spoke to, the impact of the joint and several liability change remains to be seen, but it could limit the incentive of importers to engage in drawback filing with exporters or claimants to avoid liability. In addition to implementing these statutory changes, CBP has been working with a statistician to develop a more robust basis for sampling and selecting claims for review. For example, CBP has determined that it will target higher-value claims for more frequent review. <2.4. CBP Has Not Addressed Several Other Risks for Improper Payments in the Drawback Program> CBP lacks effective automated controls to prevent overpayment of drawback refunds related to export information. CBP guidance notes that a statutory prohibition on multiple drawback claims is set forth in 19 U.S.C. 1313(v), which restricts the use of merchandise that is exported or destroyed to a single claim for drawback. Unlike import information, which is included in ACE to allow CBP to electronically compare and verify claims against underlying import entries, similar export information is not included in ACE. Therefore, CBP cannot perform electronic comparisons of export data within ACE to help ensure that it does not make overpayments on drawback-related exports. For example, if a claimant exported 10 widgets and filed one drawback claim for six exported widgets and another claim for five exported widgets, CBP would not be able to systematically verify that the second drawback claim was excessive and thus invalid. To compensate for the lack of automated controls, CBP designed an internal control for the drawback program that targets a selection of claims for a manual full desk review by drawback specialists. (See appendix II for an explanation of what such desk reviews involve). However, CBP has not addressed several other risks for improper payments in the drawback program. These risks relate to (1) limitations in CBP s existing desk review process, (2) establishing electronic proof of export, and (3) targeting a selection of claims for review. <2.4.1. CBP s Existing Desk Review Process Cannot Systematically Identify Duplicate or Excessive Claims for Drawback Related to Export Information> CBP s existing manual desk review process does not have the ability to systematically confirm the validity of export documentation and confirm that export documentation is accurately being used across multiple claims. CBP officials noted that, while export documentation could be used across multiple claims, by law, claimants cannot file multiple drawback claims based on the same exported merchandise, as discussed above. Under TFTEA, a person claiming drawback refunds based on the exportation of an item must provide proof of export. Such proof must establish fully the date and fact of exportation and the identity of the exporter and may be established through the use of records kept in the normal course of business or through an electronic export system, as determined by CBP. To comply with this requirement, CBP requires claimants to (1) provide summary data as part of the drawback claim in ACE that includes the date of export, name of exporter, description of the goods, quantity and unit of measure, tariff classification number, and country of ultimate destination; and (2) maintain actual proof of export, which can be records kept in the normal course of business, and provide such proof upon demand by CBP. However, CBP officials told us that claimants only provide proof of export upon request by the drawback specialist, and that such requests typically are made after the claim is accepted in ACE and only in the context of desk reviews. Drawback specialists do not routinely request, store, or compare export documentation except for claims selected for desk reviews. CBP has no way of tracking whether claimants are using their export information excessively, and, according to officials, CBP has not yet assessed the feasibility of doing so. CBP officials explained that having the ability to flag excessive export submissions across multiple claims would enhance CBP s protection against over claiming, but that further review is needed to determine whether flagging is feasible with current system capabilities. CBP officials said that they intend to look further into the matter in fiscal year 2020. As a result, the drawback program remains at risk of improper payments on drawback related to export information as claimants could over claim drawback refunds by using non-existent, insufficient, or falsified export documentation, or by reusing export documentation across multiple claims for merchandise that was never exported. <2.4.2. CBP Has Not Taken Steps to Establish Electronic Proof of Export> CBP has not taken any steps to establish electronic proof of export, although it has a longstanding goal to designate the Automated Export System as an electronic means of establishing proof of export. Federal standards for internal control call for agency management to design the entity s information system and related control activities to achieve objectives and respond to risks. However, CBP has not yet deemed the Automated Export System as a reliable system of record for proof of export. At the time the final rule was issued in December 2018, CBP commented that the Automated Export System, as it stands, could not provide sufficient proof of export, and CBP would therefore continue to require documentary proof of export until further notice. Specifically, CBP determined that the Automated Export System does not establish the date and fact of exportation, or the identity of the exporter information that can be relied upon to demonstrate drawback eligibility. CBP officials in headquarters told us that while being able to develop a reliable system of record for proof of export remains a goal, CBP does not have a plan or time frames for doing so as it intends to revisit the matter in fiscal year 2020. CBP officials explained that their focus has been on transitioning the drawback program to ACE, including by training staff and addressing industry concerns. Until CBP implements effective control activities for the drawback program, the government may be subject to revenue loss through duplicate or excessive claims for drawback related to export information. We cannot precisely estimate the potential savings that might result from CBP taking steps to prevent over-claims because the current rate of improperly claiming against the same export documentation multiple times is unknown. Further, the current number and amount of drawback claims improperly using export information is unknown. However, if these steps reduced drawback-related costs by even 1 percent of the over $1 billion in annual drawback refunds, this could equate to millions of dollars in savings. <2.4.3. CBP Has Not Targeted over 35,000 Claims for Review since It Disabled the Selection Feature, and the Number of Claims Not Targeted for Review Continues to Increase> CBP has not targeted a selection of claims for a manual full desk review since it disabled the selection feature in ACE, and the number of claims not targeted for review continues to increase because CBP has not turned the selection feature back on. The lack of review increases the risks of improper payments for claims filed, which stood at over 35,000 as of August 23, 2019, and represented an estimated $2 billion. To mitigate risks of improper payments in the drawback program, CBP designed an internal control for the drawback program in which a selection of claims is targeted for a manual full desk review by drawback specialists. Prior to modernization, CBP officials told us that they would target 1 percent of the claims per claimant and 1 percent of the entries on a drawback claim for a full desk review. Drawback specialists provided examples of having conducted full desk reviews in which they discovered that the claimants had failed to substantiate the claim by, for example, providing insufficient proof of export. They explained that the claimants had to repay their drawback refund and had CBP target subsequent claims for a limited desk review. However, CBP officials explained that when CBP transitioned the drawback program to ACE starting on February 24, 2018, a system error forced CBP to disable the selection feature in ACE. Certain claims that have been submitted since the system error was discovered have not been targeted for a full desk review. Federal standards for internal control call for agency management to identify, analyze, and respond to risks related to achieving the defined objectives. These standards note that agency managers should comprehensively identify risks and analyze them for their possible effects, as well as design responses to these risks as necessary to mitigate them. CBP officials told us that they are working toward turning the selection feature back on as soon as CBP can address the system error. However, CBP did not expect the issue to persist as long as it has to date (22 months, as of December 2019). As a result, even when the selection feature is reactivated, it will only be applied to new claims filed after that point. CBP does not have a plan to retroactively target claims for review that had already been accepted in ACE during the system error, or to identify and analyze risks from targeting to adjust targeting in the future. For example, CBP has not determined whether specific claimant characteristics or claim types are more frequently associated with compliance problems. CBP officials explained that analyzing risks from targeting to identify non-compliance patterns across claimants is not something CBP has done in the past because CBP is account based and does not compare claims across claimants. However, CBP officials acknowledged the feasibility with ACE s new capabilities of systematically pulling and analyzing non-compliance data input into ACE by the drawback specialists during limited or full desk reviews, and told us that they intend to explore this matter further in fiscal year 2020. These officials stated that taking these steps would be valuable for improving risk management in the drawback program and that doing so is likely to be feasible with current staff resources. Without finalizing or implementing procedures to retroactively target claims for review and taking steps to analyze non-compliance patterns to improve future compliance processes, CBP may miss opportunities to protect U.S. trade revenue from improper payments of drawback claims. We cannot precisely estimate the potential savings that might result from CBP pursuing claims from the period when the selection feature was disabled, because the amount of drawback recovery resulting from the review of this universe is unknown, and the actual amount would depend on the number of reviews conducted, amount of improper payments discovered, and ability to recover these payments. However, if these reviews recovered even half of 1 percent of the $2 billion in un-reviewed claims, this could equate to millions of dollars in additional recoveries. <2.5. CBP Has Not Produced a Reliable Assessment of the Economic Impact of the Changes to Drawback Refund Eligibility Because of Data Constraints and Other Factors CBP Has Not Reliably Established the Economic Impact to Industry and Government through Its Prospective Estimate of the Impact of Drawback Refund Eligibility Changes> CBP published a required Regulatory Impact Analysis of the Modernized Drawback Final Rule (RIA) of new drawback regulations in 2018 to outline, prospectively, the anticipated consequences of this economically significant regulatory action. The RIA was to include a quantification and monetization of anticipated benefits and costs, to the best extent possible with information available at the time. As of December 2019, CBP s RIA was the only formal analysis that had been conducted on the impact of changes to drawback eligibility under modernization on industry and government. We assessed three key portions of the RIA relating to impact on industry and changes to drawback eligibility against GAO s standards for review of economic analysis, and found that CBP had not produced reliable estimates. Various factors limited the analyses that CBP could conduct. For example, because the RIA was published prospectively, post- modernization program data were, necessarily, not yet available. According to CBP officials, CBP also developed the RIA before it had transitioned to ACE, a database with enhanced capabilities. However, in some cases, we found that CBP was not transparent about the level of uncertainty in its assumptions resulting from these limitations. We did not comprehensively assess the entire RIA (a 251-page document containing more than 90 tables) or assess any of it against the Office of Management and Budget s guidelines for an RIA. Therefore, the following discussion of the RIA is not an assessment of whether the RIA met the criteria for required regulatory analyses outlined in the Office of Management and Budget Circular A-4. Our assessment of each of the relevant portions of the RIA is based on GAO s standards for review of economic analysis, and outlined below. Affected industries: CBP determined that a wide range of industries would be affected by modernization but did not determine whether the dollar impact of eligibility changes from modernization would be more concentrated in some industries than in others because of data limitations. To reach the conclusion that a wide range of industries would be affected by modernization, CBP took a sample of companies that had submitted drawback claims and examined these companies to determine their primary industry. According to GAO standards, an economic analysis should state its objective and the scope of the analysis should be designed to address this objective. According to CBP officials, CBP designed this sample to support statements about the number of companies affected but not the dollar size of the impact, although CBP did not explicitly state the intent of this design in the RIA. At the time of the RIA, according to these officials, designing a dollar-weighted sample which could support statements about which industries were most affected in terms of financial costs and benefits would have required a prohibitive amount of work with paper records. However, the officials noted that a dollar-weighted sample should now be feasible because most of the necessary information is now stored electronically in ACE. Expansion of substitution eligibility: CBP estimated that the expansion of substitution eligibility would account for $1 billion (98 percent) of the $1.02 billion estimated total 10-year amount of increased drawback refunds under modernization; however, we found that this estimate was not reliable because of the amount of uncertainty in key assumptions. According to GAO standards, an economic analysis should consider all relevant alternatives and describe and justify the analytical choices, assumptions, and data used. CBP s estimate was based on assumptions about changes to the dollar amount per drawback claim and number of drawback claims as a result of modernization and system limitations in the number of lines per claim. Specifically, CBP assumed that claim values would remain equal to their historical average (adjusted for line limitations in ACE) and that the number of claims under modernization would grow primarily in the first year after modernization. However, CBP did not justify some key methodological assumptions about the amount and number of claims and did not take sufficient steps to inform on the extent to which the conclusions of the analysis would remain similar, even if it changed some of these assumptions. CBP estimated the dollar amount per claim based on a historical average of drawback claim amounts but did not explain in the RIA why the historical average is an appropriate assumption for drawback claim amount. CBP officials told us that they considered a range of different drawback claim amount values and growth rates as a result of significant annual variation in drawback claim amounts prior to TFTEA. However, CBP did not include variation in claim dollar amounts in its published sensitivity analyses for this table or otherwise discuss, within the scope of these analyses, whether its conclusions would have been affected by this variation in the assumed amount per claim. Additionally, CBP s estimate of expected increase in the number of claims that would be filed under modernization contains several key assumptions that it justifies based on emails and discussions with industry representatives and CBP subject matter experts, the details of which are not transparent in the RIA. We reviewed these emails and found that the two industry representatives whom CBP cited expressed uncertainty about the effects of modernization and provided estimates of growth in substitution drawback claims that varied by 20 percentage points from one another. CBP also sought public comments on these estimates and did not receive any, according to officials. As the estimated effect of this change constitutes nearly all of the estimated increase in drawback refunds in the RIA, the uncertainty around key assumptions for this analysis means that the overall actual effects of modernization could differ widely from CBP s estimate. Limitations on basket provisions: CBP estimated that eliminating claims with basket provisions would cost industry about $11 million over 10 years; however, we found that this estimate was not reliable because of the amount of uncertainty in key assumptions. According to GAO standards, an economic analysis should consider all relevant alternatives and describe and justify the analytical choices, assumptions, and data used. These standards further note that, when feasible, an economic analysis should adequately quantify how the statistical variability of the key data elements underlying the estimates of the economic analysis impacts these estimates. While CBP s general methodology was reasonable, its sample design was too small to ensure reliable results and some assumptions were not fully explained or transparent. CBP sampled 50 out of 2,346 substitution unused merchandise claims from 2016, of which 16 contained lines classified under basket provisions in the HTS code, and used this sample to estimate the number of affected claims and lines, as well as average affected line value. CBP officials told us that CBP selected this sample size because of the labor-intensive process required to examine paper records from the relevant claims. However, in the RIA, CBP did not discuss how this small sample size caused imprecision in its estimates. Further, CBP did not establish that this time-limited sample was generalizable beyond 2016, either for the proportion of affected claims and lines or for the average affected line value. CBP officials said that, to alleviate these issues, CBP sought public comments on these estimates and did not receive any. According to CBP officials, at the time of their analysis, there was no evidence about the average dollar amount of future claims. However, CBP did not conduct a sensitivity analysis on these assumptions, for example, to determine how much its estimates would change if the number or dollar amount of claims utilizing basket provisions was larger or smaller than CBP had assumed. <2.6. TFTEA Has Enhanced Data and System Capabilities for Economic Analysis of Changes to Drawback Eligibility, but CBP Has No Plans to Conduct Further Analysis in the Near Future> Beyond its RIA, CBP has not conducted economic impact analysis of the changes to drawback eligibility under modernization, including on industry, and does not have plans to do so in the near future. Because the changes are new and CBP has devoted many of its resources to rolling out modernization, CBP stated that, while it intends to follow relevant requirements for regulatory review, it has not yet prioritized developing a plan for further assessments of the economic impact of the regulation. CBP officials stated that any future plans for retrospective review would follow Treasury guidance. This guidance states that priorities for retrospective review projects of existing significant regulations should be based upon an understanding of the economic impact of the regulatory action on industry and the government, among other factors. According to the RIA, the drawback modernization regulations are an economically significant regulatory action. The Treasury guidance states that such an understanding can be achieved through an ex post analysis of the effects of the regulation on the public, industry, or the government, including increased revenue or costs. An ex post analysis of impact on industry and the impact of major changes to drawback eligibility would have fewer limitations than the RIA, which analyzed the changes prospectively (using historical data to predict future outcomes). For example, because of system updates, more detailed data about lines within claims are now stored electronically, which may reduce the need to conduct sampling in order to estimate the impact of changes. Additionally, because the regulation is now in effect, information such as the number of claims filed can be determined with actual data rather than by projection. According to CBP officials, within 3 to 5 years the agency will have sufficient data to conduct a reliable ex post analysis of the impact of the changes. Useful analysis might be possible sooner, as well. CBP assumed in the RIA that some of the most important effects of modernization would occur in the first year. According to GAO standards, the reliability of an ex post analysis will depend not only on the sufficiency of data, but also on whether the analysis has considered and properly dealt with elements such as objective and scope, methodology, analysis of effects, transparency, and documentation. At present, however, CBP has not prioritized developing a plan with time frames to conduct such an analysis when the data are available a plan that could include identifying key areas of analysis, data sources, and appropriate methodologies. Without an ex post analysis, CBP cannot reliably determine the financial effects of changes to drawback refund eligibility on industry and the government. <3. Conclusions> CBP disburses about $1 billion in drawback refunds per year and expects the amount of drawback refunds dispersed to continue growing. According to CBP, TFTEA modernized CBP s system for processing drawback claims, transitioning it from a paper-based to an electronic system, in an attempt to mitigate longstanding risks in the program. Despite the expected increase in drawback claims, CBP did not anticipate and then adequately manage the increase in drawback specialists workload. As a result, CBP has delayed timely processing of some drawback claims, rulings, and privilege applications, which has resulted in uncertainty for industry potentially impeding trade. Since modernization, drawback claims continue to be at risk of improper payments with vulnerabilities in CBP s export verification and quality control system. While drawback modernization addressed longstanding risks associated with the program by automatically verifying import information, export information still creates a risk. CBP cannot systematically verify the validity and accuracy of a company s proof of export. As a result, companies could still over claim drawback refunds by using non-existent, insufficient, or falsified export documentation, or by reusing export documentation across multiple claims. Additionally, while CBP established internal controls to mitigate improper payment risks in the program, such as by targeting a selection of claims for review, it disabled this quality control measure for claims submitted since drawback modernization began in February 2018. Over 35,000 claims accepted since drawback modernization amounting to over $2 billion remain at risk for noncompliance. Without CBP finalizing and implementing procedures to target claims retroactively and in the future, CBP will continue to miss opportunities to protect U.S. trade revenue. Further, if CBP does not design its targeting system to mitigate identified risks, future claims also are at risk of noncompliance. Prior to drawback modernization, CBP was not able to produce a reliable assessment of the economic impact of the changes to the drawback program on industry and government because of data availability constraints, systems limitations, and other factors. However, modernization has eliminated some of these constraints, and CBP estimates that within several years it will have sufficient data to conduct an ex post analysis. However, CBP has not prioritized developing a plan to do so. Without such an analysis, CBP cannot be certain about the economic impact of drawback modernization. <4. Recommendations> We are making a total of six recommendations to CBP. Specifically: The Commissioner of CBP should ensure that the Office of Field Operations, in consultation with the Office of Trade, develops a plan for managing its increased workload. (Recommendation 1) The Commissioner of CBP should ensure that the Office of Trade assesses the feasibility of flagging excessive export submissions across multiple claims and takes cost-effective steps, based on the assessment, to prevent over claiming. (Recommendation 2) The Commissioner of CBP should ensure that the Office of Trade develops a plan, with time frames, to establish a reliable system of record for proof of export. (Recommendation 3) The Commissioner of CBP should ensure that the Office of Trade turns the claim selection feature in ACE back on and finalizes and implements procedures to target claims for review that were accepted into ACE during the period in which the selection feature was disabled. (Recommendation 4) The Commissioner of CBP should ensure that the Office of Trade analyzes the results of its targeting of claims for review and designs responses to mitigate identified risks. (Recommendation 5) The Commissioner of CBP should ensure that the Office of Trade prioritizes developing a plan to conduct an ex post analysis of the impact on industry and government of key changes to the drawback program, including time frames and methodology. (Recommendation 6) <5. Agency Comments> We provided a draft of this report to CBP and Treasury for comment. In its comments, reproduced in appendix III, CBP concurred with all six of our recommendations. CBP also provided technical comments, which we incorporated as appropriate. We requested comments from Treasury, but none were provided. We are sending copies of this report to the appropriate congressional committees, the Commissioner of CBP, and the Secretary of Treasury. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) the extent to which modernization affects drawback refund eligibility and U.S. Customs and Border Protection s (CBP) management of its workload, as well as the extent to which CBP has (2) taken steps to address risks of improper payments in the program and (3) analyzed the impact of the changes to the program on industry and government. To examine the extent to which modernization affects drawback refund eligibility and CBP s management of its workload, we reviewed statutory, regulatory, and agency drawback documents to identify and describe expansions and limitations to drawback refund eligibility. Specifically, we reviewed the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), the Modernized Drawback Notice of Proposed Rulemaking, and the Modernized Drawback Final Rule to identify key changes resulting from amendments made to the drawback statute and implementing regulations. We also reviewed CBP s internal guidance, which defines the standards that drawback specialists must meet when processing claims for drawback refunds in the Automated Commercial Environment (ACE) and under TFTEA. To understand the regulations and policies for drawback modernization, we interviewed CBP officials with the Offices of Regulations and Rulings and Trade Policy and Programs within the Office of Trade. To gain insight into how drawback modernization is working, in practice, we interviewed CBP officials from the Office of Field Operations and the four Drawback Centers. We visited the largest Drawback Centers, located in Newark, New Jersey, and San Francisco, California, to observe how they manage their workload and process claims. As context for CBP s increasing workload following drawback modernization, we also collected data on the following: The number of drawback claims filed in calendar years 2018 and 2019, as of August 21, 2019. We also compared these data against the historical number of drawback claims filed from 2009 through 2017, as reported by CBP in its Regulatory Impact Analysis of the Modernized Drawback Final Rule (RIA). In addition, we reported on the amount of drawback claimed during this period as context for the size of the drawback program. TFTEA (1) provided for a transition period, from February 24, 2018 to February 23, 2019, during which drawback claimants could file under either the amended provisions or the drawback law as it existed previously; and (2) thereafter required all claims to be filed under TFTEA starting on February 24, 2019. As such, claims filed between 2009 and 2017 reflect pre-TFTEA drawback claims. Claims filed in 2018 and 2019 reflect drawback claims filed under both the amended provisions and the drawback law as it existed previously. The number and value of claims migrated to ACE from the Automated Commercial System CBP s prior system for filing drawback claims as well as the number and value of these claims liquidated in the first 9 months of 2019. The number of limited modifications to existing manufacturing rulings submitted between February 24, 2018 and February 23, 2019. Claimants who wanted to operate under an existing manufacturing ruling were required to file a supplemental application for a limited modification to the existing ruling by February 23, 2019. The number of new manufacturing rulings submitted between February 24, 2019 and July 22, 2019. Claimants who want to operate under a manufacturing ruling but did not apply for a limited modification by February 23, 2019, need to apply for a new manufacturing ruling. The number of privilege applications submitted between February 24, 2018 and July 22, 2019. Claimants can apply for and obtain drawback privileges for accelerated payment and waiver of prior notice. We incorporated data reliability questions in our interviews with agency officials, such as how the data are derived, maintained, and updated, and how CBP ensures their completeness and accuracy. Based on our interviews with agency officials, we found these data to be sufficiently reliable for providing context for CBP s growing workload since modernization. We then discussed steps that CBP had taken to manage its workload, such as how it had updated its staffing models, managed processing privilege applications, and managed automatic liquidation. We assessed CBP s responses against federal standards for internal control, which call for agency management to evaluate pressure on personnel to help personnel fulfill their assigned responsibilities in accordance with the entity s standards for conduct. We reviewed staffing data covering fiscal years 2014 through 2019 for drawback specialists. We previously reported on staffing data from fiscal years 2014 through 2016. We incorporated data reliability questions in our interviews with agency officials for the fiscal years 2017 through 2019 staffing data. To determine staffing shortfalls, we compared actual staffing data against the minimum staffing level mandated by the Homeland Security Act and the optimal staffing level identified in CBP s Resource Optimization Model for 2017. We determined these data to be sufficiently reliable for the purposes of comparing actual to optimal and mandated staffing levels. In addition, to understand how CBP is implementing the changes to the drawback program under modernization and the impact of the changes to the program, we interviewed a non-generalizable sample of 15 industry representatives from a variety of sectors who (a) had submitted public comments on the proposed rule, (b) were part of CBP s Trade Support Network Drawback Subcommittee, or (c) met our criteria for both (a) and (b). According to CBP officials, this subcommittee was CBP s primary forum through which officials obtained input on the modernized drawback regulations from industry. We developed a standard set of questions to ask industry representatives, for example, regarding their company s involvement in the drawback program, how drawback modernization has impacted their company, what industries have been most impacted by the changes, and any unexpected or unintended results of the modernization. To examine the extent to which CBP has taken steps to address risks of improper payments in the program, we reviewed prior independent audits of the program, as well as statutory, regulatory, and agency documents delineating changes to the program, to understand how the changes are expected to remediate prior audit findings. These documents included TFTEA, as well as CBP s proposed and final rules for modernized drawback, the RIA, and internal and external guidance for filing and processing drawback claims. We also interviewed agency officials in headquarters and in the field to discuss prior audit findings and the successes and challenges, if any, to drawback modernization addressing identified issues. We then assessed steps that CBP had taken to mitigate improper payment risks in the drawback program against federal standards for internal control, which call for agency management to identify, analyze, and respond to risks related to achieving the defined objectives. We collected data on the number of claims filed between February 24, 2018 and August 23, 2019, and the total amount claimed, that were not targeted for a full desk review. Based on our interviews with agency officials, we found the data to be sufficiently reliable for the purposes of reporting on the total number and value of claims that were not targeted for a full desk review during this period. To examine the extent to which CBP has analyzed the impact of the changes to the program on industry and government, we evaluated CBP s RIA against GAO s standards for review of economic analysis. We assessed those portions of the RIA that relate directly to the financial impact of changes to drawback eligibility, corresponding to three tables describing (1) affected industries, (2) expansion of substitution eligibility, and (3) limitation of basket provisions. We then compared our assessments against applicable Department of the Treasury standards to determine if a future assessment could overcome the prior data limitations, warranting a limited review of certain aspects of an existing rule. However, we did not comprehensively assess the RIA (a 251-page document containing more than 90 tables) or assess it against the Office of Management and Budget s standards for regulatory impact analysis. Therefore, our discussion of the RIA is not an assessment of whether the RIA met the criteria for required regulatory analyses outlined in the Office of Management and Budget Circular A-4. We conducted this performance audit from February 2018 to December 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Steps for Filing and Processing Drawback Claims Drawback claim filing and processing generally follows three steps. Claims are (1) submitted for initial acceptance or rejection, (2) reviewed for drawback eligibility as applicable, and (3) liquidated with full, partial, or no payment. U.S. Customs and Border Protection (CBP) officials indicated that while the transition from the Automated Commercial System (ACS) to the Automated Commercial Environment (ACE) under drawback modernization has automated the initial intake of drawback claims, the review of claims to determine drawback eligibility, as presented, remains largely a manual process. 1. Claim submission. Prior to modernization, claimants had to file paper claims, including supporting documentation. CBP was required to accept or reject claims and authorize accelerated payment within 90 days of receiving the paper claim. However, claimants could also submit an electronic summary of the claim, known as a shell record, through ACS. For accelerated payment claims with a shell record, CBP was required to certify the approved claim for payment within 21 days of receiving the electronic summary of the claim. Under modernization, claims must be filed electronically. The drawback claim is transmitted electronically via ACE and supporting documentation, when required, is uploaded via the Document Image System component of ACE. CBP officials explained that the transition to ACE had automated the initial intake process of drawback claims. Instead of a drawback specialist having to manually validate the claim for completeness and mail a response back to the claimant, ACE is able to make that determination within seconds and provide immediate feedback to the claimant on whether the claim is accepted or, if rejected, what errors need to be addressed. 2. Claim review. CBP policy before and after modernization has been to require a full or limited desk review of selected claims, according to CBP officials. Claims necessitating a drawback specialist s full desk review will undergo a more comprehensive verification of the complete drawback claim that often requires additional information from the claimant. If additional information is required to process the drawback claim, CBP will send a formal request for information to the claimant. Additionally, CBP officials said that before and after modernization, if CBP identified compliance issues during its review of a drawback claim, the drawback specialist could target any subsequent claims filed by the claimant for a limited desk review. According to CBP officials, the time it takes a drawback specialist to conduct a desk review varies by claim, based on the nature of the claim and the experience of the drawback specialist. CBP reported that it could take more than 3 years for CBP to conduct a full desk review and determine the final disposition of a drawback claim. 3. Claim liquidation and payment. Prior to modernization, CBP would manually verify that drawback claimants had the accelerated payment privilege on file. CBP stated that claimants with the privilege of accelerated payment of drawback generally received their refunds 14 days after CBP accepted claims and authorized accelerated payment. Now, under drawback modernization, a claimant can receive accelerated payment without a drawback specialist s involvement. ACE is programmed to automatically make accelerated payment on claims that have on file the accelerated payment privilege and a drawback bond that equals or exceeds the amount of the claim(s). CBP stated that claimants with the privilege of accelerated payment generally receive their refunds within 21 days of claim acceptance. Before and after modernization, drawback claims are set to automatically liquidate if all the designated import entries within a claim are liquidated and final within 1 year of the claim date, according to CBP officials. CBP officials said that drawback specialists must extend the claim to prevent it from automatically liquidating before the necessary reviews have been completed. Drawback claims can be extended for three 1-year periods. CBP officials explained that liquidation extensions are intended to provide additional time to obtain information or documentation necessary to complete the review of a drawback claim. If the claimant fails to provide documents as directed, or if the documents do not support the claim as presented, the claim will be liquidated based on the information on file, which may result in liquidation at $0, or other diminishment, as appropriate. CBP officials described the liquidation and payment of drawback claims with and without accelerated payment privileges, as follows. At the time of liquidation, for claims with accelerated payment privileges, ACE issues an additional refund if the final claimed amount is greater than the accelerated payment amount, or a bill, if the accelerated payment amount is greater than the final claimed amount. If the accelerated payment amount is the same as the amount determined at liquidation, no further action is necessary. For claims without accelerated payment privileges, ACE will issue a refund for the drawback amount approved at liquidation. Claimants have 30 days from the issuance of a bill to repay CBP any amount due. Claims may be reliquidated up to 90 days from the date of an original liquidation. Appendix III: Comments from the Department of Homeland Security Appendix IV: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Kim Frankena (Assistant Director), Alana Miller (Analyst-in-Charge), Andrew Kurtzman, and Esther Toledo made key contributions to this report. The team benefited from the expert advice and assistance of Debbie Chung, Martin De Alteriis, Jeff Isaacs, Christopher Keblitis, Grace Lui, and Oliver Richard.

Why GAO Did This Study The United States enacted the drawback program in 1789 to create jobs and encourage manufacturing and exports, according to CBP. CBP has primary responsibility for overseeing the drawback program. It disburses about $1 billion in drawback refunds per year. According to CBP, TFTEA modernized the drawback program, generally broadening the scope of potential claims and allowing electronic filing starting February 24, 2018. As of February 24, 2019, claimants could only file claims under the drawback statute as amended by TFTEA. TFTEA also included a provision for GAO to assess drawback modernization. This report examines the extent to which (1) modernization affects drawback refund eligibility and CBP's management of its workload, (2) CBP has taken steps to address risks of improper payments in the program, and (3) CBP has analyzed the impact of the changes to the program on industry and government. GAO reviewed statutory, regulatory, and agency documents, and interviewed agency officials and industry representatives. What GAO Found The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) generally expanded eligibility for the drawback program, which provides refunds to claimants of up to 99 percent of certain customs duties, taxes, and fees. For example, a claimant could claim a drawback refund on exported pants made in the United States using imported foreign fabric. The expansion from TFTEA has resulted in Customs and Border Protection (CBP) facing a growing workload. According to CBP officials, the most significant change from TFTEA is that it is now easier to qualify for certain drawback refunds. Industry representatives explained that new claimants are seeking drawback refunds and existing claimants are able to increase claim amounts. However, CBP has not adequately managed the increased workload and has not developed a plan for doing so. As a result, CBP faces delays in processing drawback claims that could result in uncertainty for industry, potentially impeding trade. GAO Example of One Potential Drawback Claim CBP has taken some steps to address risks of improper payments in the drawback program, but several risks remain. To help ensure it does not overpay funds, CBP now electronically verifies drawback claims against underlying import information. However, CBP cannot verify drawback claims against underlying export information because it does not maintain detailed information about exports in its new electronic system. To compensate for this lack of automated controls, CBP requires manual full desk reviews of a selection of claims to mitigate improper payment risks. However, CBP has not targeted certain claims for a full desk review since switching to the new system on February 24, 2018. The lack of review for claims, which numbered over 35,000 and represented an estimated $2 billion in claims filed as of August 23, 2019, increases the risk of improper payments. CBP has not produced a reliable assessment of the economic impact of the changes to drawback refund eligibility because of data availability constraints, systems limitations, and other factors. CBP has not prioritized developing a plan to revisit its economic analysis, although new data and systems capabilities are becoming available. Without such a plan, CBP will not have a reliable assessment of the impact of the changes on industry and government. What GAO Recommends GAO is making six recommendations, including that CBP develop a plan for handling its drawback workload, improve its validation activities, and prioritize developing a plan for an economic analysis of the regulation to understand its impact. CBP concurred with all six recommendations.

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<1. Background> <1.1. IAEA s Structure> IAEA s policy-making bodies include the Board of Governors, which consists of 35 member states, including the United States as a de-facto permanent member; and the General Conference, which consists of all 171 member states of IAEA. The agency s staff, led by the Director General, is referred to as the Secretariat and is organized into six departments that implement programs approved by the Board of Governors and the General Conference. The Division of Nuclear Security, within the Department of Nuclear Safety and Security, implements the nuclear security program. Figure 1 shows the position of DNS within the agency. The agency s other departments include the Department of Safeguards, which carries out technical measures and activities by which IAEA seeks to verify that nuclear material subject to safeguards is not diverted to nuclear weapons or other proscribed purposes; and the Department of Technical Cooperation, which provides nuclear technologies and expertise to member states. In addition to the departments, the agency has offices that report to the Director General, such as the Office of Legal Affairs. <1.2. The Nuclear Security Legal Framework and IAEA s Nuclear Security Role> IAEA s statute is the foundation of the agency s dual mission of promoting the peaceful uses of nuclear energy and verifying through safeguards that nuclear technologies and materials are used for peaceful purposes and not diverted to nuclear weapons. Nuclear security is not an explicit part of this broader mission, but the agency has identified several of its statutory authorities as underpinning its nuclear security role. For example, the statute authorizes the agency to exchange scientific and technical information on peaceful uses of atomic energy, which IAEA does under its nuclear security program. In addition, a number of international treaties establish a nuclear security role for the agency, including: The Convention on the Physical Protection of Nuclear Material (CPPNM) and its 2005 amendment. This convention originally addressed the security of nuclear materials in international transport. A 2005 amendment, which entered into force in 2016, requires parties to establish, implement, and maintain a physical protection regime for nuclear materials and facilities in domestic use, storage, and transport. The amendment encourages states to consult with IAEA to obtain guidance on the design, maintenance, and improvement of their national systems of physical protection of nuclear material. International Convention for the Suppression of Acts of Nuclear Terrorism. This convention refers to IAEA as a source of guidance to States parties on measures for security of nuclear materials and charges IAEA with transmitting information to States parties, following an offense under the convention, on the disposition or retention of radioactive material, devices, or facilities taken control of during the response. In addition, United Nations Security Council Resolution 1540 calls upon states to refrain from supporting by any means non-state actors that attempt to, among other activities, acquire, use, or transfer nuclear, chemical, or biological weapons and their delivery systems. The resolution also calls upon states to engage in activities similar to those described in IAEA s Nuclear Security Plan. For example, the resolution calls on states to take and enforce effective measures to establish domestic controls to prevent the proliferation of nuclear weapons, including physical protection measures; IAEA provides guidance and other support for applying such measures to civilian nuclear materials. The resolution also calls for measures to prevent illicit trafficking, to establish effective export controls, and to renew and fulfill commitments to multilateral cooperation in particular within the framework of the IAEA. <1.3. IAEA Funding> IAEA funds its programs primarily through (1) its regular budget, for which all member countries are assessed an annual contribution, and (2) extra-budgetary cash contributions, which are voluntary. In addition, IAEA has a Technical Cooperation Fund generally supported through voluntary annual contributions of member states to be used for technical cooperation projects. The State Department coordinates the United States policy with and financial contributions to IAEA and is the lead U.S. agency for interacting with IAEA. In 2018, IAEA s total regular budget was $437.9 million, and approximately $103.5 million was unfunded (to be funded through extra- budgetary contributions). In 2018, the Division of Nuclear Security s regular budget was approximately $6.9 million, and $25.2 million was unfunded (to be funded through extra-budgetary contributions). The Nuclear Security Fund, established after the September 2001 terrorist attacks, holds the extra-budgetary funding for most of IAEA s nuclear security activities. Figure 2 shows the levels of regular and extra- budgetary funding for DNS over the last three biennial budget cycles, from 2014 to 2019. According to IAEA officials, the agency operates under substantial budget constraints as a number of member states advocate for zero-nominal- growth budgets. This has generally caused IAEA s programs to operate under minimal growth in their regular budgets from year to year and to seek efficiencies on an ongoing basis. Extra-budgetary contributions are not subject to these constraints. <1.4. Nuclear Security Summits> As part of an initiative to secure all vulnerable nuclear material around the world, the United States hosted 47 world leaders in Washington, D.C., for a Nuclear Security Summit in 2010. The summit organizers invited a range of participants, taking into account the scale of their nuclear energy programs and countries access to weapons-usable materials. Additional summits were held in Seoul, South Korea, in 2012; the Hague, the Netherlands, in 2014; and again in Washington, D.C. in 2016. The Nuclear Security Summits brought heads of state together to discuss and bring high-level international attention to nuclear security issues. These summits led to, among other things, the removal or elimination of nuclear material from civilian facilities across the globe, ratification and implementation of treaties, conversion of reactors to operate on low- enriched uranium, and the strengthening of regulations. Summit participants issued an Action Plan in Support of the IAEA during the final summit in 2016 to document their commitments to IAEA s nuclear security mission. Commitments in the Action Plan in Support of the IAEA included recognizing the leading role of the agency for coordinating multilateral nuclear security activities as well as committing high-level support for the IAEA s nuclear security activities and advocacy for IAEA s coordination role and provision of guidance. <2. IAEA Structures Its Nuclear Security Work into Four Subprograms That Encompass Activities Ranging from Developing Guidance to Coordinating International Efforts> IAEA s nuclear security activities are conducted primarily under its nuclear security program, which consists of four subprograms. Under these subprograms, IAEA carries out a wide range of nuclear security activities, including developing and promoting the use of nuclear security guidance documents, providing assistance to member states, and developing training programs. IAEA also coordinates international nuclear security efforts. <2.1. IAEA s Nuclear Security Program Consists of Four Subprograms> IAEA s nuclear security activities are conducted primarily under the agency s nuclear security program, which consists of four subprograms: Nuclear Security of Materials and Facilities. This subprogram covers the security of nuclear and other radioactive material and associated facilities and activities including transport. Nuclear Security of Materials Outside of Regulatory Control. This subprogram covers detection of criminal or intentional unauthorized acts involving nuclear or radioactive material and responding to nuclear events. Information Management. This subprogram is responsible for establishing and maintaining systems to collect and analyze nuclear security information. Program Development and International Cooperation. This subprogram covers international nuclear security coordination and provides education and training programs. It also manages donor relations and the Nuclear Security Fund. The Nuclear Security Program is implemented by IAEA s Division of Nuclear Security (DNS), which is structured into four sections that correspond to the four subprograms. Figure 3 shows the projects carried out by each section. Other IAEA offices coordinate with DNS to carry out the agency s nuclear security activities. For example, IAEA s Department of Nuclear Energy collaborates with DNS to convert reactors to run on low-enriched uranium, return nuclear materials resulting from the conversion to the country of origin, and assist with the disposition of disused radioactive sources. The agency s Office of Legal Affairs supports DNS by promoting universal adoption of the Convention on the Physical Protection of Nuclear Material and its 2005 amendment and helping member states with legal and regulatory understanding of the convention and drafting review. <2.2. IAEA Develops Guidance, Provides Assistance and Training to Member States, and Coordinates International Nuclear Security Efforts, Among Other Things> Under the four subprograms, IAEA conducts a broad range of nuclear security activities including (1) developing nuclear security guidance; (2) providing assistance to member states in areas such as establishing legal, regulatory, and technical nuclear security infrastructure, and converting reactors to operate on non-weapons usable materials; (3) providing training and education; and (4) coordinating international nuclear security efforts. <2.2.1. Developing Guidance> IAEA develops nuclear security guidance documents and encourages member states to adopt and implement the guidance to improve their nuclear security regimes. IAEA s Nuclear Security Guidance Committee, established by the Director General in 2012, makes recommendations to IAEA on what nuclear security guidance to develop and approves guidance publications. The Nuclear Security Guidance Committee is open to all member states. DNS s four sections contribute to the development of guidance. For example, the Information Management section develops guidance relating to computer security at nuclear facilities, and the Nuclear Security of Materials and Associated Facilities section develops guidance in the area of physical protection of nuclear materials and facilities. DNS develops two main sets of guidance documents: the Nuclear Security Series and Codes of Conduct. The Nuclear Security Series, launched in 2006, is continuously updated by IAEA in cooperation with experts from member states. The series comprises four broad categories of publications: Nuclear Security Fundamentals, which establish the fundamental objectives and essential elements of states national nuclear security regimes. Recommendations, which set out measures that states should take to achieve and maintain effective regimes. Implementing Guides, which provide guidance on implementing security measures. Technical Guidance, which provides detailed guidance on specific methodologies and techniques for implementing security measures. Within each category, there are specific guidance documents, such as Establishing the Nuclear Security Infrastructure for a Nuclear Power Programme and Nuclear Security Systems and Measures for Major Public Events. The publications principal users are regulatory bodies for nuclear and radiation security and other relevant member-state authorities, such as those involved in law enforcement and forensics, border control and customs, and intelligence gathering. Other users include international organizations with responsibilities relevant to nuclear security; organizations that design, manufacture, and operate nuclear facilities; and organizations involved in the use of radiation related technologies. Another set of publications, the Codes of Conduct, are meant to serve as guidance to states for the development and harmonization of policies, laws and regulations. They include a Code of Conduct on the Safety and Security of Radioactive Sources. <2.2.2. Providing Assistance to Member States> IAEA provides a variety of nuclear security assistance, which member states may request through the Integrated Nuclear Security Support Plan (INSSP) process, in which DNS works with member states to jointly conduct a comprehensive and systematic review of their nuclear security regimes and identify potential areas for improvement. DNS works with member states that request an INSSP to develop implementation strategies, based on the nuclear security needs identified, for IAEA or potential donors to provide assistance to the state. The INSSPs serve as input for the work plans of each DNS section. Member states may also request ad hoc assistance outside this process. IAEA s nuclear security assistance includes helping member states establish legal, regulatory, and technical infrastructure to secure nuclear materials and facilities, and helping states detect and respond to materials out of regulatory control material present in sufficient quantity that it should be under regulatory control but is not. IAEA may help to identify the need for assistance through advisory missions and peer reviews, such as International Physical Protection Advisory Service missions. These missions assist countries in strengthening their national civilian nuclear security regimes by providing (1) guidance on the protection of nuclear material and facilities, as well as of sealed radioactive sources and other radioactive material; (2) best practices in nuclear security; and (3) peer advice on implementing international agreements related to physical protection of nuclear material and facilities. Since 1996, IAEA has conducted 84 International Physical Protection Advisory Service missions in 50 countries. In addition, IAEA conducts International Nuclear Security Advisory Service missions to help member states establish effective nuclear security regimes that address nuclear and other radioactive material out of regulatory control. According to IAEA officials, in 2016 the agency suspended International Nuclear Security Advisory Service missions while DNS updated the supporting guidance, but it intends to restart such missions in 2019. IAEA also assists member states hosting major public events in strengthening nuclear security measures before and during the events. Assistance provided for major public events includes coordination meetings, workshops, and training on the use of detection equipment. The agency reported that, from July 2017 through June 2018, it assisted states with preparing for at least seven major public events, such as the 29th Southeast Asian Games in Malaysia in August 2017 and the G20 Buenos Aires Summit in Argentina in November 2018. In addition, IAEA assists with converting reactors to operate on low- enriched uranium rather than highly enriched uranium and contributes to the design of reactor cores that operate on low-enriched uranium. IAEA also assists with the repatriation of fissile and radioactive material from countries that no longer require or cannot adequately secure those materials to more secure storage in other countries. As previously noted, IAEA s Department of Nuclear Energy assists DNS with converting reactors to run on low-enriched uranium. The Department of Nuclear Energy also works with DNS on management strategies for disused radioactive sources. With regard to radioactive material, IAEA reported that, from July 2017 through June 2018, it helped repatriate three highly radioactive materials from Lebanon to Canada and 27 such materials from South America to Germany and the United States. <2.2.3. Providing Training and Education> IAEA conducts several types of nuclear security training and education activities to support member state capacity building, including workshops and exercises. The agency reported that, from July 2017 through June 2018, it provided in-person training for more than 2,400 participants from 149 member states on subjects including physical protection of nuclear material and computer security. IAEA has also developed e-learning courses to make training more accessible. In addition, IAEA supports member states in developing Nuclear Security Support Centers. The purpose of these centers is to effectively develop nuclear security knowledge and associated technical skills in states to promote the long term sustainability and effectiveness of nuclear security in those states. The agency also supports the International Nuclear Security Education Network, a partnership through which IAEA, educational and research institutions, and other stakeholders cooperate to promote nuclear security education. This network connects 170 institutions from 62 member states to assist them in establishing and enhancing nuclear security education. Network members collaborate in areas such as the development of peer- reviewed textbooks, instructional material, computer-based teaching tools, and exercises and materials for laboratory work; faculty development in different areas of nuclear security; joint research and development activities to share scientific knowledge and infrastructure; and quality assurance. <2.2.4. Coordinating International Nuclear Security Efforts> IAEA coordinates international nuclear security efforts through activities such as hosting information exchange meetings, organizing events and conferences, and promoting universal adoption of international legal instruments. Twice a year, IAEA hosts information exchange meetings to coordinate nuclear security activities with other organizations, such as the Global Initiative to Combat Nuclear Terrorism. IAEA reported hosting information exchange meetings in November 2017 and April 2018. The agency organizes a range of events and conferences, including the International Conference on Nuclear Security, which brings together ministerial-level representation to discuss important issues related to nuclear security. IAEA s activities to promote the universal adoption of international agreements relevant to nuclear security such as the Convention on the Physical Protection of Nuclear Material and its 2005 amendment include working with states directly, speaking at conferences, and offering model legislation for states to follow. In addition, IAEA manages the Incident and Trafficking Database, which catalogues reports by participating states about details of thefts, losses, and other unauthorized activities and events involving nuclear and other radioactive material out of regulatory control. The details of such incidents are accessible to participating states, with limited information accessible to other UN-affiliated organizations. <3. IAEA Plans Its Nuclear Security Work through a Range of Documents but Does Not Prioritize Activities or Fully Measure or Report on Program Performance IAEA Plans Its Nuclear Security Activities through a Range of Documents but Does Not Prioritize Those Activities> IAEA plans its nuclear security work through a range of documents, including a biennial Programme and Budget (P&B). However, IAEA does not prioritize its nuclear security activities. In addition, IAEA s performance measures have limitations, and agency reports on nuclear security do not consistently include performance information. IAEA has two primary planning documents for nuclear security: Nuclear Security Plan. This 4-year planning document describes the nuclear security program s tasks and outputs by project. The Nuclear Security Plan, which is approved by the Board of Governors, identifies broad priority areas, such as physical protection and nuclear security detection architecture and response. Programme and Budget (P&B). This biennial document, which is approved by the General Conference, identifies current IAEA program funding levels and future funding needs. The P&B also lays out objectives and associated outcomes and performance measures for the entire agency, including the nuclear security program and its subprograms. Figure 4 shows the objectives for the nuclear security program. In addition, the P&B identifies planned outputs for each project under the nuclear security subprograms. However, these documents contain only broad statements on prioritizing activities, providing limited guidance to DNS. Specifically, the Nuclear Security Plan calls for the agency to carry out its nuclear security activities in a prioritized manner with available resources, without further guidance about how to prioritize activities. Similarly, the P&B establishes two broad criteria for prioritization: 1) completion and maintenance of the universally applicable Nuclear Security Series recommendations and guidance, and provision of assessment and evaluation services at the request of member states, and; 2) the provision, upon request, of assistance based on an analysis of needs, including those identified through INSSPs. These criteria for prioritization are broad, effectively including almost all of the DNS s activities. When we compared these criteria to DNS s projects described in the 2018-2019 P&B, 12 of 13 projects aligned with at least one criterion. For example, one project under the Information Management section is to develop and implement INSSPs and a voluntary self-assessment tool for member states to use. This project aligns with the second criterion the provision of assistance, including assistance identified through the INSSPs because developing INSSPs helps the agency provide assistance to member states. DNS officials said that they use the criteria in the P&B as broad expectations set by member states for the nuclear security program, noting that they do not prioritize among activities because member states do not agree on priorities. Instead of actively prioritizing activities, DNS officials said they respond to requests from member states as those requests come in and to the extent that resources are available, taking into account conditions on funding. According to leading practices identified in the Project Management Institute s The Standard for Program Management, organizations resource management plans should describe the guidelines for making decisions about priorities for using program resources and resolving resource conflicts. However, DNS does not have guidelines for prioritizing activities; there is no guidance in the Nuclear Security Plan, and the criteria for prioritization in the P&B are too broad for division officials to distinguish among competing needs. Such detailed guidelines would help DNS ensure it is appropriately targeting its limited program resources. <3.1. IAEA s Performance Measures Have Limitations, and Agency Reports on Nuclear Security Do Not Consistently Include Performance Information> IAEA has established several performance measures for its nuclear security program and subprograms, but these measures do not fully align with leading practices. IAEA issues several reports on the results of the nuclear security program, but these reports contain only some of the agency s performance measures. <3.1.1. DNS Has Developed Performance Measures, but They Have Limitations> IAEA has established four high-level performance measures in the P&B that it uses to determine progress toward the nuclear security program s goals: (1) the number of member states requesting and receiving assistance through INSSPs, (2) the number of member states establishing or improving nuclear security measures based on advice from the agency, (3) the number of activities duplicated by other initiatives, and (4) the number of activities carried out in conjunction with the agency. In addition, the P&B identifies from four to six performance measures for each nuclear security subprogram. For example, the number of states requesting assistance or participating in IAEA activities to improve computer and information security capabilities is a performance measure for the Information Management subprogram. According to IAEA s P&B, the agency follows a results-based management approach, which is driven by articulating desired results and measuring actual performance against those results. The P&B states that key elements of this approach include establishing program baselines and targets and measuring actual performance against these baselines and targets to determine whether the program is achieving its planned outcomes. We reviewed IAEA s nuclear security program performance measures against four leading practices for performance management we have previously reported on: (1) linking performance measures to the offices responsible for implementing the programs, (2) limiting measures to the vital few, (3) determining whether performance measures for the defined objectives are appropriate for evaluating the agency s performance in achieving those objectives, meaning that measures and processes for measuring performance align with the objective, and (4) measuring performance against baselines. The practice of measuring performance against baselines is also consistent with IAEA s results-based management approach. Table 1 shows the extent to which DNS s performance measures meet leading practices. We found that DNS s performance measures fully met two of the four leading practices. First, IAEA s nuclear security program performance measures linked to the offices responsible for implementing them, as DNS s four sections are responsible for implementing the four subprograms of the corresponding name. For instance, a performance measure linked to the Information Management subprogram within DNS is the number of states requesting assistance or participating in IAEA activities to improve computer and information security capabilities, and the Information Management section implements the associated subprogram, whose projects include information and computer security. Second, IAEA s nuclear security program performance measures are limited to the vital few; as discussed above, there are four high-level measures for the program and between four and six measures for each subprogram. We found that IAEA s performance measures partially met the third of the four leading practices. Specifically, they were generally appropriate for evaluating their corresponding outcomes and objectives. The program objective of playing a central role and enhancing international cooperation in nuclear security fully aligned with its associated outcome of improved global coordination and cooperation in supporting national efforts to improve nuclear security. Also, the associated measures by which IAEA assesses progress toward this outcome the number of activities duplicated by others and the number of activities carried out in conjunction with IAEA fully aligned with the outcome and objective. However, for the other two program objectives, outcomes and measures partially aligned with the objectives. For example, one of the nuclear security program s objectives is contributing to global nuclear security efforts by establishing guidance and providing for its use through advisory services and capacity building; there is a performance measure related to advisory services, but no measure related to guidance. We found that IAEA s nuclear security program performance measures did not meet the fourth leading practice, in that they did not include baselines or targets. For example, the performance measure regarding the number of states that have established or improved national nuclear security measures and systems on the basis of advice from the agency does not include a baseline of the number of states that already have established effective nuclear security measures. The measure also does not include a target for the number of states that should establish or improve nuclear security measures. Without established baselines or targets for each performance measure, IAEA s ability to demonstrate results for its nuclear security program is limited. DNS officials acknowledged that the performance measures for the nuclear security program and subprograms do not have targets or baselines. They said that this is deliberate, based on nuclear security being a national responsibility and the limitations of IAEA s nuclear security mandate. However, many of the performance measures for the nuclear security program and subprograms are focused on activities the agency carries out, for which DNS can develop targets and baselines; they are not focused on activities of member states. DNS officials also said that the division struggles to develop measures because the nuclear security environment for example, threats to computer security is continually evolving. However, many of these measures such as adherence to the Convention on the Physical Protection of Nuclear Material are independent of the security environment, and uncertainty should not prevent programs from developing measures to track their performance. By developing baselines and measurable targets to demonstrate results, DNS can more effectively monitor and assess the performance of its Nuclear Security Program. <3.1.2. IAEA Issues Several Reports That Provide Information on its Nuclear Security Program, but They Do Not Consistently Include Performance Measures> IAEA issues four sets of reports that provide information on its nuclear security program to member states, key stakeholders, and the public, including: Nuclear Security Report. This annual report, developed by DNS, describes the nuclear security program s major achievements and expenditures of the prior year, as well as goals for the following year. Program Performance Report. This internal, agency-wide report describes progress in implementing all of the agency s programs and identifies the resources used for each program in a given year. IAEA Annual Report. This report provides a high-level overview of the agency s accomplishments and includes a section on the nuclear security program. Individual reports for each donor. These reports detail how DNS uses extra-budgetary contributions from each donor country (or government agency) in a given year; these reports are not shared with other countries or agencies. We have previously reported that program managers should communicate necessary quality information so that both internal and external parties can help the program achieve its objectives. Communicating necessary quality information through reporting is consistent with IAEA s results-based management approach, according to which results-based reports help the organization, stakeholders, and funders to better understand the impact of a given program or project. We have also found that completeness is an element of quality reporting; completeness entails reporting on every performance goal and measure. In May 2013, we recommended that State work with IAEA and its member states to systematically report on the results of the agency s performance measures. IAEA has subsequently taken steps to improve reporting, such as aligning the Nuclear Security Report with the P&B. In 2018, DNS restructured the format of the Nuclear Security Report so that each section of the report more clearly aligns with the nuclear security program and its subprograms. According to IAEA officials, DNS devotes substantial resources including two full-time staff to meeting all of its reporting requirements. Our analysis of three IAEA reports for 2016 the Nuclear Security Report, the Annual Report, and the Program Performance Report found that DNS reports on some performance measures for its nuclear security program, but not all. Specifically, in the Nuclear Security Report, DNS reports on one measure fully and one partially and does not report on two measures. Specifically, DNS reports fully on the number of activities carried out in conjunction IAEA reports partially on the number of states that request and receive assistance, as identified in INSSPs. The agency reports on the number of states that completed INSSPs and provides examples of assistance but does not report whether that assistance was requested through INSSPs. For example, in the 2016 Nuclear Security Report, IAEA reported that five member states formally approved INSSPs. The agency also reported several examples of assistance to member states, such as training workshops on radiological crime scene management for Colombia in February 2015, Lithuania in February 2015, and the Philippines in June 2015. However, the report did not specify whether the need for that assistance was identified through INSSPs. IAEA does not report on the number of member states that have established or improved national nuclear security measures based on advice from IAEA or the number of activities duplicated by other initiatives. None of the three IAEA reports we reviewed consistently includes performance measures for the nuclear security subprograms. Table 2 shows the extent to which at least one of the three 2016 reports we reviewed includes measures for program and subprogram performance. Member states have expressed concerns with the effectiveness of IAEA s reporting on the nuclear security program. In 2018, IAEA member states included language in the Nuclear Security Resolution to encourage the agency to improve communication with the public and member states about its nuclear security activities and their global impact. U.S. officials we interviewed said that they are dissatisfied with the reports, including with the quality of information on nuclear security activities, and would like to see, among other things, better reporting on how those activities support the agency s mission, rather than reports that merely describe activities completed. IAEA officials provided two reasons why IAEA is limited in communicating more comprehensive information on nuclear security program performance in its reports. First, IAEA officials said that there are sensitivities around the data IAEA collects about member states, and member states are hesitant to share information on their security weaknesses. However, IAEA can report on its program performance without reporting sensitive information about individual states. Many of its measures pertain to numbers of states, and in cases where there are sensitivities, IAEA could aggregate data to a regional level to conceal state-specific information. Second, IAEA officials said that member states may not consistently make available to the agency the information it would need to measure the impact of its work. For example, to measure the number of states that established or improved national nuclear security measures based on advice from the agency, IAEA would need to know whether states implemented the agency s recommendations. However, as previously mentioned, most of IAEA s performance measures are focused on activities the agency carries out and not activities of member states. For example, one of the nuclear security subprogram s measures is the number of states that participate in the Nuclear Security Guidance Committee. IAEA should have the data it requires to report on measures focused on activities carried out or facilitated by the agency. The lack of completeness in DNS s reporting limits the effectiveness of the agency s communication on the nuclear security program s performance. By consistently including the results of its performance measures in at least one of its reports, IAEA could better communicate internally and with external stakeholders on the nuclear security program s performance. <4. Member-State Disagreements over IAEA s Nuclear Security Role Pose Challenges to DNS s Resources and Coordinating Efforts> IAEA member states disagree over the agency s role in nuclear security. These disagreements have frequently contributed to DNS s challenges over resources and the agency s central coordinating role in nuclear security. <4.1. IAEA Member States Disagree over the Agency s Nuclear Security Role> According to U.S. and member-state officials and experts, IAEA member states disagree over the agency s role in nuclear security. According to U.S. officials, member states supportive of the agency s nuclear security role such as the United States see nuclear security as an issue with trans-border implications and believe the agency is well suited to supporting and facilitating cooperation on international, regional, and national nuclear security efforts. U.S. officials said that some member states do not see nuclear security as an international responsibility, but rather only as a national one, and disagree with IAEA s nuclear security role to various extents. The disagreements over the agency s role are rooted in a number of issues: Questions regarding the statutory basis for IAEA s nuclear security work. Some U.S. officials and experts told us that some member states question IAEA s nuclear security work because it is not established in the agency s statute. IAEA officials told us that disputes over the statutory basis for IAEA s nuclear security work are no longer an issue, and officials representing member states that had raised questions about the statutory basis for the work conceded that the matter was settled. However, these member-state officials said they felt strongly that because of the weak statutory basis, IAEA s nuclear security work should be limited to core areas such as physical protection of nuclear facilities, rather than emerging areas such as cybersecurity. According to U.S. officials, other member states acknowledge the limited statutory basis for IAEA s nuclear security work but still recognize the IAEA s nuclear security role, which includes cybersecurity and newer areas of work. Perception of nuclear security as a barrier to or competition with IAEA support of civilian nuclear programs. According to IAEA, U.S. and several member-state officials, some states are concerned that IAEA s nuclear security work could create barriers to their civilian nuclear programs for example, by requiring recipients of IAEA technical cooperation to adhere to nuclear security guidance. In addition, according to U.S. and some member-state officials, some member states view IAEA s nuclear security work as competing for resources with the agency s other programs, such as the Technical Cooperation program, which assists member states with developing civilian nuclear programs. U.S. officials said that the Group of 77 generally advocates for more of the agency s funds to be allocated to such programs. Resistance to nuclear security as a proxy for disagreement on other issues. U.S. officials, many mission officials, and many experts said that political disagreements among member states on unrelated or tangentially related international nuclear issues undermine IAEA s nuclear security work. For example, U.S. officials and many member- state officials and experts told us that disagreement between nuclear weapons states and nonnuclear weapons states about nuclear disarmament manifests itself as political resistance in various IAEA forums to the agency s nuclear security activities. Resistance to the Nuclear Security Summits. Some U.S. and member-state officials and experts said that some IAEA member states resented the perceived exclusive nature of the Nuclear Security Summits. As previously mentioned, the final summit in 2016 resulted in an Action Plan in Support of the IAEA in which signatories made commitments to support IAEA s nuclear security mission. According to several mission officials and experts we interviewed, some excluded member states do not believe that the agency should carry forward the summits work, which in their view represents the priorities of the approximately 50 summit participants rather than all 171 IAEA member states. One expert said that within IAEA, there is resistance to anything associated with the summits among the member states that did not participate and that those states do not want IAEA involved in regulating or implementing anything resulting from the summits. <4.2. Disagreements over the Agency s Role Create Challenges by Reinforcing DNS s Reliance on Extra- budgetary Contributions> IAEA officials and others we interviewed said that the disagreements over the agency s nuclear security role create tangible challenges for the agency concerning funding, as member states that do not support the agency s nuclear security role resist efforts to substantially raise DNS s regular budget. As a result, according to IAEA, U.S., and several member-state officials, DNS continues to rely heavily on extra-budgetary contributions and has a smaller proportion of regular budget funding than other IAEA divisions, including other parts of the Department of Nuclear Safety and Security. DNS s regular budget funding represents less than a quarter of total nuclear security program funding, with 78 percent of the funding coming from extra-budgetary contributions (see fig. 5). As we have previously reported, the extra-budgetary contributions on which DNS relies are voluntary, unpredictable from year to year, and inflexible, as they are often directed to specific purposes and often carry additional conditions. As a consequence, the nuclear security program s large reliance on extra-budgetary support affects program management and human resources in ways that may undermine effective management of the program. IAEA officials identified several ways in which the nuclear security program s heavy reliance on extra-budgetary funding affects program management. Planning and prioritization. According to IAEA officials, because extra-budgetary contributions are predominantly directed to specific purposes and can only be used for direct assistance to states, rather than support costs, they may not align with DNS s most critical needs. IAEA officials also said that reliance on extra-budgetary contributions leads DNS to plan its activities around conditions stipulated for the contributions rather than planning around overall program needs. Donor states may also use the contributions to create cost-free expert positions for their own personnel that may not meet DNS needs. U.S. officials said, however, that even within the constraints of extra- budgetary contributions, DNS could take steps to work with donors to conduct work on a broader range of projects and initiatives, such as providing donors with plans to address longer-term, strategic needs. Program sustainability. IAEA officials, several member-state officials, and some experts we interviewed raised concerns about the effect of extra-budgetary contributions on the sustainability of IAEA s nuclear security efforts. For example, several experts suggested that the DNS s planning of work around individually-funded projects means that IAEA s focus tends to be on short-term activities rather than long- term sustainability, including through follow-up on prior work. IAEA officials did not agree with the concern about follow-up work, but did acknowledge that long-term reliance on extra-budgetary contributions was unsustainable. Human resource management. IAEA officials also identified ways in which the reliance on extra-budgetary funding affects DNS s human resource management. First, extra-budgetary funding generally supports positions that are initially designed to last for only 2 or 3 years, leading to few long-term positions in the division and making it difficult to sustain continuity of knowledge and experience over time. Second, staff hired for positions supported by extra-budgetary funding tend to look for regular-budget-funded positions elsewhere in the agency, which hurts recruitment as well as retention within DNS. Furthermore, the division must dedicate several staff to reporting on the use of extra-budgetary funding provided by each donor. U.S. officials acknowledged the detrimental impact of DNS s high reliance on extra-budgetary contributions on staffing, but said that they are open to working with DNS to mitigate this impact. Member states have emphasized through the 2017 and 2018 Nuclear Security Resolutions, which are approved by the General Conference, the need to continue providing appropriate resources for the agency to implement its nuclear security activities. Furthermore, signatories of the Action Plan in Support of the IAEA, including the United States, committed to contribute effectively to the implementation of the IAEA Nuclear Security Plan, including through reliable and sufficient resources. The United States and other member states supportive of IAEA s nuclear security role have advocated for increasing the agency s regular budget for nuclear security. IAEA officials stated that, because of the politics around the agency s nuclear security work, as well as the zero-growth policy, it is unlikely that the regular budget for nuclear security will increase substantially in the short term. As a result, IAEA officials have undertaken short-term solutions to minimize the impact of its reliance on extra-budgetary funding, such as reaching out to major donors and cultivating new sources of funding. However, such new sources of voluntary funding also would not be guaranteed or predictable and therefore would not improve the stability of the division s funding stream. According to IAEA officials, the agency has not identified options to stabilize DNS s budget within the existing constraints. IAEA officials and experts suggested other options for making the nuclear security budget more stable and flexible. One option could involve making structural changes to the Nuclear Security Fund, such as assessing a percentage of each extra-budgetary contribution and allocating those assessed funds for general expenditures without conditions. This could give the program more flexibility in using the funds and to support longer- term needs or projects. Another option could involve shifting funding within the Department of Nuclear Safety and Security to balance the proportion of regular and extra-budgetary funding between the Nuclear Safety and Nuclear Security divisions. U.S. and IAEA officials identified drawbacks to some of these options but IAEA has not comprehensively identified and analyzed options to stabilize DNS s budget within the existing constraints. By working with the United States and other member states to analyze options to stabilize funding for the agency s nuclear security program, IAEA could ensure that it has sufficient, reliable resources to implement the Nuclear Security Plan. <4.3. Member-State Disagreements and IAEA s Not Following Key Practices for Collaboration Create Challenges for the Agency s Central Coordinating Role in Nuclear Security> The member-state disagreements discussed above together with IAEA s not following key practices for collaboration limit IAEA s ability to fulfill its central coordinating role in nuclear security. As noted in the Nuclear Security Plan, an objective of IAEA s nuclear security program is to play the central role and enhance international cooperation in nuclear security. Numerous U.S., IAEA, and member-state officials and experts we interviewed said that there is a need for coordination of international nuclear security efforts and that IAEA is the appropriate entity to take on that role. These officials and experts cited IAEA s perceived international legitimacy, technical expertise, and broad range of nuclear security efforts as key attributes that would allow the agency to play that coordinating role. DNS officials told us that they fulfill the agency s central coordinating role in nuclear security in two key ways: (1) by providing nuclear security guidance that establishes the terms of reference for any nation working to improve its nuclear security and that is used by all member states and (2) by hosting and participating in key meetings. They said they further fulfill the role by using the agency s international legitimacy and neutrality to work with countries that may be wary of international assistance from western countries. In addition, according to the agency s Nuclear Security Plan, managing international nuclear security education through the Nuclear Security Support Centre and International Nuclear Security Education Networks is part of the central coordinating role. However, we found that IAEA is not fully implementing its central coordinating role in nuclear security, based on feedback from member states and experts and our evaluation of the extent to which IAEA has followed key practices that can sustain effective collaboration. Some experts told us that IAEA s limited approach to its central coordinating role is a response to the resistance among some member states to the agency s nuclear security role. According to many officials and experts we interviewed, IAEA s approach to its central coordinating role is limited: Minimal outreach to key nuclear security stakeholders. Many experts expressed concern about the level of coordination with nongovernmental organizations and industry and said that IAEA would benefit from conducting more outreach to key nuclear stakeholders, including states. According to one expert, although IAEA may only conduct nuclear security activities at member-state request, IAEA could conduct more outreach to states about the assistance the agency could provide. Furthermore, some member- state officials and experts said the staff the agency sends to nuclear security meetings are not of the appropriate level of seniority. One expert said that IAEA does not engage actively with the Nuclear Security Contact Group, which, as previously mentioned, was established at the last Nuclear Security Summit to continue the work of the summit process after it ended. Specifically, according to this expert, the agency downgraded the level of representation it sent to Nuclear Security Contact Group proceedings to an official unauthorized to speak for DNS. However, U.S. officials said that senior DNS officials represented IAEA in more recent NSCG meetings. Logistical rather than substantive management of events. Several member-state officials and experts told us that IAEA limits its role at the events it organizes to logistical coordination rather than substantive management. According to one expert, to coordinate some of its support centers, IAEA convenes periodic meetings where participants share what they are doing, but it does not actively manage the support centers to reduce duplication. Some experts told us that multiple support centers in the same region teach the same content to the same students, raising concerns about duplicative activities. Another expert said that IAEA could more actively manage the support centers by starting discussions about best practices and, for example, the value of certification. To further examine IAEA s fulfillment of its central coordinating role, we reviewed certain key practices that we have previously found can enhance and sustain collaborative efforts, such as: defining and articulating a common outcome, establishing joint strategies and compatible policies and procedures to operate across boundaries, identifying and addressing needs by leveraging resources, and agreeing on roles and responsibilities. IAEA s planning documents the Nuclear Security Plan and the P&B define and articulate a common outcome. However, DNS has not established joint strategies or compatible policies and procedures with other nuclear security stakeholders, identified and addressed needs by leveraging resources, or agreed on roles and responsibilities. DNS officials said that they discuss these issues such as resources and roles at information exchange meetings with other organizations with a role in international security and said that these meetings have not resulted in agreed-upon or documented roles and responsibilities. In addition, the meetings have not resulted in the documentation of needs or resources, joint strategies, or compatible policies or procedures. As a result of IAEA s approach to its central coordinating role in nuclear security, the agency may be missing opportunities to fully leverage its international legitimacy, technical expertise, and broad range of nuclear security efforts. By following key practices for collaboration, DNS could more formally define IAEA s central coordinating role in nuclear security and strengthen the role even within the context of member-state disagreements. <5. Conclusions> IAEA s DNS plays a crucial role in preventing dangerous releases of radiation by assisting nations in securing their nuclear materials and protecting their nuclear facilities against sabotage. IAEA plans its nuclear security activities through a range of documents, but does not prioritize those activities. The agency s P&B contains criteria for prioritization, but the criteria are too broad to help DNS make resource decisions. Guidelines for prioritizing activities would help DNS ensure that it is applying its resources toward the areas of greatest program needs. In addition, IAEA s performance measures do not have baselines and targets. By developing baselines and targets to demonstrate results, DNS can more effectively monitor progress toward achieving the program s objectives. Furthermore, none of the three IAEA reports on the nuclear security program fully addresses performance measure results. Improved reporting could help IAEA more effectively communicate internally and with external stakeholders on program performance. The nuclear security program relies heavily on extra-budgetary contributions, which adversely affects program management. Options exist to address this issue but IAEA has not analyzed these options. IAEA and its member states acknowledge the agency s central coordinating role in nuclear security, but the agency has not followed key practices for collaboration. This has left IAEA s approach to the central coordinating role vulnerable to member-state disagreements, and IAEA s implementation of the role has not met the expectations of various member states. <6. Recommendations for Executive Action> We are making the following five recommendations to the Department of State: The Secretary of State should work with IAEA and its member states through the Board of Governors to develop detailed guidelines for prioritizing nuclear security activities. (Recommendation 1) The Secretary of State should work with IAEA and its member states through the Board of Governors to improve the nuclear security program s performance measures by developing baselines and measurable targets. (Recommendation 2) The Secretary of State should work with IAEA and its member states through the Board of Governors to improve how DNS reports to member states by consistently including the results of performance measures in at least one of the reports. (Recommendation 3) The Secretary of State should work with IAEA and its member states through the Board of Governors to analyze options to stabilize DNS s funding within current fiscal and political constraints to enhance the sustainability of IAEA s nuclear security program. (Recommendation 4) The Secretary of State should work with IAEA and its member states through the Board of Governors to strengthen the agency s central coordinating role by following key practices for collaboration. (Recommendation 5) <7. Agency Comments and Our Evaluation> We provided a draft of this report to the Departments of State and Energy and to the International Atomic Energy Agency for review and comment. In its written comments, reproduced in appendix III, State concurred with all five of our recommendations. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Secretary of Energy, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao,gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) the structure and range of nuclear security work that the International Atomic Energy Agency (IAEA) conducts; (2) ) how IAEA plans and prioritizes its nuclear security work, and how it measures and reports on its performance; and (3) the challenges that IAEA s nuclear security program faces. We focused our review on IAEA s nuclear security program, specifically on activities carried out by the Division of Nuclear Security (DNS), within the Department of Nuclear Safety and Security. To address all three objectives, we interviewed U.S. officials, IAEA officials, officials representing IAEA member states, and other nuclear security experts. We selected the U.S. agencies most involved in nuclear security policy, including interacting with IAEA. The Department of State is the lead agency for interacting with IAEA and has represented the United States in the Nuclear Security Contact Group (NSCG) since September 2018; the Department of Energy s National Nuclear Security Administration provides technical expertise and loans staff to IAEA; Nuclear Regulatory Commission, as the regulator for the U.S. civilian nuclear industry, provides perspectives on how IAEA s guidance may impact states regulations, among other things; the Department of Defense collaborates with IAEA to develop IAEA training (for example, for border monitoring); and the National Security Council leads interagency coordination to develop U.S. priorities for nuclear security and initially represented the United States in the NSCG through August 2018. To gain the perspectives of IAEA member states, we selected member states based on their involvement in IAEA s nuclear security work and suggestions from State and nuclear security experts; the selected member states represent a range of informed opinions, but cannot be generalized to the universe of IAEA member states. While we reached out to various member states, we predominantly received responses from member states who have voiced support regarding IAEA s nuclear security work. Our statements about member states we spoke to should be interpreted with the understanding that few member states that have voiced opposition to IAEAs nuclear security work responded to our requests. Throughout this report, we use the phrase member states we spoke to or member states who responded to refer to all those who provided us information. In light of political sensitivities surrounding IAEA s nuclear security work, we agreed not to identify the member states whose officials we interviewed. We selected nuclear security experts based on a literature search and a snowball sampling technique. Specifically, from our initial literature search, we selected seven authors who had published at least two articles since 2010 that were relevant to our review. However, two authors declined or did not respond to our interview request. During our interviews with the authors identified in the literature search, as well as with U.S. government officials, we asked for suggestions of individuals who were knowledgeable on IAEA s nuclear security work or nuclear security more broadly. We added to our sample individuals named at least twice by other interviewees. Not all experts in the sample were available to participate in interviews. We summarized the information gathered from experts and other interviewees in the report by using some to refer to three members of a group, several to refer to four or five members of a group, and many to refer to more than five members of a group. We interviewed officials representing 12 member states, and 20 experts. To determine the structure and range of IAEA s nuclear security work, we reviewed pertinent legal instruments, such as the Statute of the IAEA, the Convention on the Physical Protection of Nuclear Material and its 2005 amendment, and the International Convention for the Suppression of Acts of Nuclear Terrorism. We also reviewed IAEA s planning documents, including the 2018-2019 Programme & Budget (P&B); 2017 and 2018 Nuclear Security Resolutions; and the 2018-2021 Nuclear Security Plan. To review how IAEA plans and prioritizes its nuclear security work, we reviewed these planning documents against the Project Management Institute s The Standard for Program Management and interviewed IAEA officials responsible for planning and prioritizing the agency s nuclear security work. To examine how IAEA measures and reports on performance, we reviewed the previously mentioned IAEA documents, as well as IAEA s Nuclear Security Reports from 2016-2018. We also reviewed the 2015-2016 P&B, the 2016 Nuclear Security Report, 2018 Annual Report, and the 2016 mid-term program performance report to understand IAEA s use of objectives, outcomes, and performance indicators. We chose the 2016 reports because at the time of our review, the 2016 program performance report was the most recent completed. We compared the agency s planning documents and reports with leading practices for performance management and reporting, including leading practices derived from our prior work, and IAEA s results-based management approach. We derived some of these leading practices from standards and practices developed for federal agencies, such as those established in Standards for Internal Control in the Federal Government. Although federal standards are not required to be used by international organizations such as IAEA, the leading practices based on these standards can be instructive for assessing IAEA performance measurement and reporting practices. To examine the challenges the agency s nuclear security role faces, we reviewed the IAEA documents listed above as well as proceedings from meetings and conferences and budgetary contributions data from the United States and other member states. We analyzed statements from IAEA, U.S., and member-state officials and from experts about IAEA s nuclear security challenges. We also assessed actions IAEA and member states have taken to potentially mitigate challenges by comparing those actions with written commitments made in support of the agency s nuclear security work. We also reviewed IAEA s central coordinating role in nuclear security against certain key practices that we have previously found to enhance and sustain collaborative efforts. We selected five practices as relevant to our analysis, and combined two practices those on establishing joint strategies and establishing compatible policies and procedures. In our analysis we considered IAEA s role as a coequal entity among many rather than one that has authority over other entities. We conducted this performance audit from March 2018 to July 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: The Nuclear Security Contact Group The Nuclear Security Contact Group (NSCG) was established at the 2016 Nuclear Security Summit to continue the work of the summit process, including maintaining high-level political attention and momentum on nuclear security, assessing and following up on commitments made at the summits, and developing and maintaining connections to nongovernmental experts and the nuclear industry. NSCG has 48 members as of March 2019, and its membership is open to all International Atomic Energy Agency (IAEA) member states. According to State officials, the group actively focuses on recruiting new members. NSCG advertises itself through IAEA Board of Governors statements and has issued joint statements to encourage other member states to join. Canada was the first country to chair NSCG, followed by Jordan and Hungary, which is the current chair. NSCG formally meets on the margins of the IAEA General Conference. According to U.S. officials, NSCG has convened two to three times per year since its inception after the 2016 summit. IAEA is an observer, and an IAEA representative may comment on how NSCG proposals would impact IAEA. Representatives to the NSCG are government agencies. The National Security Council was the lead agency to represent the United States in the NSCG through August 2018, and State has been the lead agency since September 2018. According to officials and experts we interviewed, NSCG serves as a forum for proposing and developing ideas rather than as a formal decision-making body. Member states described the benefits NSCG has provided. For example, some member-state officials said NSCG helps maintain contact among summit participants and between nuclear security officials in their respective capitals where nuclear security policy would be implemented and those at IAEA. In addition, a member-state official said that the group is a very important instrument for developing key messages as part of a communication strategy. As a result of this strategy, some ideas developed in NSCG have been introduced into IAEA proceedings by NSCG member states, or into national policymaking discussions. NSCG has also prepared unofficial position papers. Furthermore, according to a member-state official we interviewed, NSCG has discussed or developed internal papers on a number of topics related to IAEA, including: ways to improve IAEA s coordinating role in nuclear security whether more regulation is needed in nuclear security IAEA s role in dealing with emerging nuclear security challenges promoting a more resource stable and empowered Division of Nuclear communication and outreach within IAEA the agency s networks of nuclear security training centers. According to State officials, U.S. priorities for NSCG include ensuring that it is productive and action-oriented, with representatives ready to share views, brainstorm on ways forward, and lead change both at home and internationally. State is also focused on preparing the NSCG s input for its representatives to significant conferences, such as IAEA s ministerial- level and technical conferences and the 2021 Review Conference on the Amendment to the Convention on the Physical Protection of Nuclear Material. According to a member-state official, the NSCG has discussed how to engage in preparation for the review conference, the framework of the review, what to ask of member states, and whether to revise the Convention. According to U.S. officials and some member-state officials, NSCG has also promoted implementation of summit commitments, in which individual members are responsible for tracking and following up on commitments made by countries in certain areas. For example, the United States is the lead for following up on commitments related to insider threat mitigation, and the Department of Energy led a meeting in Belgium in February 2019 on that topic. State officials said that NSCG also follows up on commitments made during the 2016 International Conference on Nuclear Security. Many experts we interviewed said that the NSCG process lacks transparency. Specifically, it does not publish its proceedings, which these experts said made it difficult to discern its accomplishments. U.S. and several member-state officials and experts said that a quiet approach was necessary to protect the group from IAEA member-state politics. Several representatives said that NSCG is mindful of the political sensitivities around its association with the Nuclear Security Summits, and is committed to supporting IAEA s nuclear security role without becoming a distraction. In addition, one expert said that more openness would weaken the group as a discussion forum. For example, publishing proceedings would require getting consensus among members, which would shift the focus of the group from discussion to decision-making. U.S. officials said that NSCG planned to revamp and update its website, and to use it to highlight nuclear security successes and events, such as nuclear security support for major public events or regional training events, but did not plan to promote its own work. Appendix III: Comments from the Department of State Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, the following staff members made key contributions to this report: William Hoehn (Assistant Director); Alisa Beyninson; Antoinette Capaccio; R. Scott Fletcher; Ellen Fried; Drew Lindsey; Steven Putansu; Liz Spurgeon; and Sara Sullivan.

Why GAO Did This Study Nuclear terrorism remains a significant threat to the security of the United States and its allies and partners. U.S. efforts to prevent nuclear terrorism include working with IAEA, an autonomous international agency affiliated with the United Nations. The Department of State coordinates the United States' policy with and financial contributions to IAEA. IAEA's nuclear security program aims to assist countries in enhancing the physical protection, control, and accounting of their nuclear and radiological material and nuclear facilities. GAO was asked to review IAEA's nuclear security program. This report examines (1) the structure and range of nuclear security work that IAEA conducts, (2) how IAEA plans and prioritizes its nuclear security work and measures performance, and (3) the challenges that IAEA's nuclear security program faces. GAO analyzed key IAEA documents and interviewed IAEA officials, U.S. and foreign government officials, and nuclear security experts. What GAO Found The International Atomic Energy Agency (IAEA) carries out its nuclear security program under its Division of Nuclear Security through four subprograms. IAEA activities under these subprograms include developing guidance, providing training, and assisting countries in enhancing nuclear and radiological material security. IAEA plans its nuclear security work through several key documents, including a Nuclear Security Plan, which calls for activities to be prioritized. However, IAEA's planning documents do not include guidelines for prioritization. Instead, IAEA officials said they respond to member states' requests as they arrive and to the extent resources are available. By developing guidelines for prioritizing its nuclear security activities, IAEA could help ensure that it is allocating its resources to the areas of greatest need. IAEA has developed performance measures for its nuclear security program, but these measures do not have baselines or targets. This limits IAEA's ability to demonstrate the results of its nuclear security program. IAEA member states disagree over the agency's role in nuclear security, and according to U.S. and other member-state officials and experts GAO interviewed, these disagreements create challenges for the agency, such as funding its nuclear security efforts. Officials added that states that do not support the agency's nuclear security role resist efforts to substantially raise the agency's regular budget for nuclear security, contributing to the program's heavy reliance on voluntary, or extra-budgetary, contributions from member states. GAO previously reported that extra-budgetary funding is unreliable. Reliance on such funding affects nuclear security program planning, human resources, and sustainability. Experts and U.S. agency officials have suggested options to stabilize nuclear security program funding, but IAEA has not analyzed such options. By working with the United States and other member states to analyze options to stabilize nuclear security program funding, IAEA could ensure that it has sufficient, reliable resources to implement the Nuclear Security Plan. What GAO Recommends GAO is making five recommendations to the Department of State, including that it work with IAEA to develop guidelines for prioritizing IAEA's nuclear security activities, develop program baselines and targets, and work with the United States and other member states to analyze options to stabilize nuclear security funding. State concurred with all five recommendations.

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<1. Background SBDC Program> As SBA s largest matching grant program, the SBDC Program provides funding to SBDCs to deliver business advising and technical assistance to prospective and existing small businesses. SBDC lead centers manage the program, including submitting annual funding applications. Approximately two-thirds of SBDCs are funded on a calendar-year basis and the rest on a fiscal-year basis. Universities, community colleges, or state governments host SBDC lead centers. SBA provides grants covering 50 percent or less of SBDC program costs. As a condition of the grant, SBDCs are required to provide 100 percent matching funds from nonfederal sources (one nonfederal dollar for each federal dollar provided by SBA), which are used to cover remaining program costs. At least 50 percent of the match must be in cash and the remaining amount can include combinations of additional cash, in-kind contributions, or waived indirect costs. Organizations that provide matching contributions include state legislatures, private-sector foundations, state and local chambers of commerce, economic development entities, and colleges or universities. SBA considers expenditures of nonfederal funds that an SBDC spends on the program in excess of the statutorily required match as overmatch. SBA generally reimburses SBDCs for allowable program costs, up to the amount of the federal award and provided such costs adhere to the budget approved by SBA. <2. SBDC Funding Award Process> As with other federal programs, the President submits a budget request to Congress for the SBDC Program in or around February of each year, and Congress thereafter engages in its appropriations process. In or around July of each year, SBA publishes a funding opportunity announcement for the SBDC Program. This announcement includes a funding estimate (because the final appropriation is not known at this time) for awards to be made by SBA during the upcoming fiscal year, which begins on October 1. Each SBDC submits an initial application for funding based on its proportional share of the funding estimate. The application must include detailed budgets setting forth program costs, broken out separately for the SBDC and each of the service centers it oversees. If the appropriation were to match the initial funding estimate, SBDCs would be required to adhere to the budgets they initially submitted or request approval for a modification from SBA. If a continuing resolution is in place, SBA awards partial funding to the SBDCs based on amounts available under the continuing resolution and apportioned by OMB. According to SBA officials, SBDCs are required to submit revised budgets after a continuing resolution. After appropriations are enacted for the full year, the funding amounts for the SBDC Program are revised and SBDCs submit a final, revised budget. SBDCs are informed of funding decisions through a notice of award that includes the budget approved by SBA and the other terms and conditions under which the award is made. We previously reported on the effects of budget uncertainties and disruptions. In a February 2018 testimony, we noted that Congress annually faces difficult decisions on what to fund among competing priorities and interests, and often postpones final funding decisions to allow additional time for deliberations. Under a continuing resolution, agencies can continue to operate, but the funding expires on a certain date and therefore creates uncertainty about both the timing of final appropriations and the level of funding ultimately available. And when a lapse in appropriations or funding gap is possible, the affected agencies must prepare for an orderly shutdown of operations, even if a shutdown is ultimately averted. In the same testimony, we reported that continuing resolutions and lapses in appropriations leading to government shutdowns created inefficiencies and other management challenges for agencies, such as delayed hiring and additional work. <3. Agency Budgeting and Obligation and Expenditure of Federal Funds> The following are select statutes, guidance, and regulations that govern agency budgeting and obligation and expenditure of federal funds, including for the SBDC Program: Antideficiency Act. This act prohibits agencies from obligating or expending funds in excess or in advance of an available appropriation unless otherwise authorized by law and, with some exceptions, from accepting voluntary services for the United States. Impoundment Control Act. An impoundment is any action or inaction by an officer or employee of the federal government that precludes obligation or expenditure of budget authority. When Congress appropriates funds to the executive branch, the President, unless otherwise authorized to withhold such amounts, must prudently obligate them. The Impoundment Control Act is rooted in this principle, and grants the President strictly circumscribed authority to temporarily withhold funds from obligation by transmitting a special message pursuant to procedures established by the act. Transmission of a special message is the only mechanism through which an agency may withhold budget authority from obligation. OMB guidance. Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR Part 200 (Uniform Guidance), is meant to provide a government-wide framework for grants management and to reduce administrative burden for nonfederal entities receiving federal awards while reducing the risk of waste, fraud, and abuse. To comply with the Uniform Guidance, federal agencies are responsible for developing requirements for grant applicants and recipients of their program awards, with consultation with OMB s Office of Information and Regulatory Affairs. Under the Uniform Guidance, federal agencies must provide the projected total amount of funds available for programs providing federal financial assistance, and this amount is then made publically available. Estimates based on the previous year s funding are acceptable if current appropriations are not yet available. In addition, federal agencies must publically announce specific funding opportunities. These announcements must include sufficient information to help an applicant make an informed decision about whether to apply, such as the total amount of funding the agency expects to award through the announcement. SBA has adopted the Uniform Guidance, thereby giving regulatory effect to the guidance with respect to SBA awards. Preparation, Submission, and Execution of the Budget, OMB Circular No. A-11, contains instructions and schedules for agency submission of budget requests and justification materials to OMB. It provides agencies with an overview of applicable budgetary laws, policies for the preparation and submission of agency budgets, and information on financial management and budget data systems. Statutory funding formula for SBDCs. The amount of an SBDC formula grant received by a state is determined by a statutory formula. The formula divides the annual amount made available for the entire SBDC Program for the fiscal year the grant begins on a pro rata basis, based on the population of each state and subject to minimum funding levels specified in statute. The maximum grant amount for each recipient (SBDC) is the greater of the minimum statutory amount, or their pro rata share of all SBDC grants as determined by the statutory formula. SBA Changed Its SBDC Funding Estimate Methodology to Align with Standards and Statute but Neither Required the Change <4. SBA Changed Its SBDC Funding Estimate Methodology in Fiscal Year 2016> In fiscal year 2016, SBA changed the methodology it used for the estimate in the SBDC funding opportunity announcement. Before fiscal year 2016, SBA officials stated that the agency used the prior year s appropriated amount for the program as the funding estimate in the funding opportunity announcement. However, we found that this was not always the case. The funding estimates in fiscal years 2012 through 2014 ranged from $2 million to $10 million lower than the prior year s appropriation (see fig. 1). The officials were unable to provide information on the justification for the different pre-2016 practices, stating that no officials involved in such determinations during those years remained at the agency. Since fiscal year 2016, SBA has instructed SBDC grantees to submit their funding applications for the upcoming year based on the President s budget request. In fiscal year 2016, the prior year s appropriation and the President s budget request were the same $115 million and the final appropriated amount was $117 million. In fiscal year 2017, the President s budget request of $115 million was slightly lower than the prior year s appropriation of $117 million, and the final appropriated amount increased to $125 million. Beginning in fiscal year 2018, the funding estimate and the prior year s appropriation began to diverge significantly (funding estimates decreased, appropriations increased). In that year, SBDCs were required to submit funding applications based on a funding estimate of $110 million, which was 12 percent lower than the prior-year appropriation of $125 million. The final appropriated amount increased to $130 million. In fiscal year 2019, the funding estimate was $110 million, 15 percent lower than the prior-year s appropriation of $130 million. The final appropriated amount increased to $131 million. By fiscal year 2020, SBDCs were required to submit funding applications based on the President s budget request of $101 million, which was 23 percent lower than the prior year s appropriation. The final appropriated amount increased to $135 million. If SBA continues this practice for fiscal year 2021, SBDCs will be required to submit funding applications at a level that is 35 percent lower than the 2020 appropriation, in order to match the President s budget request of $87.9 million (13 percent lower than the President s budget request for fiscal year 2020). <5. SBA Said It Changed the Funding Estimate Methodology to Conform with Financial Management Standards and Antideficiency Act, but Neither Required the Change> SBA cited two reasons for changing the way it estimates funding in the annual funding opportunity announcement: to conform to federal financial management practices and to address concerns about violating the Antideficiency Act. <5.1. Federal Financial Management Practices> SBA officials cited federal financial management practices as one reason for changing the funding estimate methodology. The officials stated that it was a management decision to use the only known amount, the number in the President s budget, for the funding opportunity announcement. They noted that the difference between the Senate and House markups for fiscal year 2020 exceeded $20 million. SBA officials also told us that they rely on the lowest estimate available to be prudent with taxpayer dollars. According to a December 2019 letter from SBA to the Senate and House Small Business Committees, the change to the funding estimate methodology was adopted when the SBDC Program office identified areas requiring process improvements and stronger internal controls to help the program operate and plan more effectively and efficiently and in consistency with federal financial management standards. SBA s letter also stated that it is standard federal financial management practice to plan to the lowest budget estimate in the absence of a full-year appropriation, and SBA therefore provided the President s budget to SBDCs for planning purposes. Although SBA characterized its use of the President s budget as a standard practice within the federal government, SBA officials did not point to a specific regulation or guidance to support this view, either in the letter or in our interviews. OMB s Uniform Guidance does not advise federal agencies to use the lowest estimate (that is, the lowest among the House mark, Senate mark, President s budget request, and the prior year s appropriation) when reporting funding available under federal financial assistance programs. Rather, the guidance states that estimates based on the previous year s funding are acceptable if the current appropriations are not yet available, as was the case when recent SBDC funding opportunity announcements were issued. Although OMB s Uniform Guidance does not identify any other accepted practice in this regard, it does not expressly prohibit other practices. OMB staff told us that, in the absence of a full-year appropriation, it is permissible for agencies to use the lowest estimate as the funding estimate in a funding opportunity announcement. The staff said that from their perspective, SBA s use of the figure in the President s budget is consistent with OMB Circular A-11 and the Uniform Guidance. However, they also acknowledged that there is no requirement to use the lowest estimate in a funding opportunity announcement. They also said that practices vary across agencies. During our limited review of other SBA and federal award programs, we did not find other programs that had funding application practices similar to those for SBDCs. However, those programs may not be entirely comparable to the SBDC Program, which publishes its funding opportunity announcement before the annual appropriation is known, requires applicants to initially apply based on a funding estimate, and is subject to a statutory formula that calculates individual grant amounts based on the final appropriation. The following are examples of ways in which the programs we reviewed differed from the SBDC Program: According to SBA officials, the funding for its Women s Business Centers is awarded at the end of the fiscal year, and thus the final appropriation is known during the application process. In a fiscal year 2018 funding opportunity announcement for SBA s Veterans Business Outreach Center Program, the total amount of available funding was known at the time applicants submitted their proposals. Like the Veterans Business Outreach Center Program, a fiscal year 2018 funding opportunity announcement for SBA s Federal and State Technology Partnership Program listed the amount of funding available. Applicants for the Defense Logistics Agency s Procurement Technical Assistance Program (PTAP) can apply for specific amounts of funding based on their service areas. For example, in a fiscal year 2020 funding announcement for PTAP, applicants providing statewide coverage could apply for up to $1 million in funding and those providing less than statewide coverage could apply for up to $600,000. In addition, the funding announcement did not include a funding estimate for the program as a whole. <5.2. Antideficiency Act> SBDC Program officials also cited adherence to the Antideficiency Act as a reason for the change. SBA stated in its letter to the Senate and House Small Business Committees that its practice of providing SBDCs with the President s annual budget request as the dollar amount for planning purposes ensures that SBA abides by the terms of the Antideficiency Act. In doing so, they noted the Antideficiency Act prohibits obligating or expending funds in excess of amounts available through appropriations. In interviews, SBA officials said that if they consistently took a conservative approach, they would be less likely to violate the Antideficiency Act when appropriations were enacted. However, OMB staff told us that SBA s use of other estimates in a funding opportunity announcement would not violate the Antideficiency Act. SBA s funding opportunity announcements make clear that funding awards will be based on the appropriated level of funding, not the estimate provided in the funding opportunity announcement. OMB staff told us that because SBA s funding opportunity announcement does not obligate the federal government, it does not present the potential for a violation of the Antideficiency Act. They further stated that using a higher amount, such as the prior year s appropriation, also would not violate the Antideficiency Act. Consistent with that position, SBA s Office of General Counsel agreed that the Antideficiency Act does not apply to the SBDC funding opportunity announcement because it does not create an obligation on behalf of SBA. Counsel also stated that SBA s decision to use the President s budget as the funding estimate was a management decision and was not required by the Office of the General Counsel. SBDCs Said Change to Funding Estimate Methodology Hindered Budgeting, Operations, and Services Most SBDCs that responded to our survey told us that using the lowest budget estimate the President s budget request as the funding estimate for fiscal year 2020 had created budgeting, operational, and performance burdens and challenges. The burdens and challenges largely stemmed from the large gap between the initial funding estimates and final appropriations. According to SBA officials, using the amount in the President s budget as the funding estimate should not negatively affect SBDCs that are on a calendar-year budget cycle (approximately two-thirds of SBDCs) because they have approved funding through December 31 of each year. They stated that by January 1 of each year, there is either a budget or continuing resolution in place that eliminates uncertainty for these SBDCs. They also stated that SBDCs on a calendar-year cycle are not required to submit their initial applications based on the estimated funding amount in the funding opportunity announcement (that is, the amount in the President s budget), and can instead use a higher amount under a continuing resolution or other approved budget. However, SBA did not provide any documentation authorizing SBDCs on a calendar-year budget cycle to submit initial applications using a higher estimated funding amount. Rather, the fiscal year 2020 Funding Opportunity Announcement states that the funding estimate will be based on the President s budget, and the announcement applies to both fiscal-year and calendar-year SBDCs. Lastly, SBA s view that calendar-year SBDCs should not be negatively affected by SBA s use of the lowest budget estimate is not consistent with SBDC responses to our survey. Both fiscal-year and calendar-year SBDCs reported in their survey responses that using SBA s funding estimate had hindered different aspects of their operations. In the following discussion of these and other survey results, we note the limited instances in which calendar-year SBDCs reported a different experience than fiscal-year SBDCs. <6. SBDCs Said Funding Estimate Impeded Efficient Administration and Budgeting> <6.1. Added Administrative Burden> The vast majority of SBDCs responding to our survey said the large gap between the initial funding estimates and final appropriations imposed an additional administrative burden for SBDCs as they developed their budgets. Fifty-one out of 58 SBDCs (88 percent) responding to our survey question estimated that staff time to prepare the initial and final 2020 funding applications was somewhat or greatly increased compared to previous years (when the estimated funding amount was approximately the same as the current year s award). Many SBDCs noted that using SBA s funding estimate for fiscal year 2020 had created an additional administrative burden in their responses to open-ended questions on our survey. For example, one SBDC said that requiring two budget justifications (an initial funding application and a revised application) added time, complexity, duplication of effort, and considerable paperwork to the budgeting process. Another SBDC said the process of submitting multiple budgets took extra time and increased the likelihood of human error. Survey comments help explain why the use of the lowest budget estimate made budgeting more burdensome. For example, one SBDC explained that the lower amount required more time for negotiations to assure their matching partners that the actual number would likely be higher. Another SBDC noted the lower funding estimate required more proposed budget cuts in the initial application. <6.2. Proposed Budget Cuts, Some Substantial> Most SBDCs said using the funding estimate in the 2020 Funding Opportunity Announcement (which was $30 million below the 2019 appropriation and $34 million below the 2020 appropriation) required them to propose cuts in their initial budgets. Forty of the 57 SBDCs (70 percent) that responded to the survey question said their initial budget proposals eliminated some salaries, fringe benefits, and travel; 34 of 57 (60 percent) reduced supplies; and 33 of 57 (58 percent) reduced their contractual obligations. See table 1 for a full breakdown. Our survey asked SBDCs to provide a brief description of how they made adjustments to account for the decrease in the estimated funding amount in 2020: Some SBDCs stated that they had zeroed out the lead center or one or more service centers. A few SBDCs said they eliminated all part-time staff. Some also told us they decreased travel and professional development. Some SBDCs moved contractual line items (such as rent and software licenses) off the budget or reduced use of service providers (such as business consultants and independent contractors). Other survey respondents provided insight on why they made certain proposed cuts. To limit the burden on its service centers, one SBDC budgeted zero federal funds for the lead center and budgeted its service centers at the prior year s amount so that its service centers would only need to budget once. Another SBDC stated that it chose the largest single line item that could be quickly reduced to meet the funding estimate. It noted that this allowed it to quickly scale down the budget and would allow it to quickly scale the budget back up to reality. Some of the survey respondents and SBDCs we interviewed indicated that they did not expect to have to make the cuts they proposed in their initial budgets because they were confident that Congress would appropriate the same or more funding as the prior fiscal year. One SBDC surveyed said that it took all budget deductions from the lead office personnel, but that it would not do so in a final budget if the lower amount in the President s budget was to be appropriated. Three SBDCs we interviewed said that to account for the decrease, they proposed cuts in their initial budget they did not think they would have to make, such as eliminating an entire service center or a core information technology system. One SBDC we interviewed described the process as putting together two budgets simultaneously: one budget using the President s budget request and one budget that was based on a funding amount that it believed was more consistent with historical norms. Still other survey respondents reported that they actually reduced their expenditures after receiving the funding estimate, although the amounts ultimately appropriated for SBDCs in fiscal years 2019 and 2020 were higher than for prior years. In response to the same open-ended question asking for a brief description of how they made adjustments to account for the decrease in the estimated funding amount in 2020, SBDCs provided the following examples: One SBDC said that to maintain all of its full-time personnel within the constraints of the initial application, some of its service centers had to stop providing training classes or attending conferences. Another SBDC told us a key staff person was given a layoff notice. Another said that due to the budget uncertainty, the SBDC eliminated all travel, cancelled almost all of its business development software subscriptions, and delayed replacing old computer equipment. <6.3. Difficulty Obtaining Matching Funding> Thirty-eight of the 60 SBDCs that responded to our survey (63 percent) said that using the initial funding amount as the basis for their initial applications somewhat or greatly hindered their ability to obtain matching funds. As discussed previously, SBDCs are required to match SBA funding at a 1:1 ratio. Host institutions (often supplemented by local governments, higher education institutions, and private-sector groups) provide matching funding. In response to open-ended survey questions, SBDCs noted the following: Difficulty obtaining full matching funding. Some survey respondents said that submitting a funding application based on the initial estimate put the SBDC s ability to secure 100 percent of matching funding at risk. For example, one SBDC stated that the initial funding amount was the basis for its host institution s budget for the match and that once the host s budget was approved, it was difficult to amend it to increase the match (to meet the 1:1 requirement). Another SBDC said that host institutions only contribute a match equal to the federal allocation and that if the final allocation amount is not known, the host may choose to invest in other initiatives. Negative effect on relationships. Most survey respondents expressed concern that the change to the funding estimate would create confusion or uncertainty with their hosts or service centers (partners). For example, one SBDC told us that its host institutions do not react well to ambiguity in planning. This SBDC described the change in amounts between the initial estimate and the final appropriation as an unwelcome surprise to its partners, which needed to match the difference. Another SBDC noted that the decrease in the initial funding amount in 2020 was so great that several funding partners indicated they would partner with other organizations that were better funded and supported. Many survey respondents stated they were able to mitigate the impacts of the lower funding estimate by using matching funds, either because their host provided the same amount it had provided the previous year or overmatched (provided funds in excess of the statutorily required match). For example, one SBDC told us it was fortunate to have strong support from its host to be able to temporarily fund program operations at full capacity, until the revised funding amount from SBA was released. Three survey respondents who reported that using the initial funding amount neither helped nor hindered their efforts to obtain matching funds either stated they did not share the estimated amount with their hosts or local partners or that the amount they shared was equal to their portion of the appropriated amount. <6.4. Difficulty Spending Grant Funding> Forty-two of 60 SBDCs that responded (70 percent) said using the initial funding amount as the basis for their initial applications somewhat or greatly hindered their ability to spend grant funds. In response to an open-ended survey question asking for examples of how using the initial funding amount had affected their ability to spend grant funds, SBDCs noted the following: Having to spend conservatively early in the year. Some SBDCs told us that the funding process requires them to spend conservatively at the beginning of the budget cycle, only to ultimately receive more than the prior year s amount. As shown in figure 2, SBDCs did not receive the notice of award for their full fiscal year 2019 appropriation until April 2019. One SBDC noted the extreme pressure in the first half of the year to operate on a lean budget and then having to switch to increased activity in the second half of the year once the final, higher amount was awarded. Another SBDC required its service centers to propose special projects but did not fund them at the beginning of the year because it did not know what the funding level would be. Having to carry over funding to the next year. Some SBDCs said it has become common for them to have unexpended funding left at the end of the fiscal or calendar year. In these instances, they carry over their funding to the next year. For example, one SBDC said that the late-in-year increases in funding prevented certain activities from being completed within appropriate project dates and led them to carry over funds. While the ability to carry over funding for one additional fiscal year was considered helpful, some expressed concern that this was not the best use of federal dollars over the course of the year. For example, one SBDC said it was forced to carry over unspent funds partly as a result of difficulties in forecasting monthly spend rates and adjusting the rates midyear. A few survey respondents noted that operating under a continuing resolution at the beginning of the year made spending grant funds more difficult. For example, one SBDC stated that multiple continuing resolutions in one year meant that by the time its host rebudgeted, it had less than 3 months to spend the increase. Another noted that because the initial funding amount varied so greatly from the final amount, the shortened time frame for deploying funds can make it difficult to maximize use of grant funds. Two SBDCs that operate on a calendar-year budget cycle told us that they had not experienced the same challenges as SBDCs that operate on a fiscal-year budget cycle because there is either a continuing resolution or final award by January. A smaller proportion of calendar-year SBDCs responded that using the initial funding amount somewhat or greatly hindered their ability to spend grant funds compared to fiscal-year SBDCs. However, the majority of calendar-year SBDCs still responded that using the amount somewhat or greatly hindered their ability to spend grant funds. <7. SBDCs Said Funding Estimate Created Operational and Planning Challenges> <7.1. Difficulty Hiring New Personnel> Forty-four of 60 SBDCs that responded to our survey (73 percent) said using the initial funding amount as the basis for their initial applications somewhat or greatly hindered their ability to hire personnel. As mentioned previously (see table 1), 40 of the 57 SBDCs (70 percent) that responded to the survey question about reducing budget items in their initial funding application reduced salaries in their initial funding application. In response to various open-ended questions in our survey, SBDCs noted the following: Hiring delays or freezes. Many SBDCs reported delays in hiring or hiring freezes. For example, one SBDC told us it had to leave vacant counseling positions unfilled, although it knew the funding for those positions almost certainly would materialize. Another SBDC noted that using SBA s current funding estimate created a minimum of a 6-month delay in hiring a new adviser at a local center. Another SBDC said its host institution would not allow any staff to be hired in the period from SBA issuance of the funding estimate through the congressional appropriation. Thus, when consultants and staff retire or leave the program, there is a staffing gap, which results in less service to clients. Reliance on short-term or contractor positions. Some SBDCs told us that using the funding estimate already had forced them to rely on or might force them to rely on part-time staff, short-term contracts, or contractors to provide services. For example, one SBDC stated the initial funding estimate restricted its ability to hire full-time personnel and instead required it to hire part-time individuals. This SBDC also noted it had a difficult time finding qualified individuals, since it could not guarantee funding for the new position in 6 months. Another SBDC said it was forced to put all personnel on short-term contracts. Another SBDC opted to use contractors for specialized projects and subject matter experts, rather than making a long-term investment in a core business advisor, because those hires were more flexible in the face of budget uncertainty. <7.2. Difficulty Retaining Personnel> In addition to difficulty in hiring personnel, 35 of 60 SBDCs that responded to our survey (58 percent) said that using the initial funding amount as the basis for their initial applications had somewhat or greatly hindered their ability to retain personnel. In response to various open- ended questions in our survey, SBDCs cited morale and retention issues: Staff morale. Some SBDCs said that using the lower funding estimate had affected staff morale. Some respondents attributed this decline in morale to the lack of job security and funding certainty. Two others told us they withheld personnel management information from their staff and other centers to minimize the impact on morale. Staff retention. Some SBDCs noted that staff members left the SBDC to seek employment elsewhere in response to the uncertainty created by the lower initial funding amount. For example, one SBDC said that for 6 months its staff heard about the uncertainty and lack of a stable budget, which led to staff members leaving for other jobs. In addition, a few SBDCs noted that they were unable to offer a competitive salary. For example, one SBDC said that the initial funding estimate dictates matching funding, which constricts its ability to raise salaries to a competitive level. <7.3. Reduced Ability to Plan for New Operations> Survey respondents provided examples of how using the lower estimate in the President s budget as the basis for the SBDC funding estimate negatively affected their ability to plan for new operations and expand services. Some SBDCs said they were not able to plan and promote a program until far into the fiscal year when the final notice of award was released. For example, one SBDC said it was very difficult to plan for expansion because the initial funding amount was barely enough to sustain operations. Two SBDCs said they had delayed opening one or more centers. For example, one SBDC said it would not be able to expand to additional rural areas and instead only would be able to maintain existing operations. The SBDC noted that it would have been able to expand with the amount of funding it eventually received, if that funding had been received at the start of the budget cycle and made available in a predictable manner. Two SBDCs stated that the funding ambiguity affects their host institutions ability to plan their own budgets, which directly affects the amount of matching funding they are able to provide. <8. SBDCs Said Funding Estimate Affected Their Ability to Meet Performance Goals and Serve Small Businesses> <8.1. Reduced Ability to Meet Performance Goals> Thirty-one of 59 SBDCs that responded to the survey question (53 percent) said that using the initial funding amount as the basis for their initial applications somewhat or greatly hindered their ability to meet performance goals. SBDCs have four performance goals against which they agree to be evaluated when applying for SBA funding number of jobs supported, number of new business starts, number of clients served, and amount of capital infusion. In response to an open-ended question that asked for examples of how using the initial funding amount had affected their ability to meet performance goals, many SBDCs pointed to the staffing difficulties discussed earlier as a reason for the increased difficulty in meeting performance goals. Some SBDCs surveyed also mentioned that performance goals did not decrease when the initial funding estimate was lower than the prior year s funding amount. One SBDC noted that its goals are based on the assumption that the full funding amount will be available over 12 months, rather than from 4 to 5 months after the start of the year. <8.2. Reduced Ability to Provide Services> Thirty-five of 59 SBDCs that responded to the survey question (59 percent) said using the initial funding amount as the basis for their initial applications somewhat or greatly hindered their ability to provide services. As noted previously, the purpose of the SBDC Program is to deliver business advising and technical assistance to prospective and existing small businesses. In response to an open-ended question that asked for examples of how using the estimated funding amount affected their ability to provide services, a few SBDCs mentioned the budget process took time away from providing services. For example, one SBDC said that its time and energy was split between the core mission and addressing budget uncertainty. Similarly, another SBDC stated that the extensive funding application work took time away from providing direct services to clients. Two SBDCs also pointed to gaps in service created by the uncertain funding situation. For example, one SBDC noted gaps in service delivery in terms of geographic coverage and of expanding technology training for clients because of the inconsistent budget environment. <9. Our Prior Work and Survey Responses Include Suggestions for Improvement> In prior work, we described legislative authorities and agency actions that may mitigate challenges associated with budget uncertainties. For example, in a 2018 testimony, we noted that Congress may include specific provisions in continuing resolutions (called legislative anomalies) that provide some agencies or programs with funding or direction different from those specified in the standard provisions that require agencies to spend more conservatively. For example, programs that previously received a specific or additional amount of funding under a continuing resolution have included wildfire management, veterans healthcare and benefits, and disaster relief. In addition, agencies can take actions to mitigate challenges associated with continuing resolutions and shutdowns. For example, agencies may have the ability to shift grant cycles to later in the fiscal year when they are less likely to be under a continuing resolution. Shifting these cycles can help minimize disruption of services. In response to an open-ended survey question on how SBA could help mitigate any of the challenges posed by the funding application procedure, SBDCs offered a number of suggestions. Many recommended that SBA allow SBDCs to submit funding applications at the prior year s appropriated amount, as generally had been the practice historically. As noted previously, OMB s Uniform Guidance offers SBA the flexibility to use other estimates, such as the prior year s appropriation. A few also suggested a more streamlined process that does not involve multiple funding applications (and budgets), but a process in which SBDCs submit budgets only once. A few recommended 5-year funding for the program. Conclusions SBDCs face administrative burdens and operational challenges stemming from SBA s current practice of using the lowest budget estimate the amount in the President s budget as the funding estimate for SBDC funding applications. More specifically, because of the large gap in recent years between the President s budget and appropriated amounts for the program, SBDCs told us they now spend more time on budgeting, have a harder time obtaining matching funds, and have difficulty hiring and retaining staff. This in turn affected their ability to meet their performance goals and program objectives of serving small businesses. The use of continuing resolutions in recent years also has put strains on SBDCs ability to effectively plan, budget, and operate throughout a year. And if the funding estimates continue to decrease (as is already the case for fiscal year 2021) and diverge from appropriations in such an environment, SBDCs will face increased challenges in the areas cited above. SBA could take actions to alleviate some of the burden on SBDCs, in particular by reevaluating its funding application requirements for the SBDC Program. For example, the agency could reconsider the amount it uses as the basis for the funding estimate. While SBA previously cited a desire to improve operational efficiencies as a reason for changing the funding estimate methodology, most SBDCs told us their operational efficiencies have decreased. SBA also cited a need to align with federal financial management standards, but OMB s Uniform Guidance permits the use of other estimates, such as the prior year s appropriation. Lastly, SBA cited concerns over violating the Antideficiency Act, but OMB staff and SBA s Office of General Counsel confirmed that the Antideficiency Act does not present a barrier to using other estimates. SBA might also reconsider other aspects of the funding application process that cause burden, such as the timelines for submitting applications and the number of times SBDCs must submit detailed budgets. Recommendation for Executive Action We are making the following recommendation to SBA: The Associate Administrator of the Office of Entrepreneurial Development should reevaluate the SBDC funding application requirements, including reexamining the funding estimate SBDCs are required to use and considering other changes that could reduce administrative burdens on SBDCs. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this product to SBA and OMB for their review and comment. OMB did not provide comments. SBA provided written comments that are reprinted in appendix III. In its written comments, which are summarized below, SBA partially agreed with our recommendation and recognized room for improvement in how it sets the funding estimates for the SBDC Program. SBA did not explicitly state with which part of our recommendation it disagreed; rather, SBA reiterated its view that the agency s practice of planning to the more conservative President s annual budget request affects only fiscal-year SBDCs. In addition, SBA listed two changes it was considering to improve the funding application process. SBA first stated that it is exploring moving the program start date for fiscal-year SBDCs to January 1, which would make all SBDCs operate on a calendar-year basis. SBA also indicated that it is considering publishing the fiscal year 2021 Funding Opportunity Announcement later in the fall (for example, on the first day of October), by which time the agency would be operating on a continuing resolution or final appropriation and would no longer be working with funding estimates. These steps are promising, but we would need to evaluate their implementation to determine whether they fully address our recommendation. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Administrator of SBA, the Acting Director of OMB, and other interested parties. In addition, the report will be available at no charge on the GAO website at https://gao.gov. If you or your staff members have any questions about this report, please contact William B. Shear at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs maybe found on the last page of this report. Major contributors to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report discusses the (1) Small Business Administration s (SBA) rationale for changing the way it estimates funding in the annual funding opportunity announcement for the Small Business Development Center (SBDC) Program and (2) views of SBDC grantees on the effect of that change on their budgeting and operations. To determine SBA s rationale for changing the way it estimates funding in the annual SBDC funding opportunity announcement, we reviewed SBDC funding opportunity announcements for fiscal years 2012 through 2020 and program guidance that governs the SBDC funding application procedure. We compared the funding estimates in the funding opportunity announcements, appropriations, and Presidents budget requests from fiscal years 2012 through 2020. We also interviewed SBA officials in the SBDC program office and Office of General Counsel to obtain the agency s rationale for changing the way it estimates the funding amount in its SBDC funding opportunity announcements. In addition, we examined select laws (such as the Antideficiency Act) and regulations (such as the Office of Management and Budget s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards). We interviewed OMB staff and officials in SBA s Office of General Counsel to obtain their views on the relevance of the Antideficiency Act and the extent to which SBA s funding proposal procedure is consistent with that law. We also reviewed documentation on other selected programs to compare the funding application processes used: the Women s Business Center, Veterans Business Outreach Center, Federal and State Technology Partnership, and Procurement Technical Assistance Programs. We selected these programs because they were other SBA grant programs or because SBDCs we interviewed mentioned them as federal grant programs that used different budget practices. (We discuss below how we selected the SBDCs to interview.) To gather the views of SBDC grantees on the effect of the funding estimate change on their planning and operations, we interviewed representatives of a nongeneralizable sample of eight SBDC lead centers, selected to achieve diversity in funding amount, budget cycle, and host institution. Their views are not generalizable to other SBDCs but offered important perspectives. We also reviewed funding application documentation from these eight lead centers to determine their funding timelines. We then focused on the fiscal year 2019 timeline for SBDCs that use a calendar-year budget cycle and SBDCs that use a fiscal-year budget cycle to identify any differences in their timelines. We selected fiscal year 2019 because it was the most current complete funding cycle at the time we conducted our work. In addition, we conducted a web-based survey of all 62 SBDC lead centers to obtain their perspectives on the effect on their operations of the change in how SBA estimates SBDC funding. In total, we obtained 60 responses (a 97 percent response rate). We conducted four pretests of our draft questionnaire by telephone with officials at four SBDC lead centers with varying characteristics, such as amount of funding, budget cycle, and host institution. We used these pretests to help refine our questions, develop new questions, clarify any ambiguous portions of the survey, and identify any potentially biased questions, and we made revisions as necessary. We launched our web-based survey on January 30, 2020, and emailed log-in information to the directors of the SBDC lead centers. The survey was available through February 7, 2020. From February 10, 2020, through February 14, 2020, we conducted follow-up with nonrespondents by telephone and email. See appendix II for the full set of survey results. The survey included both closed- and open-ended questions. To analyze open-ended comments provided by the SBDCs that responded to the survey, GAO analysts read the comments and developed categories for the responses. An initial coder assigned a category that best summarized the comments. A separate coder reviewed and verified the accuracy of the initial categorizations. The initial coder and reviewer discussed orally and in writing any disagreements about code assignments and documented consensus on the final analysis results. For purposes of this report, we used the following terms to describe the number of SBDCs (out of 60) that were assigned to categories: few to describe three to five SBDCs, some to describe six to 15, many to describe 16 to 30, most to describe 31 to 45, and vast majority to describe 46 and over. We conducted this performance audit from October 2019 to May 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Results of GAO s Survey of Small Business Development Centers To obtain the views of Small Business Development Centers (SBDC) on the Small Business Administration s (SBA) change in the way it sets funding estimates, we conducted a web-based survey of all 62 lead SBDCs. Our survey comprised closed- and open-ended questions. This appendix includes all survey questions and results of each closed-ended question; it includes only the number of responses for each open-ended question. We received surveys from 60 lead SBDCs (a 97 percent response rate). The total number of responses to individual questions may be fewer than 60, depending upon how many lead centers chose to respond to a particular question. For a more detailed discussion of our survey methodology, see appendix I. <10. Funding Application Process> For questions 7 through 13, the initial funding amount refers to your SBDC s portion of the estimated funding of $101 million total available in the 2020 SBDC Funding Opportunity, which was ultimately below the $135 million later authorized under the Consolidated Appropriations Act, 2020, Pub. L. No. 116-93 (Dec. 20, 2019). (Question 7a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to obtain matching funds. We received 49 responses to this question. (Question 8a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to spend grant funds. We received 51 responses to this question. (Question 9a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to retain personnel. We received 49 responses to this question. (Question 10a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to hire personnel. We received 52 responses to this question. (Question 11a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to ensure continuous operations. We received 54 responses to this question. (Question 12a.) Please provide a specific example or examples of how using the initial funding amount has affected your SBDC s ability to meet performance goals. We received 44 responses to this question. (Question 13a.) Please provide a specific example or examples of how using the initial funding amount has affected the ability of all your centers to provide services. We received 49 responses to this question. (Question 14a.) Please provide a brief description of how your SBDC made adjustments to account for the decrease in the estimated funding amount in 2020. We received 60 responses to this question. (Question 19) How could SBA help mitigate any of the challenges posed by the funding application procedure, if at all? We received 56 responses to this question. (Question 20) Is there anything else related to the current SBDC funding application procedure on which you would like to elaborate? We received 42 responses to this question. Appendix III: Comments from the Small Business Administration Appendix IV: GAO Contact and Staff Acknowledgments <11. GAO Contact> <12. Staff Acknowledgments> In addition to the contact name above, Paige Smith (Assistant Director), Meredith P. Graves (Analyst in Charge), Kristine Hassinger, Jill Lacey, Jason Marshall, Marc Molino, Kirsten Noethen, and Barbara Roesmann made significant contributions to this report.

Why GAO Did This Study SBA's SBDC Program provides training and counseling to small businesses through a nationwide network of 62 lead centers and more than 900 service centers. Each year, SBDC lead centers submit grant applications based on an estimated amount in SBA's funding opportunity announcement. GAO was asked to review SBA's procedure for the SBDC funding estimate. This report discusses SBA's change to the way it estimates funding in the funding opportunity announcement, its rationale for the change, and views of SBDC grantees on the effect of the change on their budgeting and operations. GAO reviewed SBDC funding opportunity announcements, Presidents' budget requests, and appropriations for fiscal years 2012–2020; examined relevant laws and guidance; and interviewed SBA officials and OMB staff. GAO also reviewed documentation and interviewed officials from a nongeneralizable sample of eight SBDCs (selected to achieve diversity in funding amount, budget cycle, and host institution) and surveyed all 62 lead SBDCs. What GAO Found The Small Business Administration (SBA) annually issues a funding opportunity announcement with an estimate of total funding for the Small Business Development Center (SBDC) Program. Individual SBDCs are required to use this estimate to apply for their portion of the funding. In fiscal year 2016, SBA began using the lowest funding estimate—the amount in the President's budget—rather than an estimate reflecting historical funding levels. In fiscal year 2019, the amount in the President's budget was 15 percent lower than the prior-year appropriation and in 2020, 23 percent. If SBA continues its practice for fiscal year 2021, the funding estimate will be 35 percent lower than the 2020 appropriation. When appropriations are enacted for the program, the funding amount is revised and SBDCs submit a final budget. SBA officials said they changed how they set the funding estimate to conform to federal standards and appropriations law. In a 2019 letter to the House and Senate Small Business Committees, SBA said it adopted the change to help the program operate more effectively and be consistent with federal financial management standards. SBA officials could not point to specific regulations or guidance to support this statement. Office of Management and Budget (OMB) guidance for grants states that estimates based on the previous year's funding are acceptable if current appropriations are not yet available, as was the case when recent SBDC funding opportunity announcements were issued. SBA officials also cited the Antideficiency Act, which prohibits federal agencies from obligating or expending federal funds in advance or in excess of an appropriation. But staff from OMB and SBA's Office of General Counsel told GAO that the Antideficiency Act does not apply to a funding opportunity announcement because the announcement does not obligate federal funds. A majority of SBDCs that GAO surveyed said using the President's budget request for the initial funding estimate created budgeting, operational, and performance burdens and challenges—mostly stemming from the large gap between the initial estimate and appropriated amounts. For example, SBDCs surveyed said that they now spend more time on budgeting (determining what to cut from initial budgets to meet the lower estimate and then recalculating for final budgets); have a harder time obtaining matching funds (from state, local, or private-sector sources) or increasing the amounts from initial to final funding levels; have difficulty hiring or retaining staff; face challenges providing services to small businesses (particularly if SBDCs have staffing gaps); and thus also face challenges meeting performance goals (which include number of clients served). Under SBA's current practice for funding estimates, SBDCs will continue to experience (or may experience increasing) challenges given the growing divergence between the initial estimate and appropriated amounts. What GAO Recommends GAO is making one recommendation that SBA reevaluate its funding application requirements, including the initial funding estimate SBDCs are to use. SBA partially agreed and outlined steps it plans to take that could address the intent of the recommendation.

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<1. Background> <1.1. Medicare and Medicaid Coverage for Dual-Eligible Beneficiaries> Dual-eligible beneficiaries qualify for both Medicare and Medicaid, and may enroll in and receive benefits covered by each program. Individuals ages 65 or older can qualify for Medicare based on age, and individuals ages 18 to 64 can qualify for Medicare based on disability. Medicaid eligibility varies by state, but beneficiaries may qualify based on having a low level of income, a need for nursing home care, high medical expenses, or other criteria. For dual-eligible beneficiaries, Medicare is the primary payer for any benefits covered by both programs. As a result, Medicare is the primary payer for acute and post-acute care, such as physician services, hospitalizations, prescription drugs, and skilled nursing facility care. For many dual-eligible beneficiaries, Medicaid covers benefits not covered by Medicare. This includes long-term services and supports, which may include nursing home care, personal care services, or adult day care. Whether Medicaid covers these benefits varies between the two main categories of dual-eligible beneficiaries. Those in the first category are known as full-benefit, dual-eligible beneficiaries, because they may receive all Medicaid benefits, in addition to Medicare benefits. Medicaid also pays for their Medicare premiums and, in some cases, the cost- sharing for their Medicare benefits. Those in the second category are known as partial-benefit, dual-eligible beneficiaries, because Medicaid assistance is limited to payment of their Medicare premiums and, in some cases, the cost-sharing for their Medicare benefits. Partial-benefit, dual- eligible beneficiaries have limited income and assets, but their income and assets are not low enough to qualify them for full Medicaid benefits in their state. For Medicare, dual-eligible beneficiaries can choose to receive their Medicare services from either traditional Medicare or from MA plans. These options differ in key ways. For example, traditional Medicare may have a more extensive provider network than MA plans. However, MA plans may cover additional benefits, such as vision or dental care, which are generally not covered under traditional Medicare. If dual-eligible beneficiaries choose to enroll in MA plans, they may also have the choice between regular MA plans and D-SNPs, which offer certain services targeted at the needs of dual-eligible beneficiaries. For example, D-SNPs are required to perform health risk assessments, create individualized care plans, and provide an interdisciplinary care team for each beneficiary enrolled. They may also cover transportation services, home modifications, or other specialized services that are more likely to be used by dual-eligible beneficiaries. For Medicaid, states may allow or require Medicaid beneficiaries, including dual-eligible beneficiaries, to receive their Medicaid benefits through an MCO. In this managed care model, Medicaid MCOs are responsible for arranging for and paying providers claims for a specific set of Medicaid benefits provided to beneficiaries. More recently, some states have created new Medicaid managed care programs or expanded the benefits covered by existing Medicaid managed care programs in order to include additional populations previously covered through Medicaid fee-for-service. The new populations include seniors, persons with disabilities, and those who need long-term services and supports many of whom may be dually eligible. <1.2. Aligned Enrollment in D- SNPs in States with MLTSS> A dual-eligible beneficiary may be able to enroll in a D-SNP and Medicaid MCO that are offered by the same or related companies, an arrangement known as aligned enrollment. In states with MLTSS, aligned enrollment means the same or related companies provide a beneficiary s Medicare benefits, such as primary and acute care, through a D-SNP and Medicaid benefits, such as long-term services and supports, through a Medicaid MCO. State Medicaid agencies enter into contracts with both D-SNPs and Medicaid MCOs, and these contracts may include provisions to facilitate and encourage aligned enrollment. Since January 2013, all D-SNPs have been required to have an executed contract with the Medicaid agency in each state in which it operates. A state can enter into contracts with all, some, or none of the D-SNPs seeking to operate in the state, and any D- SNPs that the state declines to contract with cannot operate in the state. Each year, CMS reviews D-SNPs contracts with states to ensure that they include eight required elements, including the D-SNP s responsibility for providing or arranging the provision of Medicaid benefits, among other things. According to CMS officials, in these reviews, CMS does not collect information regarding whether states are imposing requirements pertaining to aligned enrollment. States also have contracts with Medicaid MCOs, which can include requirements that could facilitate or encourage aligned enrollment. As shown in table 1, CMS s Integrated Care Resource Center has identified five types of approaches that states can use to encourage aligned enrollment. For example, states can manage which D-SNPs operate in the state, such as only allowing D-SNPs with an aligned Medicaid MCO (that is, a MCO offered by the same company or a related company). This gives dual-eligible beneficiaries greater options for choosing aligned enrollment. As another example, states can allow the automatic assignment of certain dual-eligible beneficiaries to a D-SNP aligned with a Medicaid MCO, a process known as default enrollment. Default enrollment, which requires CMS approval, can directly increase the number of dual-eligible beneficiaries with aligned enrollment. <1.3. Coordinated Care for Dual-Eligible Beneficiaries Inside and Outside of D- SNPs> In addition to D-SNPs with aligned enrollment, two other types of Medicare plans Medicare-Medicaid plans and Program of All-Inclusive Care for the Elderly plans exclusively or primarily serve dual-eligible beneficiaries and are responsible for both Medicare and Medicaid benefits. These three types of Medicare plans jointly served approximately 818,000 dual-eligible beneficiaries as of January 2019. Aligned enrollment in D-SNPs: As of January 2019, approximately 386,000 dual-eligible beneficiaries enrolled in D-SNPs had aligned enrollment, according to a report by the Medicare Payment Advisory Commission. This includes beneficiaries in a subset of D-SNPs that have been designated as fully integrated D-SNPs, which must meet additional specific requirements. For example, they must provide both Medicare and Medicaid benefits through a single managed care plan. In addition, the Medicaid benefits provided by the fully integrated D- SNPs must include long-term services and supports. Medicare-Medicaid plans: As of January 2019, approximately 388,000 dual-eligible beneficiaries in nine states were enrolled in these types of plans. These plans, which were established through CMS s Financial Alignment Initiative, provide all Medicare benefits and all or almost all Medicaid benefits, and have some administrative processes that have been combined. In April 2019, CMS sent a letter to state Medicaid directors inviting additional states to express interest in the use of Medicare-Medicaid plans. Program of All-Inclusive Care for the Elderly plans: As of January 2019, approximately 44,000 beneficiaries in 31 states were enrolled in these types of plans. Most, but not all, are full-benefit, dual-eligible beneficiaries, and they are ages 55 or older and need the level of care provided in a nursing home. The plans are provider-sponsored and provide all Medicare and Medicaid benefits. In addition, each plan is required to have a physical site to provide adult day services. <2. Most States that Can Encourage Aligned Enrollment Have Begun to Do So> As of July 2019, of the 19 states with MLTSS and where aligned enrollment of dual-eligible beneficiaries in D-SNPs is possible, 16 have implemented at least one of the five approaches to encourage aligned enrollment identified by CMS s Integrated Care Resource Center. (See fig. 1.) Of those 16 states, 11 managed which D-SNPs operate in the state, which is the foundation for promoting aligned enrollment, according to officials from the Integrated Care Resource Center. Of our seven selected states, all of them had implemented at least one of the five approaches to encourage aligned enrollment in 2019. The three most common approaches among our selected states were (1) managing which D-SNPs operate in the state; (2) limiting D-SNP enrollment to full- benefit, dual-eligible beneficiaries; and (3) encouraging D-SNP marketing to better support informed beneficiary decision-making. The details of the approaches implemented in each state varied widely. Managing which D-SNPs operate in the state. Five of the seven selected states (Arizona, New Jersey, Pennsylvania, Tennessee, and Virginia) managed which D-SNPs operated in 2019, but they varied in how they implemented this approach. For example, when Virginia established its Medicaid MLTSS program in 2017, only one D-SNP operated in the state, and Virginia required the companies with Medicaid MLTSS contracts to also start offering D-SNPs within 3 years. In contrast, when Pennsylvania and Tennessee implemented this approach, multiple D-SNPs already operated in each state. Pennsylvania and Tennessee required new D-SNPs to have aligned Medicaid MCOs, but allowed existing D-SNPs to continue operating. As a result, beneficiaries had the choice between D-SNPs that had aligned Medicaid MCOs and D-SNPs that did not have aligned Medicaid MCOs. Medicaid officials in these two states told us they chose not to cancel existing D-SNPs that did not have aligned Medicaid MCOs, as doing so could have disrupted beneficiary- provider relationships. As a result of the selected states differing approaches to managing which D-SNPs operated, the proportion of aligned to unaligned D-SNPs in each state varied. (See fig. 2.) Limiting D-SNP enrollment to full-benefit, dual-eligible beneficiaries. Five of the selected states (Arizona, Kansas, New Jersey, Pennsylvania, and Virginia) limited D-SNP enrollment in some or all of their D-SNPs to full-benefit, dual-eligible beneficiaries in 2019. In particular, Arizona and New Jersey Medicaid officials said that limiting D-SNP enrollment to full- benefit, dual-eligible beneficiaries allowed D-SNPs to provide a more straightforward benefit package. In turn, this can be more easily described in D-SNP materials and communications, which may help beneficiaries to make more informed decisions around aligned enrollment. Encouraging D-SNP marketing to better support informed beneficiary decision-making. Five of the selected states (Arizona, New Jersey, Pennsylvania, Tennessee, and Virginia) took steps to encourage D-SNP marketing to support informed beneficiary decision-making in 2019. For example, Arizona and Pennsylvania encouraged D-SNPs to directly market themselves to beneficiaries in the D-SNP s aligned Medicaid MCO, in order to promote aligned enrollment. In addition, New Jersey Medicaid officials told us they review D-SNP marketing and work directly with D-SNPs to develop standard marketing language. In particular, the officials said some D-SNPs had marketed themselves as offering certain extra benefits, but those benefits were already a standard part of the state s Medicaid package. The officials said they worked with the D-SNPs to correct the marketing, and they also developed standard language for marketing in the state. This can help reduce beneficiary confusion when making enrollment decisions. Automatically assigning certain beneficiaries to plans with aligned enrollment. Four selected states (Arizona, Florida, Pennsylvania, and Tennessee) allowed automatic assignment of certain beneficiaries to plans with aligned enrollment in 2019. For example, Arizona, Pennsylvania, and Tennessee allowed default enrollment by which certain Medicaid beneficiaries were automatically assigned to aligned D- SNPs. Under federal rules, beneficiaries have the opportunity to opt out prior to being default enrolled and select a different source of Medicare coverage; they also have the opportunity to disenroll within the first 90 days after default enrollment and select a different source of Medicare coverage. In addition, Florida and Pennsylvania automatically assigned certain dual- eligible beneficiaries to aligned Medicaid MCOs. For example, Florida law requires the state Medicaid agency to automatically assign certain D-SNP enrollees to aligned MLTSS plans when beneficiaries become eligible for long-term services and supports and have not voluntarily chosen an MLTSS plan. Engaging counselors to assist beneficiaries with aligned enrollment decisions. Two of the seven selected states (Arizona and Pennsylvania) engaged enrollment counselors to encourage aligned enrollment in 2019. For example, Arizona s state Medicaid office works with the state s Aging and Disability Resource Center and State Health Insurance Assistance Program counselors to increase beneficiary understanding of aligned enrollment and options to enroll in aligned plans. In 2019, Pennsylvania s contracts with D-SNPs required collaboration between the D-SNPs and the state s independent enrollment broker that assists beneficiaries with Medicaid enrollment. In addition to there being variation in the selected states use of approaches to encourage aligned enrollment, the proportion of D-SNP enrollees with aligned enrollment varied from 20 percent in Pennsylvania to 100 percent in New Jersey among the selected states that were able to provide data for 2019. (See fig. 3.) There can be multiple reasons for the varied levels of aligned enrollment between D-SNPs and MLTSS. For example, Arizona recently entered into new Medicaid MCO contracts, and this resulted in changes to the parts of the state served by each Medicaid MCO. According to state Medicaid officials, these new contracts somewhat reduced the extent of aligned enrollment. <3. Medicaid Officials in Selected States Described Challenges with Aligned Enrollment> Medicaid officials in the seven selected states described various challenges with aligned enrollment. The most common challenge mentioned was difficulty using D-SNP data to implement and evaluate aligned enrollment policies. Medicaid officials in the selected states told us many of these challenges require ongoing monitoring and collaboration with CMS and the companies offering D-SNPs. Difficulty using data to implement and evaluate aligned enrollment. Medicaid officials in six of the selected states (Florida, Kansas, New Jersey, Pennsylvania, Tennessee, and Virginia) told us that using D-SNP and Medicare data to implement and evaluate aligned enrollment policies can be difficult. For example, Tennessee Medicaid officials told us that getting the data from CMS needed for default enrollment was a challenge. In particular, they said that, when the state was first starting to implement default enrollment, they had challenges with getting data from CMS in a timely fashion to identify which Medicaid beneficiaries were about to become dually eligible for Medicare, particularly those with eligibility due to disability. This meant that the state could not provide D-SNPs with the information needed by the D-SNPs to send notices to those beneficiaries in the required time frame. CMS officials also acknowledged that its data do not always identify individuals becoming eligible for Medicare early enough for D-SNPs to send notices in the required time frame. Tennessee Medicaid officials told us that CMS has worked with the state on this issue and it has now become easier for the state to receive the needed data. Furthermore, CMS and its Integrated Care Resource Center have also developed materials and, according to CMS officials, provided ongoing technical assistance for states on accessing data for default enrollment and other aspects of implementation of aligned enrollment. Medicaid officials in Virginia and New Jersey described related challenges with using D-SNP data to determine whether their policies work. Virginia Medicaid officials told us that it can be difficult to evaluate the health benefits of aligned enrollment, because data on quality measures can span multiple states. Specifically, one of the state s D- SNPs operates in multiple states and therefore reports health outcome data to CMS for its entire service area. Virginia Medicaid officials told us they are not able to separate data for Virginia residents from those of other states. As a result, they said they currently cannot determine the effect of their aligned enrollment policies, and they plan to require the D- SNP to report Virginia-specific quality data in the future. New Jersey Medicaid officials described a challenge with receiving the relevant data to evaluate health outcomes for dual-eligible beneficiaries with aligned enrollment. The state has CMS approval to receive Medicare data directly from CMS. However, as of November 2019, the state s data vendor was not in compliance with federal Medicare data security requirements for storing certain data, which meant that the state could not accept the Medicare data. The Bipartisan Budget Act of 2018 encourages CMS to require reporting of MA quality measures, including D-SNP quality measures, at the plan level. However, CMS has identified several challenges to developing such a requirement. One challenge CMS has identified is that about two- thirds to three-quarters of D-SNPs would not have reliable ratings, for example, because those plans had too few participants in the survey. Another challenge CMS has identified is the additional complexity and administrative burden for plans completing this reporting. As of December 2019, CMS officials told us they are continuing to work to determine the best reporting level for each quality measure. They also plan to collect additional feedback from stakeholders and a technical expert panel. Difficulties with information dual-eligible beneficiaries receive about Medicare enrollment choices. Medicaid officials in five of the selected states (Kansas, New Jersey, Pennsylvania, Tennessee, and Virginia) told us they have experienced challenges in ensuring that beneficiaries receive quality information about their Medicare enrollment choices. For example, in 2019, Pennsylvania s contracts with D-SNPs required collaboration between the D-SNPs and the state s independent enrollment broker that assists beneficiaries with Medicaid enrollment. However, Pennsylvania Medicaid officials told us the state s independent enrollment broker did not have the capacity to provide this type of assistance in addition to its primary responsibility of assisting beneficiaries with Medicaid enrollment. As another example, Virginia Medicaid officials told us they have faced challenges using state D-SNP contracts to regulate D-SNP marketing. They told us that certain provisions in the state s contracts with D-SNPs were intended to regulate the extent of D-SNP marketing in 2019. In particular, each D-SNP was supposed to only market to beneficiaries enrolled in that D-SNP s aligned Medicaid MCO, which was intended to increase the extent of aligned enrollment in the state. However, state Medicaid officials told us that D-SNPs had different interpretations of the contract provisions, and one D-SNP had billboards and television advertisements available to the general public. Due to the difficulty of enforcement, among other reasons, Virginia Medicaid officials told us they chose to not include these provisions in the D-SNP contracts for 2020. Through the Integrated Care Resource Center, CMS has developed materials describing how states can regulate D-SNP marketing in their contracts with D-SNPs, and the agency reviews and may disapprove D- SNP marketing materials that do not follow federal requirements. CMS officials also told us they make themselves available to states to explain how to include marketing restrictions in the contracts that states have with D-SNPs. Limits of staff knowledge. Medicaid officials in four of the selected states (Florida, Kansas, New Jersey, and Pennsylvania) told us that limited staff knowledge of Medicare presents a challenge. For example, Medicaid officials in Kansas told us only one or two staff in the state s Medicaid agency are knowledgeable about Medicare and would have the knowledge to implement aligned enrollment approaches. Similarly, Medicaid officials in Florida said they only recently learned about one of the approaches for encouraging aligned enrollment, which is that the state can decline to contract with certain D-SNPs. In addition, New Jersey and Pennsylvania Medicaid officials told us staff knowledge of Medicare is limited and that they would like to increase their level of knowledge as they continue to foster aligned enrollment. Competition from look-alike MA plans targeted to dual-eligible beneficiaries. Medicaid officials in four of our selected states (Arizona, Pennsylvania, Tennessee, and Virginia) identified certain MA plans that are so-called look-alike plans to the D-SNPs, which create a potential challenge to fostering aligned enrollment. According to CMS, look-alike plans are MA plans that are designed for and marketed exclusively to dual-eligible beneficiaries, but that are not D-SNPs. Therefore, look-alike plans do not need a contract with the state to operate and do not have to comply with state approaches that foster aligned enrollment. Medicaid officials from our selected states and the Medicare Payment Advisory Commission gave examples of the impact of look-alike plans. For example, Tennessee Medicaid officials told us that dual-eligible beneficiaries in look-alike plans do not receive care coordination between Medicare and Medicaid, in contrast with dual-eligible beneficiaries in D- SNPs, which are required to provide such coordination. In addition, Arizona Medicaid officials told us that look-alike plans have affected levels of aligned enrollment in the state. Similarly, according to the Medicare Payment Advisory Commission, look-alike plans can undermine states efforts to develop D-SNPs that integrate Medicare and Medicaid by encouraging dual-eligible beneficiaries to instead enroll in look-alike plans. CMS has also identified look-alike plans as a challenge and is considering some steps in response. In 2018, CMS revised its marketing guidelines to prohibit look-alike plans from marketing themselves as designed for dual-eligible beneficiaries and as having a relationship with the state Medicaid agency. In its April 2019 policy update for MA plans, CMS said that look-alike plans enable companies to offer plans that circumvent state and federal requirements for D-SNPs, which undermines efforts to improve the quality of care. In February 2020, CMS published a proposed rule that, if finalized, would prohibit the offering of MA plans whose enrollment of dual-eligible beneficiaries exceeds specific projected or actual enrollment thresholds in states with a D-SNP. According to CMS, this would prevent look-alikes from undermining the statutory and regulatory framework for D-SNPs. Extent of overlapping provider networks. Medicaid officials in two of our selected states (Pennsylvania and Tennessee) reported challenges with aligned D-SNPs and Medicaid MCOs that do not have completely overlapping networks of relevant providers. That is, even though the D- SNP and Medicaid MCO are offered by the same or related companies, certain providers may be in only the D-SNP network or only the Medicaid MCO network but not both. For example, representatives from a beneficiary group in Pennsylvania told us that a dual-eligible beneficiary s provider may be in the Medicaid MCO network, but not the D-SNP network. This can disrupt that beneficiary s continuity of care if he or she is default enrolled into the D-SNP. There are no requirements for the state or D-SNP to ensure that a beneficiary s primary care provider is in the D-SNP into which he or she is default enrolled. CMS s model for the notice sent to beneficiaries identified for default enrollment suggests (but does not require) that the D-SNP include information on whether or not the beneficiary s primary care provider is in the D-SNP s network. CMS officials said they did not know of any complaints the agency has received on the issue. They also said they have not analyzed how the provider network of a D-SNP compares to the provider network of its aligned Medicaid MCO. Furthermore, in the preamble to the default enrollment final rule issued in April 2018, CMS said that it did not include any criteria related to provider networks, but that network adequacy requirements would apply and states can use their contracts with D-SNPs to create requirements for continuity of care. One state that does this is Tennessee, which specifically requires D-SNPs to develop provider networks that have substantial overlap with the provider network of their aligned Medicaid MCOs. The state also requires D-SNPs to ensure continuity of care for beneficiaries who have been default enrolled. For example, Tennessee Medicaid officials said that if a beneficiary who has been default enrolled has a long-standing primary care provider with the D-SNP s aligned Medicaid MCO, the state requires the D-SNP to continue covering services by that provider for at least 30 days and to attempt to contract with the provider. <4. CMS Has Assisted States with Aligned Enrollment, but Lacks Quality Information on the Experience of Beneficiaries Whose Aligned Enrollment Was Due to Default Enrollment> CMS has assisted states with aligned enrollment. In particular, CMS has provided technical assistance to states on implementing the various approaches that encourage aligned enrollment. One way that CMS has done this is through its Integrated Care Resource Center, which has developed materials on how states can use their contracts with D-SNPs to align enrollment and promote integration. The Integrated Care Resource Center has also facilitated peer-to-peer assistance between states. For example, Integrated Care Resource Center officials said they facilitated conversations and assistance between state Medicaid officials in New Jersey and Pennsylvania on D-SNP marketing. Medicaid officials in six of our selected states said they had utilized CMS s technical assistance, and they had overall positive views of CMS s assistance. CMS reviews some aspects of the contracts between states and D-SNPs, including checking that the contracts include the eight required elements. According to CMS officials, in these reviews, CMS does not collect information regarding whether states are imposing requirements pertaining to aligned enrollment. CMS s program audits of MA plans similarly do not include reviews of such state requirements pertaining to aligned enrollment. CMS has a direct role with one aspect of aligned enrollment: default enrollment. In particular, CMS approves D-SNPs to receive beneficiaries through default enrollment, and it processes the enrollment transactions of beneficiaries being default enrolled. D-SNPs approval for default enrollment: Before a D-SNP can receive beneficiaries through default enrollment, it must submit a proposal to CMS for approval. CMS reviews the D-SNP s proposal and checks that the D-SNP meets an established list of requirements outlined in regulation. Among other requirements, the D-SNP must demonstrate it has the state s support for default enrollment and that the required elements have been included in its template for the notice that is sent to beneficiaries identified for default enrollment. CMS also checks that the D-SNP is not facing any CMS enrollment sanctions and that the D-SNP has a quality rating of three or more stars. CMS grants approval for up to 5 years if it determines the D- SNP meets these requirements. Default enrollment transactions: CMS processes the enrollment transactions of dual-eligible beneficiaries being default enrolled, and it tracks these transactions in a monthly report. The monthly report lists the total number of beneficiaries identified for default enrollment for each applicable D-SNP, and the report lists numbers for certain subsets of beneficiaries who were ultimately not default enrolled. These subsets include beneficiaries who opted out prior to being default enrolled and beneficiaries whose default enrollment was not allowed by CMS for various reasons. Despite its direct role in default enrollment, CMS lacks quality information on the experiences of dual-eligible beneficiaries after they are default enrolled. This is inconsistent with federal internal control standards on information and communication, which state that management should use quality information to achieve the agency s objectives. In particular, the monthly reports on enrollment transactions do not include data on the extent to which dual-eligible beneficiaries choose to disenroll after being default enrolled. Although the reports include data on the number of beneficiaries who opt out prior to being default enrolled (which CMS officials said was low), they do not include data on beneficiaries who choose to disenroll in the first 90 days after being default enrolled. This 90-day time frame for disenrollment is specified by federal regulation, and beneficiaries may choose to disenroll for various reasons. For example, one reason for disenrollment given by one beneficiary group we interviewed is that some beneficiaries may not realize they have been default enrolled into a D-SNP until they next see their provider, and that provider may not be in the D-SNP s provider network. They said that beneficiaries may not have seen the notice or other information about being default enrolled, or they may not have understood the information. In addition, CMS cannot systematically review beneficiary complaints for trends or concerns related to default enrollment. Dual-eligible beneficiaries, like other Medicare beneficiaries, can submit complaints to CMS. These complaints are entered in the agency s complaint tracking module, and D-SNP account managers, like other MA plan account managers, are responsible for monitoring complaints. CMS officials said that the D-SNP account managers have not identified any trends or concerns about default enrollment. However, CMS officials said default enrollment is not tracked as a distinct category in the complaint tracking module, and the guidance on monitoring complaints that is provided to the D-SNP account managers does not direct them to look for issues explicitly related to default enrollment. Quality information on the experiences of dual-eligible beneficiaries after they are default enrolled would allow CMS to better identify the extent to which these beneficiaries face challenges as a result of default enrollment and to determine how, if at all, to address the challenges. Future studies may provide CMS with additional information on beneficiaries in D-SNPs with aligned enrollment, but that information will not be available until 2022 or later. In particular, federal law directs the Medicare Payment Advisory Commission, in consultation with the Medicaid and CHIP Payment and Access Commission, to compare the quality of the different types of D-SNPs, including those with aligned enrollment, as well as comparing them to other types of plans. The commission is to develop an initial report by 2022 with subsequent reports afterward. <5. Conclusions> Better care for dual-eligible beneficiaries is one of CMS s strategic initiatives, and the agency has supported states decisions to encourage aligned enrollment in order to encourage better coordination of care. However, CMS lacks quality information on the experiences of beneficiaries who have aligned enrollment as the result of the use of default enrollment. For example, CMS s monthly reports on default enrollment do not include data on beneficiaries who choose to disenroll after being default enrolled. CMS lacks this information even though selected states and others have reported challenges that could affect the care received by those beneficiaries. Quality information on the experiences of these dual-eligible beneficiaries would allow CMS to better identify the extent to which beneficiaries are facing challenges as a result of default enrollment and to determine how, if at all, to address those challenges. <6. Recommendation for Executive Action> We are making the following recommendation to CMS: The Administrator of CMS should take steps to obtain quality information on the experiences of dual-eligible beneficiaries who have been default enrolled into D-SNPs, such as by obtaining information about the extent to which and reasons that beneficiaries disenroll from a D-SNP after being default enrolled. (Recommendation 1) <7. Agency Comments> We provided a draft of this report to the Department of Health and Human Services (HHS) for comment. In its comments, reproduced in appendix I, HHS concurred with our recommendation. HHS stated that it is committed to increasing the number of dual-eligible beneficiaries in integrated care and that it supports states with these efforts, such as the use of aligned enrollment. HHS also said that it has not identified any trends or areas of concern in its monitoring of beneficiaries who opted out prior to being default enrolled. In response to our recommendation, HHS stated it will evaluate opportunities to obtain more information on dual-eligible beneficiaries who disenroll from a D-SNP after being default enrolled. HHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Health and Human Services Appendix II: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Martin T. Gahart (Assistant Director), Corissa Kiyan-Fukumoto (Analyst-in-Charge), Jason Coates, Kelly Krinn, Virginia Lefever, Drew Long, Jennifer Rudisill, and Ethiene Salgado-Rodriguez made key contributions to this report. Related GAO Products Medicare and Medicaid: Additional Oversight Needed of CMS s Demonstration to Coordinate the Care of Dual-Eligible Beneficiaries. GAO-16-31. Washington, D.C.: December 18, 2015. Disabled Dual-Eligible Beneficiaries: Integration of Medicare and Medicaid Benefits May Not Lead to Expected Medicare Savings. GAO-14-523. Washington, D.C.: August 29, 2014. Medicare and Medicaid: Consumer Protection Requirements Affecting Dual-Eligible Beneficiaries Vary across Programs, Payment Systems, and States. GAO-13-100. Washington, D.C.: December 5, 2012. Medicare Special Needs Plans: CMS Should Improve Information Available about Dual-Eligible Plans Performance. GAO-12-864. Washington, D.C.: September 13, 2012. Medicare and Medicaid: Implementing State Demonstrations for Dual Eligibles Has Proven Challenging. GAO/HEHS-00-94. Washington, D.C.: August 18, 2000.

Why GAO Did This Study Congress authorized the establishment of D-SNPs in 2003 to address the unique needs of dual-eligible beneficiaries. For example, D-SNPs are required to provide certain specialized services targeted at the needs of dual-eligible beneficiaries, such as health risk assessments. D-SNPs must have approval of state Medicaid agencies to operate, and states can require D-SNPs to coordinate with Medicaid. Congress included a provision in statute for GAO to review D-SNPs’ integration with state Medicaid programs. This report, among other objectives, (1) describes what is known about selected states’ experiences with aligned enrollment in D-SNPs, and (2) examines CMS’s oversight of aligned enrollment. GAO reviewed relevant federal guidance and internal control standards. GAO also interviewed Medicaid officials in seven selected states and reviewed available documentation. The states (Arizona, Florida, Kansas, New Jersey, Pennsylvania, Tennessee, and Virginia) were selected, in part, for variation in experiences with aligned enrollment. GAO also interviewed officials from CMS, beneficiary groups, and companies that offered D-SNPs and Medicaid MCOs. What GAO Found Dual-eligible beneficiaries are Medicare beneficiaries who are also enrolled in the Medicaid program in their state. In certain states, they may receive both types of benefits through private managed care plans. As of January 2019, about 386,000 such individuals were enrolled in both a private Medicare plan known as a dual-eligible special needs plan (D-SNP) and a Medicaid managed care organization (MCO) that were offered by the same or related companies. This arrangement, known as aligned enrollment, may create opportunities for better coordination between Medicare's acute care services and Medicaid's long-term services and supports, such as nursing facility care or personal care services. Medicaid officials in seven selected states described challenges with aligned enrollment. One challenge cited by officials in six of the states was using D-SNP and Medicare data to implement and evaluate aligned enrollment. For example, officials in one state said they cannot separate D-SNP quality data for just their state, because some D-SNPs report data spanning multiple states to the Centers for Medicare & Medicaid Services (CMS). As of December 2019, CMS officials said they are determining the best way for D-SNPs to report these quality data. CMS has assisted states with aligned enrollment, but lacks quality information on the experiences of dual-eligible beneficiaries who have aligned enrollment through a process known as default enrollment. With default enrollment, states allow automatic assignment of beneficiaries who are enrolled in a Medicaid MCO and are about to become eligible for Medicare to the D-SNP aligned with that MCO. However, CMS's monthly reports on default enrollment do not include information on beneficiaries who choose to disenroll in the first 90 days after being default enrolled, a time frame specified in regulation. According to one beneficiary group, some beneficiaries may disenroll, because they did not realize they were default enrolled and their provider is not in the D-SNP's network. Quality information on the experiences of dual-eligible beneficiaries after default enrollment would allow CMS to better identify the extent to which beneficiaries face challenges and to determine how, if at all, to address the challenges. What GAO Recommends GAO recommends that CMS take steps to obtain quality information on the experiences of dual-eligible beneficiaries who have been default enrolled into D-SNPs. The Department of Health and Human Services concurred with the recommendation.

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<1. Background> <1.1. EPSDT Benefit> Federal law specifies that the EPSDT benefit covers screening, vision, dental, and hearing services, as well as other Medicaid coverable services that are necessary to correct or ameliorate any conditions discovered through screening. The EPSDT benefit generally entitles beneficiaries to these services regardless of whether such services are covered in a state s Medicaid state plan and regardless of any restrictions that the state may impose on coverage for adult services. The EPSDT screening component includes a wide range of preventive services, such as comprehensive child health assessments known as well-child screenings and age-appropriate blood lead screenings. Because EPSDT covers any medically necessary service that could be covered for adults in addition to the specified preventive screenings, the EPSDT benefit is generally more comprehensive than the benefits provided for adult beneficiaries. The federal government and states jointly share responsibility for implementing the EPSDT benefit. CMS, as part of its Medicaid oversight responsibilities, approves state Medicaid plans, which describe how the state administers its Medicaid program, including components related to the provision of EPSDT services. CMS also develops and issues general guidance to states about the EPSDT benefit, such as explanations of covered services and strategies for providing those services. Additionally, CMS has developed a goal for EPSDT, which is to assure that beneficiaries get the health care they need when they need it: the right care to the right child at the right time in the right setting. Further, CMS established performance measures, some with associated targets, to guide states implementation of EPSDT. For example, CMS set performance measures and performance measure targets as part of its Oral Health Initiative. CMS developed the performance measure targets to carry out statutory requirements, quality improvement efforts, and agency policy. (See table 1 for EPSDT performance measures that have associated targets.) States have flexibility, within federal parameters, to determine how EPSDT services are provided. For example, states are required to ensure that Medicaid-eligible beneficiaries and their families are aware of the EPSDT benefit and have access to required services, but states can choose whether to administer the benefit themselves or to oversee managed care organizations that are contracted to provide the benefit. States may also determine the frequency of screening services and communicate them through periodicity schedules that meet federal requirements. <1.2. EPSDT Reporting> CMS uses various sources of information to oversee the EPSDT benefit, such as the CMS-416, the Child Core Set, and the Medicaid and CHIP Scorecard. <1.2.1. CMS-416 and Child Core Set> States report information about the provision of select ESPDT services to CMS annually through the CMS-416 and measures on the Child Core Set. The CMS-416 provides CMS with basic information about EPSDT services, such as the participant ratio and number of beneficiaries receiving a preventive dental service. It includes the information necessary for CMS to assess states performance on the participant ratio and the screening ratio, among other things. The agency then can compare performance on the two ratios with the agency s ESPDT performance measure targets. The Child Core Set provides CMS with information about the quality of health care provided to Medicaid and CHIP beneficiaries, and supports state efforts to improve health care quality and health outcomes. Child Core Set reporting becomes mandatory on an annual basis beginning with the state reports on fiscal year 2024. As of 2019, the Child Core Set included performance measures related to the provision of EPSDT services, such as well-child visits in the first 15 months of life. Because reporting is currently voluntary, states vary in the number of performance measures they choose to report. In fiscal year 2017, for example, 50 states and the District of Columbia voluntarily reported on at least one of the 27 Child Core Set performance measures, with states reporting a median of 18 Child Core Set performance measures. (See app. II for the information reported in the CMS-416 and Child Core Set.) As shown in table 2, there are both similarities and differences between the CMS-416 and Child Core Set. Since the Child Core Set performance measures include CHIP beneficiaries who may not be entitled to the EPSDT benefit, data from the Child Core Set are not directly comparable with reporting on the CMS- 416. In addition, CMS-416 data cover a longer period of time, as they are available from 1995, while Child Core Set data are available from 2011. CMS officials said that having more years of CMS-416 data helps identify trends in the provision of EPSDT services over a longer period of time than possible with the Child Core Set. On the other hand, CMS officials said it is difficult to compare states performance using the CMS- 416, because some performance measures are based on periodicity schedules, which vary state-to-state and over time. In contrast, the Child Core Set allows for more consistency in comparing data across states, because each state is expected to calculate performance measures in the same way. <1.2.2. Medicaid and CHIP Scorecard> In June 2018, CMS published the first Medicaid and CHIP Scorecard, which includes performance measures about the provision of services to Medicaid and CHIP beneficiaries. The scorecard includes 17 performance measures related to the provision of EPSDT services, six of which are performance measures from the Child Core Set and one of these six measures is derived from the CMS-416. In January 2019, CMS officials reported that the scorecard will be used to provide increased transparency about state Medicaid program administration and beneficiary health outcomes, and drive health care quality improvement across states. According to CMS officials, CMS envisions that the scorecard will be strengthened as state reporting of data through T-MSIS becomes more timely, accurate, and complete. CMS has been working since 2011 to implement T-MSIS as a replacement for some current reporting to improve and increase states reporting of Medicaid and CHIP data. CMS intends for T-MSIS to provide a national data repository to support federal and state Medicaid and CHIP program management, among other things. T-MSIS includes data not previously reported by states and is intended to improve Medicaid and CHIP program efficiency, in part, by allowing states to compare their data with other states data. T-MSIS includes data that can measure the provision of EPSDT services. According to CMS officials, T-MSIS also includes aspects designed to improve the accuracy of available state data. For example, states T-MSIS submissions undergo approximately 2,800 automated quality checks, which provide states with feedback on data format and consistency. As of January 2019, all 50 states and the District of Columbia were submitting data monthly, according to CMS, but T-MSIS data were not being used to create the CMS-416, Child Core Set, or the scorecard. Agency officials said research-ready files are in development and T-MSIS data are improving in quality over time with historical state resubmissions. <2. CMS Reports Indicate that Approximately Half of Beneficiaries Received Recommended Screenings and Services in 2017, but Nearly as Many Did Not> According to our analysis of CMS-416 data for fiscal year 2017, millions of Medicaid beneficiaries received recommended EPSDT well-child screenings and preventive dental services. However, nearly as many eligible beneficiaries did not receive the various recommended screenings and services, and few states met CMS s performance measure targets for EPSDT services. Additionally, while available data show that millions of blood lead screenings were performed, the total number of beneficiaries receiving blood lead screenings is unknown, because the data are incomplete. <2.1. Well-Child Screenings> In fiscal year 2017, 20.2 million (59 percent) of the 34.2 million beneficiaries who should have received at least one recommended well- child screening received that screening, known as the participant ratio, according to our analysis of state-reported CMS-416 data. Additionally, our analysis indicates that the national participant ratio has declined 5 percentage points since fiscal year 2010. Three states met CMS s participant ratio target of 80 percent in fiscal year 2017, as shown in figure 1. Our analysis also indicates that no more than four states met CMS s participant ratio target in any one fiscal year from 2010 through 2017. (See app. III, table 6, for participant ratios in each state and nationally from fiscal years 2010 through 2017.) Our analysis also indicates that as beneficiaries age, they tend to receive fewer recommended well-child screenings, which results in lower participant ratios. (See fig. 2 for participant ratios and numbers of beneficiaries receiving and not receiving well-child screenings for each CMS-416 age group in fiscal year 2017.) CMS has issued a guide on serving older eligible beneficiaries, stating that regular preventive care visits can lead to early identification of health issues. CMS officials said the agency included measures focusing on these beneficiaries on the Child Core Set and Medicaid and CHIP Scorecard to recognize the importance of addressing these beneficiaries and to encourage states to focus on this population. CMS officials noted that some states have already taken steps to increase the number of well-child screenings that older eligible beneficiaries receive, for example, by partnering with schools. In fiscal year 2017, 18.3 million (48 percent) of the 38.3 million Medicaid beneficiaries aged 1 to 20 received a preventive dental service, according to our analysis of CMS-416 data. This is an increase from the 42 percent of beneficiaries receiving preventive dental services in 2011 the baseline year for measuring state progress toward CMS s Oral Health Initiative targets but less than CMS s 52 percent national performance measure target. Our analysis also shows that from fiscal years 2011 through 2017, nine states met CMS s performance measure target of a 10 percentage point increase in each state s percentage of beneficiaries aged 1 to 20 receiving a preventive dental service. (See fig. 3 and table 8 in app. III for the percentage of beneficiaries aged 1 to 20 that received preventive dental services in each state and nationally from fiscal years 2011 through 2017.) Available data on blood lead screenings in the CMS-416 are incomplete and, as a result, do not provide information necessary to determine how many beneficiaries received the screenings. According to CMS s November 2016 guidance, CMS-416 data do not accurately represent the number of beneficiaries receiving blood lead screenings. The CMS-416 data capture screenings paid for by Medicaid, but not those performed using funding from other sources, such as the Centers for Disease Control and Prevention. This could under-count the number of screenings performed. In addition, the blood lead screening data reported on the CMS-416 show how many screenings were performed, but do not identify the number of beneficiaries who received a blood lead screening. Our analysis of available CMS-416 data shows that in fiscal year 2017 states reported 2.0 million blood lead screenings for beneficiaries aged 12 through 24 months, and there were 4.6 million beneficiaries aged 12 through 24 months. <3. CMS Has Improved EPSDT Data Quality; Additional Actions Are Needed to Improve Oversight of EPSDT Services, Particularly Blood Lead Screening Data> <3.1. CMS Is Improving EPSDT Data, yet Does Not Regularly Take Action Based on Assessing the Appropriateness of the CMS-416 for Oversight> CMS has regularly taken actions to use both the CMS-416 and the Child Core Set to improve the quality of information about the provision of EPSDT services. These actions have made the data reported about EPSDT services more complete and reliable. For example, CMS collects data annually from states on performance measures for both the CMS- 416 and the Child Core Set. (See table 3.) Additionally, CMS annually reviews the Child Core Set measures to determine whether measures need to be added, deleted, or revised. CMS also regularly provides technical assistance to states about data reliability, such as through its monthly Quality Technical Advisory Group. For example, during one group meeting, states shared challenges with reporting information about developmental screenings on the Child Core Set and suggestions for how to overcome these challenges. These actions are generally consistent with federal internal control standards regarding information and communication, which specify that management should use quality information to achieve the entity s objectives. While CMS has taken actions to improve the quality of information about EPSDT, and agency officials said they regularly assess whether the information CMS collects on the CMS-416 is appropriate and useful for EPSDT oversight, CMS has not taken action, as needed, based on such assessments. For example, CMS has not added, removed, or amended any performance measures on the CMS-416 since 2010, even though officials acknowledge limitations in these measures. The participant ratio, for example, is dependent, in part, on a state s chosen periodicity schedule, which means that the measure is not consistently defined across states. The screening ratio reflects the extent to which beneficiaries received the recommended number of well-child screenings during the year, but this information is aggregated and therefore cannot be used to determine whether individual beneficiaries received the recommended number of well-child screenings. Although federal law requires collecting certain information about the provision of EPSDT services, it provides the agency with flexibility to determine the form and manner in which data are collected and to set performance measures. For example, CMS could change the way states are required to calculate the participant ratio or the screening ratio, and could examine ways to do so to address the limitations that the agency has identified and improve the quality of information about the provision of EPSDT services. Because CMS has not taken action, as needed, based on assessments of the appropriateness of its CMS-416 performance measures, the agency cannot be sure that it has the information it needs to oversee state implementation of EPSDT. This is inconsistent with federal internal control standards regarding information and communication, which specify that management should identify information requirements in an iterative and ongoing manner and ensure information remains relevant. We have previously reported that results-oriented organizations set performance goals to define desired program outcomes and develop performance measures that are clearly linked to these performance goals and outcomes. <3.2. CMS Has Set Some Performance Measure Targets, yet Does Not Consistently Evaluate States Performance against These Targets> CMS has taken steps to develop, assess, and use CMS-416 information to improve states performance in providing EPSDT services. For example, CMS has set performance measure targets for participant and screening ratios reported on the CMS-416, and CMS publishes state-level results of the participant and screening ratios. In addition, after identifying issues with calculating the performance measure and target for the permanent molar sealants, CMS removed them from the Oral Health Initiative. CMS also convenes affinity groups and technical advisory groups to provide assistance to states in improving performance, often centered on specific services, such as dental services. However, CMS and state Medicaid officials told us that CMS does not consistently (1) communicate CMS-416 performance measure targets to states, (2) evaluate state performance against performance measure targets, or (3) provide states with assistance in reaching performance measure targets. While it has not done so across all performance measure targets, CMS did take these actions regarding targets for preventive dental services as part of its Oral Health Initiative. For example, CMS communicated with states about the preventive dental service performance measure target after it developed the Oral Health Initiative; disseminated a national oral health strategy and published a review of eight states identifying innovative approaches in providing preventive dental services; and provided targeted outreach to states with the lowest performance on the preventive dental service performance measure. Improvements in the provision of dental services occurred in many states. For example, in 2013, CMS met with state Medicaid officials in Florida about improving the provision of preventive dental services. Five years later, the percentage of beneficiaries receiving preventive dental services had increased 18 percentage points. CMS has not taken action in other areas. For example: CMS does not communicate the participant and screening ratio targets. Officials from CMS and from each of our 16 selected states told us that CMS does not mention these targets in communications with states, including discussions related to performance improvement. CMS has not evaluated state performance in meeting the participant and screening ratio targets, nor has it provided focused assistance to states to resolve gaps in states performance in reaching these targets comparable to the assistance provided for the preventive dental screening performance measure as part of the Oral Health Initiative. CMS did not provide formal written notification to states when in March 2016 the agency informed participants in two meetings that CMS no longer planned to use the target for measuring states performance on the permanent molar sealants performance measure. The notification was not provided through an official policy document, such as an agency informational bulletin distributed to all states. Despite removing the target, CMS issued a technical assistance brief in March 2018 that referenced it, which could have led to confusion among state officials. With regard to the Child Core Set, CMS has not established any performance measure targets and agency officials were not able to provide information about plans for setting targets. CMS officials said that the CMS-416 will remain a part of its EPSDT oversight. However, because its information is not standardized across states, CMS plans to increasingly rely on the standardized Child Core Set data to assess and improve states performance on the provision of EPSDT services. CMS officials noted that it publishes median, top quartile, and bottom quartile information for each state for all the Child Core Set measures that are publicly reported. Officials further reported in June 2019 that CMS and states use these as performance benchmarks, with an aim of reaching the national median on these measures if not the top quartile. Reporting these data is an important step in ensuring better oversight of EPSDT. However, CMS has not developed fixed targets that explicitly track states progress in increasing beneficiaries receipt of EPSDT screenings and services. Using a median to assess states performance ensures that half the states will not meet this target, regardless of their individual performance. Further, CMS officials have not provided plans or timelines for when the Child Core Set would be used to help states achieve performance measure targets. CMS s inaction regarding using the CMS-416 and Child Core Set to improve performance on the provision of EPSDT services limits the agency s oversight and is inconsistent with federal internal control standards for monitoring, and practices of leading organizations. Federal internal control standards specify that management should (1) set performance measure targets in measureable, numeric terms; (2) communicate necessary information to achieve performance targets; (3) evaluate progress toward desired targets; and (4) take action to resolve identified issues. Without regularly using the CMS-416 and Child Core Set to improve the provision of EPSDT services, CMS is unable to identify whether state or federal efforts and policies are increasing the number of beneficiaries receiving EPSDT services. As a result, CMS s oversight is limited and beneficiaries may not be receiving appropriate EPSDT services when they need them CMS s stated goal for EPSDT. (See table 4 for examples of actions CMS has and has not taken regarding using the CMS-416 and Child Core Set for improving the provision of EPSDT services.) <3.3. CMS Has Taken Limited Actions to Improve Data on the Number of Blood Lead Screenings, which Are Critical to Identifying Harmful Lead Exposure> CMS is unable to determine whether all eligible EPSDT beneficiaries are receiving blood lead screenings in accordance with CMS policy. As previously noted, CMS-416 data are incomplete, because they only include blood lead screenings paid for by Medicaid, and the form reports the number of screenings performed instead of the number of beneficiaries receiving screenings. State examples of collecting blood lead screening data Nebraska. Medicaid officials said that the state has developed a database with the Nebraska Health Information Initiative containing laboratory testing data. Treating providers and managed care organizations can access the database to determine whether a Medicaid beneficiary has received a blood lead screening. New Jersey. Medicaid officials said that it can be difficult to track blood lead screenings that are performed using funding from sources other than Medicaid; for example, those performed by the state health department. Officials said that they have been building a lead registry to capture data on lead screenings performed, regardless of how they are funded. New Jersey Medicaid officials said they collect data every 6 months on screenings not paid for by Medicaid and enter the data into the state s blood lead registry. CMS has stated that screenings are important for identifying beneficiaries with elevated blood lead levels at as young an age as possible, because lead exposure can harmfully affect nearly every system of the body and cause developmental delays. According to a presidential task force on environmental health and safety risks to children, co-chaired by HHS, early identification of developmental delays allows providers and communities to intervene earlier to improve health outcomes. The presidential task force issued goals in December 2018 to reduce lead exposure and associated harms, including a goal to identify lead-exposed individuals and improve their health outcomes. Without complete information about blood lead screenings, CMS cannot identify the number of beneficiaries who have not received blood lead screenings. As a result, the agency may be unaware of beneficiaries with unidentified lead exposures. CMS issued guidance in 2016 to states on improving blood lead screening reporting, including correcting reporting errors and partnering with providers to ensure beneficiaries receive blood lead screenings. (See sidebar for examples of efforts states have taken to improve available data about blood lead screenings.) However, as of February 2019, the screening data remained incomplete, according to agency officials. CMS officials also told us they are currently in discussions with the Centers for Disease Control and Prevention about how to capture more complete information about Medicaid beneficiaries who are receiving blood lead screenings through programs funded by that agency. However, as of February 2019, CMS officials had not identified specific actions to gather this data. The lack of data is inconsistent with federal internal control standards, which specify that management should obtain relevant data from reliable sources based on identified information requirements, and use such data for effective monitoring. <4. CMS Replicated Some CMS-416 and Child Core Set Information Using T- MSIS, but Lacks Time Frames and Interim Milestones for Using T-MSIS Data to Streamline State Reporting> According to CMS, the results of recent pilot studies indicate that T-MSIS data can be used to replicate some information on the CMS-416 and Child Core Set. CMS officials said that the results also suggest that CMS may eventually be able to use T-MSIS data to produce the CMS- 416 and Child Core Set data, thus eliminating the need for states to report this information themselves separately. As previously noted, CMS intends for T-MSIS to both reduce the number of reports CMS requires states to submit and to provide more information to improve Medicaid oversight. CMS officials said that they were encouraged that the pilot studies to replicate portions of the CMS-416 and Child Core Set generally yielded positive results. For example, CMS was able to use T-MSIS to replicate the total number of Medicaid beneficiaries aged 20 and under eligible for EPSDT from the CMS-416 within 5 percent of state-reported values for eight of nine pilot states which CMS officials viewed as a positive result. CMS officials noted some concerns with inaccurate state Medicaid eligibility data; for example, multiple dates of birth reported through T-MSIS for the same beneficiary. However, CMS officials believe the accuracy and completeness of T-MSIS data has improved since the pilot studies, which were conducted using data from 2015 and 2016. Regarding the Child Core Set, CMS was able to use T-MSIS to replicate some of the information, such as adolescent well-care visits, but not other information, such as emergency department visits. While CMS found generally positive results from the pilots, the agency has not developed a plan with time frames and interim milestones for when it will use state-reported T-MSIS data to produce the CMS-416 and Child Core Set data sets instead of states separately producing both T- MSIS data and the two data sets. In April 2019, CMS officials said that they were planning additional pilots beginning in fiscal year 2019 to replicate portions of the CMS-416 and the Child Core Set. However, CMS officials were unable to provide planned next steps, including time frames and interim milestones, for using T-MSIS data to replace the CMS-416 and Child Core Set. This is inconsistent with federal internal control standards related to using and communicating quality information to achieve objectives. Without a specific plan with time frames with interim milestones, CMS may miss opportunities to use T-MSIS data to streamline state reporting and better oversee states provision of EPSDT services. This limitation is similar to one we reported in December 2017 about the initial steps CMS had taken for using T-MSIS data. We found CMS was limited in using T-MSIS for its broader oversight efforts of state Medicaid programs, in part, due to the absence of an articulated plan and time frames. <5. Conclusions> Under EPSDT, millions of Medicaid s youngest beneficiaries received well-child screenings and dental services in fiscal year 2017; however, nearly as many of them did not. Further, existing data on blood lead screenings are incomplete and inaccurate, leaving CMS unaware of beneficiaries with unidentified lead exposures that can cause developmental delays. The EPSDT data collected whether via the CMS- 416, Child Core Set, or T-MSIS have the potential to improve CMS oversight of beneficiaries receipt of necessary services and screenings. However, CMS has not taken sufficient steps to help ensure the appropriateness of its state data collection, evaluations, and assistance; and its plans for new reporting, including time frames and interim milestones, are lacking. <6. Recommendations for Executive Action> We are making the following six recommendations to CMS: The Administrator of CMS should work with states and relevant federal agencies to collect accurate and complete data on blood lead screening for Medicaid beneficiaries in order to ensure that CMS is able to monitor state compliance with its blood lead screening policy, and assist states with planning improvements to address states compliance as needed. (Recommendation 1) The Administrator of CMS should regularly assess the appropriateness of performance measures and targets for the EPSDT benefit, and take any necessary actions to ensure their relevance and use, including adding, changing, or removing measures, or targets, and regularly communicating performance measures and targets to states. (Recommendation 2) The Administrator of CMS should conduct regular evaluations of state performance by comparing states performance measurement data with CMS s EPSDT targets to identify gaps in states performance and areas for improvement. (Recommendation 3) The Administrator of CMS should assist states with planning needed improvements, including providing focused assistance, to resolve gaps in states performance in meeting CMS s EPSDT targets. (Recommendation 4) The Administrator of CMS should develop a plan with time frames and interim milestones for using T-MSIS data to generate the necessary data from the CMS-416 to improve EPSDT oversight and streamline state reporting. (Recommendation 5) The Administrator of CMS should develop a plan with time frames and interim milestones for using T-MSIS data to generate the necessary data from the Child Core Set to improve EPSDT oversight and streamline state reporting. (Recommendation 6) <7. Agency Comments and Our Evaluation> We provided a draft of this report to HHS for comment, and its comments are reprinted in appendix IV. HHS also provided us with technical comments, which we incorporated in the report as appropriate. Overall, HHS concurred with three recommendations and did not occur with three recommendations. HHS concurred with our first recommendation that CMS should work with states and relevant federal agencies to collect accurate and complete data on blood lead screening for Medicaid beneficiaries and assist states with planning improvements to resolve gaps in states performance as needed. However, HHS stated that it would not be possible to obtain complete data on blood lead screenings, because some screenings are not paid for by Medicaid. In our report, we noted some state and CMS efforts to improve available data on blood lead screenings. We continue to believe CMS needs to take additional actions to collect accurate and complete data to oversee whether eligible EPSDT beneficiaries are receiving blood lead screenings in accordance with CMS policy. HHS did not concur with our second recommendation, which stated that CMS should regularly assess the appropriateness of performance measures and targets for the EPSDT benefit, and take any necessary actions to ensure their relevance and use. HHS noted that it assesses the appropriateness of Child Core Set measures annually and may update existing measures based on that assessment, including measures on the CMS-416. We acknowledge CMS s actions to assess the appropriateness of Child Core Set measures annually and update those measures as appropriate, and we found these actions generally consistent with federal internal control standards regarding information and communication. However, CMS has not taken action, as needed, related to any assessments of the CMS-416 performance measures, even though officials acknowledge limitations in these measures, such as the participant and screening ratios. HHS also stated that it may set targets in key areas as appropriate, and has done so as part of the Oral Health Initiative, but that HHS does not believe it would be productive at this time to set targets for every measure. We are encouraged that HHS agreed that it may set targets in key areas as appropriate. This is consistent with our recommendation for CMS to regularly assess the appropriateness of its targets. Our recommendation does not assume that targets should be set for every measure rather, that CMS needs to regularly assess the appropriateness of performance measures and targets for the EPSDT benefit and communicate them to states. HHS did not concur with our third recommendation, which stated that CMS should conduct regular evaluations of state performance by comparing states performance measurement data with CMS s EPSDT targets. HHS stated that it offers a wide range of technical assistance on quality improvement to help states address performance goals. HHS commented that it believes this is the most effective method of helping states identify and address areas for potential improvement. We acknowledge that CMS has provided states with technical assistance and individual state snapshots of selected Child Core Set measures over time. However, regular evaluations of states performance against appropriate EPSDT targets are necessary to help identify gaps in states performance and areas for improvement. HHS noted that states recently received snapshots about their performance on publicly reported Child Core Set measures for the past 5 years, through fiscal year 2017. According to HHS, the snapshots include information about a state s performance on each measure relative to other states performance and highlights significant changes in a state s performance for each measure. However, these snapshots include descriptions of all states performance using medians, and top and bottom quartiles which are subject to change over time. Moreover, because the median is the midpoint of all states performance, this target ensures that half of states will not meet it, regardless of their individual performance. A fixed target or targeted improvement goal, such as the one developed as part of the Oral Health Initiative would provide states with the opportunity to measure performance over prior years results, which is a more meaningful measure that all states can strive to achieve. HHS did not concur with our fourth recommendation, which stated that that CMS should assist states with planning needed improvements to resolve gaps in states performance in meeting EPSDT targets. HHS stated that it has developed national and state-specific improvement goals for children enrolled in Medicaid with respect to receipt of at least one preventive dental service and provided targeted technical assistance to the lowest performing states. In this report, we noted states progress in meeting targets once CMS developed a performance measurement target for preventive dental services, including actions to improve state performance. Developing additional targets on performance measures critical to beneficiaries health and well-being could help improve oversight of EPSDT. HHS also described other examples of targeted technical assistance to remedy gaps in states performance, which included working with states on improving their performance on certain Child Core Set measures and improving access to EPSDT services by better leveraging schools as settings for care. Such technical assistance could be valuable for CMS to provide to states after identifying gaps in states performance relative to EPSDT targets. Doing so would allow CMS to share additional strategies to help states plan and implement needed improvements. HHS concurred with our fifth and sixth recommendations that CMS should develop a plan with time frames and interim milestones for using T-MSIS data to generate the necessary data from the CMS-416 and Child Core Set to improve EPSDT oversight and streamline state reporting. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix V. Appendix I: Selected States Practices for Delivering Early and Periodic Screening, Diagnostic, and Treatment Services Selected states used several types of practices to promote and facilitate the delivery of Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services, according to Medicaid officials in the 16 selected states we interviewed and profiles of these states created by the American Academy of Pediatrics. The practices selected states used included outreach and education, financial incentives, collaboration in EPSDT administration, and EPSDT service delivery initiatives, as shown in figure 4. Appendix II: Information Reported on Form CMS-416 and Child Core Set States annually report information about Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services to the Centers for Medicare & Medicaid Services (CMS), through the Form CMS-416 and the Child Core Set. The CMS-416 provides basic information about EPSDT for Medicaid beneficiaries aged 20 and under, such as the participant ratio and number of beneficiaries receiving a preventive dental service. The Child Core Set provides CMS with information about the quality of health care provided to Medicaid beneficiaries and individuals aged 18 and under who are covered under the Children s Health Insurance Program. In fiscal year 2024, annual reporting of the Child Core Set will become mandatory. As of 2019, the Child Core Set included performance measures related to the provision of EPSDT services, such as well-child visits in the first 15 months of life. Because Child Core Set reporting is currently voluntary, states vary in the number of performance measures they choose to report. In fiscal year 2017, for example, 50 states and the District of Columbia voluntarily reported on at least one of the 27 Child Core Set performance measures, with states reporting a median of 18 Child Core Set performance measures. Some information is only reported on the CMS-416 or Child Core Set, while other information well-child visits, preventive dental services, and dental sealants is reported on both CMS-416 and Child Core Set. (See table 5 for information reported on the CMS-416, the Child Core Set, or both.) Appendix III: Summary of Selected Early and Periodic Screening, Diagnostic, and Treatment Data Tables 6 through 8 present annual state-reported data from the Centers for Medicare & Medicaid Services (CMS) Form CMS-416 on the provision of selected Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services by state and nationally. Well-child screenings are presented from fiscal year 2010, the year in which the current reporting template was implemented, through fiscal year 2017, the most recent year for which data were available at the time of our review. Preventive dental services data are presented from fiscal year 2011, the baseline year for measuring states progress toward CMS s Oral Health Initiative targets, through fiscal year 2017, the most recent year for which data are available. Appendix IV: Comments from the Department of Health and Human Services Appendix V: GAO Contact and Staff Acknowledgments <8. GAO Contact> Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov. <9. Staff Acknowledgments> In addition to the contact named above, Karen Doran (Assistant Director), Peter Mangano (Analyst-in-Charge), Matthew Green, Erika Huber, Drew Long, Jennifer Rudisill, and Kelly Turner made key contributions to this report. Also contributing were Muriel Brown, Giselle Hicks, Erika Lessien, and Madeline Ross.

Why GAO Did This Study The EPSDT benefit is key to ensuring that Medicaid beneficiaries aged 20 and under receive periodic screening services, such as well-child screenings, and diagnostic and treatment services, such as physical therapy and eyeglasses, to correct or ameliorate conditions discovered during a screening. GAO was asked to examine the extent to which Medicaid beneficiaries aged 20 and under receive health care services under the EPSDT benefit. Among other things, GAO examined (1) what is known about the provision of EPSDT services based on CMS-required annual state reporting, and (2) CMS oversight of the EPSDT benefit. To do this, GAO analyzed annual state reporting data from fiscal years 2010 through 2017, the most current year data were available; CMS documentation; and federal internal control standards. GAO also interviewed CMS officials and Medicaid officials from 16 states selected, in part, on the variation in number of beneficiaries and geographic diversity. What GAO Found Approximately half of all Medicaid beneficiaries aged 20 and under received screenings and services recommended under the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit in fiscal year 2017, but nearly as many did not. For example, GAO's analysis of state-reported data found that about 59 percent of all beneficiaries (20.2 million) who should have received at least one recommended well-child screening received one. About 48 percent of beneficiaries aged 1 to 20 (18.3 million) received a preventive dental service in fiscal year 2017. Older beneficiaries tended to have lower rates of screening. Number of Medicaid Beneficiaries Receiving and Not Receiving Well-Child Screenings in Fiscal Year 2017, by Age Group The Centers for Medicare & Medicaid Services (CMS), the agency that oversees Medicaid, including EPSDT, has taken steps to improve the quality of information that states report about the provision of EPSDT services. CMS has also set some EPSDT performance measure targets for states; yet, the agency has not taken other steps to oversee the EPSDT benefit, such as collecting the data necessary to evaluate whether states are complying with CMS's policy for beneficiaries to receive a blood lead screening; taking action, as needed, based on assessments of the appropriateness of some performance measures, such as well-child screening measures; and using state-reported information to regularly evaluate states against CMS's EPSDT targets, or assisting states in planning improvements to meet the targets. Absent these steps, CMS's oversight is limited and beneficiaries may not be receiving appropriate EPSDT services when they need them. What GAO Recommends GAO is making six recommendations to CMS regarding its oversight of the EPSDT benefit, including collecting appropriate blood lead screening data; taking action, if needed, after assessing the appropriateness of performance measures and targets for EPSDT; and evaluating states' performance in meeting CMS's EPSDT targets. CMS agreed with three recommendations, but disagreed with three others regarding performance measures and targets. GAO maintains that these recommendations are valid, as discussed in this report.

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<1. Background> The Defense Acquisition Regulations Council is responsible for developing fully coordinated recommendations for revisions to the DFARS, which supplements the Federal Acquisition Regulation. The Federal Acquisition Regulation provides executive agencies with uniform acquisition policies and procedures for acquiring products and services, and is prepared and issued through the coordination of the Defense Acquisition Regulations Council and Civilian Agency Acquisition Council. The DFARS contains additional requirements of law, DOD-wide policies, delegations of Federal Acquisition Regulation authorities, deviations from Federal Acquisition Regulation requirements, and policies or procedures that have a significant effect beyond the internal operating procedures of DOD, or a significant cost or administrative impact on contractors or offerors. The DFARS is designed to be read in conjunction with the primary set of rules in the Federal Acquisition Regulation. Stakeholders in the acquisition process include executive agencies program and contracting officials, members of Congress and congressional staff, industry and contractors, and members of the public. Specifically, the Defense Acquisition Regulations Council generally makes implementation recommendations to DOD, such as when publication of rules to amend the DFARS is appropriate. DARS staff then implements the Council s recommendations. The Defense Acquisition Regulations Council is composed of the Chair who is also the DARS Director, Deputy Chair who is also the DARS Deputy Director, and one policy and one legal representative from each of the following DOD components: Defense Contract Management Agency, and Defense Logistics Agency. DFARS changes can originate from different sources, including legislation, recommendations from DOD s Office of the Inspector General, our recommendations, court decisions, executive orders, or policy changes within DOD. DFARS changes that originate from legislation, including NDAAs, are given the highest priority, according to DARS officials. DARS staff has other related responsibilities, including working with civilian agencies in activities connected with promulgating the Federal Acquisition Regulation. <2. DOD Has a Process for Implementing Acquisition-Related NDAA Provisions, but Does Not Clearly Communicate Implementation Status to Stakeholders> DOD has a rulemaking process to change the DFARS that includes implementing acquisition-related NDAA provisions through regulatory changes or other methods. The DARS staff is responsible for facilitating the process of making these changes in the DFARS. The staff first reviews draft legislation that may affect acquisition regulations before Congress enacts the NDAA. After the NDAA is enacted, DARS staff then identifies which provisions require action. The DARS staff coordinates across the department and provides for public notice of implementation actions when required. However, there is no publicly-available summary reporting of the status of the regulatory changes or other implementation methods linked to specific NDAA provisions. Congress and industry representatives therefore cannot clearly see the status of pending regulatory changes pertaining to acquisition issues addressed in the NDAA. <2.1. DOD Implements Acquisition-Related NDAA Provisions in DFARS and by Other Methods> DOD s acquisition rulemaking procedures are governed by statute, which generally requires agencies to issue a proposed rule for each rulemaking and provide not less than a 30-day public comment period following publication of the proposed rule in the Federal Register. These requirements only apply to those DFARS rules that are related to the expenditure of appropriated funds and have either a significant effect beyond the agency s internal operating procedures or a significant cost or administrative impact on contractors or offerors. However, the requirements may be waived if urgent and compelling circumstances make compliance with the requirements impracticable. In those instances, DOD issues an interim rule rather than a proposed rule. The interim rule is effective on a temporary basis if DOD provides at least a 30-day public comment period after publishing the interim rule in the Federal Register. DOD then may issue a final rule after considering any comments received. As a part of the rulemaking process, the Office of Information and Regulatory Affairs reviews proposed and final regulations. The time period for its review is generally limited to 90 days. See figure 1 for an overview of the DARS s process to change DFARS rules. DARS staff can implement the provisions by one or more methods, including the rulemaking process described above and other actions, such as: issuing DFARS class deviations, and changing DFARS Procedures, Guidance, and Information (PGI), a non-regulatory document that supplements the DFARS. <2.2. DOD Reviews NDAAs to Identify Provisions That Might Require DFARS Revisions or Other Actions> Before annual NDAAs are enacted, DARS staff told us that they review proposed legislation and committee report language to stay abreast of provisions they may have to implement after NDAAs are enacted. DARS staff solicits input on which provisions may require implementation from DOD components and offices, such as the Defense Contract Management Agency, that have a stakeholder interest in many acquisition-related provisions. DARS staff tracks each of these potential changes in case files, which are referred to in this report as cases. DARS staff also can work with other federal agency offices to implement an acquisition-related NDAA provision through a Federal Acquisition Regulation rule change, interim rule change, or class deviation. In some instances, a provision may specify that DOD take other actions, such as holding a public meeting to obtain interested parties opinions on an acquisition topic. Upon review of the enacted NDAA, the Defense Acquisition Regulations Council or DARS staff sometimes decides that a provision should be implemented by another DOD office or in other defense acquisition guidance. For example, the DARS staff could determine that a provision only applies to one DOD component and does not require a DFARS change. In another example, DARS staff could determine that the initially identified provision should be implemented in acquisition guidance, such as DOD Instruction 5000.02. Further, sometimes DARS staff will change implementation methods after having selected one. For example, DARS staff may initially decide to implement a provision with a DFARS change, but upon conducting research to draft the rule change, it may find that the provision would be better implemented with a Federal Acquisition Regulation change. Based on our review of NDAAs from fiscal years 2010-2018, we identified 37 explicitly directive provisions 36 that directed DOD to either make or consider making an acquisition-related regulatory change, and one that directed DOD to issue acquisition-related guidance. DARS officials told us that when a provision directs a change or consideration of an acquisition-related regulatory change, the Defense Acquisition Regulations Council and DARS staff give it the highest priority. We confirmed that, in the Defense Acquisition Regulations Management Information System, this priority is reflected by identifying the NDAA as the source of the change in the synopsis field. We confirmed that the 36 provisions we identified had NDAA as the source of the change. <2.3. The Way the DARS Publicly Communicates Actions Makes It Difficult to Link to NDAA Provisions> DARS staff has different ways of communicating changes to the regulations and other implementation methods to the public. Significant revisions to the DFARS must be published in the Federal Register. DARS staff also publishes the progress of DFARS changes in case reports that are available on its website. Case reports provide a synopsis of each case, which can include the NDAA provision or other source of the case; describe cases combined to address more than one provision; or show multiple cases for a single provision. DARS staff also posts notices of DFARS class deviations and revisions to DFARS PGI on its website. DARS staff provides input for regulatory priorities through DOD s publicly-available Unified Agenda. This includes all expected rule changes DOD-wide and a Regulatory Plan that identifies the most significant regulatory actions DOD expects to issue within the next 12 months. It is difficult, however, for interested parties, such as Congress and industry groups, to determine if a provision has been implemented using only this publicly-available information. This is due, in part, to the fact that provisions can be implemented through one or multiple methods, and DARS actions can be reflected in more than one case. For example, if an interested party, such as a federal contractor, expects to see a change to the DFARS based on how an NDAA provision is worded, but the DARS staff implements the provision with a class deviation, the interested party may not realize that the provision has been implemented by another method. In addition, DARS staff may consider a provision as implemented with an action such as a class deviation even if a subsequent case to change the DFARS is opened later. We, too, found it difficult to determine the implementation status of acquisition-related NDAA provisions using only publicly-available reports and information. DARS staff was able to create a report for us that showed implementation status by provision. But we were able to determine and verify the implementation status of these provisions only after using a combination of the DARS internal reports, publicly-available reports and information, and data we had requested from the Defense Acquisition Regulations Management Information System database. DFARS and Federal Acquisition Regulation open and closed case reports provide general information on a case, such as the topic and case number. The reports also provide the status of the case. For example, a report may say: Defense Acquisition Regulations Council director tasked team to draft proposed DFARS rule. However, the case reports do not provide information on when a regulatory change may be expected. This information can help companies plan for future business opportunities and devise the means to ensure compliance with regulations. See figure 2 for an overview of NDAA provision implementation methods and the mechanisms DOD uses to report status information. Standards for Internal Control in the Federal Government states that management should externally communicate quality information to achieve the entity s objectives. Specifically, available information should address the expectations of both internal and external users. DARS staff regularly publishes public status updates on cases, rule changes, and PGI changes. However, there is no readily available mechanism for external stakeholders, such as Congress and industry representatives, to determine the implementation status of any particular legislative provision. This is because the status updates published by the DARS staff do not provide the complete implementation status listed by specific legislative provisions. Without communicating the implementation status of legislative provisions, Congress lacks information for oversight of acquisition reforms, and federal contractors lack visibility into how and when changes will occur. For example, the House Armed Services Committee expressed its oversight interest in a provision passed in 2013 that was not implemented in the DFARS until 2018. Additional information on the status of the DFARS change may have been helpful to the committee s oversight activities. In another example, industry expressed concern about the status of a regulation implementing a fiscal year 2017 NDAA provision related to the lowest price technically acceptable (LPTA) source selection process in order to plan for responding to solicitations following implementation of the rule. <3. DOD Has Taken Action to Address Acquisition-Related Provisions in NDAAs from Fiscal Years 2010-2018, and Time Taken to Implement Averaged Less Than 1 Year> DARS staff identified 180 NDAA provisions from fiscal years 2010-2018 that potentially required an acquisition-related regulatory change or another action. DARS staff and other DOD entities have taken some type of action to address all these provisions. Our analysis showed that 112 of the provisions had been implemented. The timeframe for implementation was, on average, just under 1 year. Some implementation efforts took longer than a year for a variety of reasons, such as reconciling multiple years of NDAA requirements or dealing with highly complex topics. The remaining legislative provisions are either in the process of being implemented or DARS staff determined that a regulatory change was not needed. DARS staff prioritized those provisions that expressly directed DOD to change or consider an acquisition-related regulatory change. DARS documentation showed that some of the implementation deadlines in statute were shorter than the time periods that DARS generally allows for the rulemaking process, including public comment and outside agency review. <3.1. DARS Staff Identified and Addressed 180 Acquisition-Related NDAA Provisions> Following its process, DARS staff identified 180 NDAA provisions from fiscal years 2010-2018 that potentially required an acquisition-related regulatory change or another implementation action. We found that DARS staff and, in a few instances, other DOD entities have taken action to address all of those provisions. See figure 3 for the implementation status of all 180 provisions distributed by NDAA fiscal year. <3.2. DARS Staff Implemented 112 Provisions within 1 Year of NDAA Enactment, on Average> We found that DARS officials opened cases within 30 days of NDAA enactment, on average, for the acquisition-related NDAA provisions from fiscal years 2010-2018. For the 112 of 180 provisions that have been implemented, DOD completed the first implementation actions on average within 1 year. DARS staff frequently used a combination of methods to implement provisions, such as using an interim DFARS rule followed by a final rule. When two or more implementation actions are taken, DARS officials generally consider the first action as the action that implements the provision. If a class deviation, interim DFARS rule, or PGI is issued to address an NDAA provision, the DARS staff considers it implemented even if additional actions such as issuing a final DFARS rule are still being pursued. We used the same approach for our analyses for determining the implementation status of provisions and time taken to complete implementation. See table 1 below for the average time to complete the first action to implement the 112 NDAA provisions. Figure 4 shows the distribution of time taken to implement all 112 NDAA provisions. Some implementation efforts took longer than a year for a variety of reasons. Publishing an interim DFARS rule generally took less than a year, while publishing a final DFARS rule change took closer to 2 years on average. In the selected DFARS cases studied, we found examples where DOD had to reconcile multiple years of NDAA requirements or manage complex topics, which we have similarly reported on as reasons that influence the time needed to issue regulations in past work. Reconciling Multiple Years of NDAA Requirements: Congress directed DOD to revise the DFARS to reflect updated requirements related to procuring commercial items in section 851 of the fiscal year 2016 NDAA. Congress included a deadline of 180 days from the NDAA enactment, but the DFARS update was not completed until nearly 800 days after enactment. Our review of DARS case files showed that the DARS staff prioritized implementing the provision, but decided to address a related NDAA provision from 2013 through a single DFARS rule change. In this instance, multiple NDAAs included provisions the DARS staff viewed as closely related. As a result, developing language that reconciled the requirements for all of these provisions took additional time and effort. DARS officials told us that they came close to publishing a commercial items rule earlier, but started over because subsequent NDAA provisions included requirements related to commercial items. Managing Complex Topics: Congress directed DOD to revise the DFARS regarding the use of the LPTA source selection process in section 813 of the NDAA for fiscal year 2017. Congress included a deadline of 120 days from enactment in the provision, which DARS staff was unable to meet due to the complexity of the issue and additional requirements added by a subsequent NDAA. Following enactment of the 2017 NDAA, DARS staff developed a proposed rule that would have implemented relevant NDAA sections in under a year. However, prior to publishing that rule, the NDAA for fiscal year 2018 was enacted and contained added LPTA requirements. After the 2018 NDAA was enacted, DARS staff combined all of its related LPTA cases into a new DFARS case and made adjustments to the proposed rule it had been developing. The DARS staff responsible for updating the previous proposed rule requested five extensions from DARS leadership between January and March 2018 to update documentation to address the fiscal year 2018 provisions and prepare additional analyses. After months of coordination and reviews, DARS staff published a proposed rule in December 2018 with a 60-day comment period. Sixteen formal submissions were received by the February 2019 deadline. The DARS staff is currently reviewing those comments and drafting a final rule, which must still go through multiple reviews before it can be published in the Federal Register. Congress directed DOD to consider revising the DFARS regarding an extension of contractor conflict of interest limitations in section 829 of the NDAA for fiscal year 2013. This provision has been in the process of implementation due to a determination that this rule should be informed by a pending Federal Acquisition Regulation change. In this instance, Federal Acquisition Regulation principals opened a case to implement the provision in the Federal Acquisition Regulation 7 months after NDAA enactment, and DARS officials agreed to draft the rule change that would implement the provision. DARS staff published a proposed rule in the Federal Register for public comment approximately 8 months later. However, DARS staff informed us that a few weeks after the public comment period, Federal Acquisition Regulation officials directed them to suspend its activities until a separate, related Federal Acquisition Regulation rule on closely associated with inherently governmental functions was finalized. However in August of 2018, section 829 of the NDAA for fiscal year 2013 was repealed by section 812(b)(4) of the NDAA for fiscal year 2019. We identified 36 provisions, a subset of the 180, that expressly directed DOD to make or consider making an acquisition-related regulatory change, as well as one provision that directed DOD to issue guidance. DARS staff implemented 22 of the 37 provisions in about 13 months on average. Of the 37 provisions, 32 had statutory deadlines, ranging from 30 to 365 days after enactment. The DARS documentation showed that the DARS staff prioritized these NDAA provisions by noting the deadlines, but generally did not implement them by the deadline. We found that: DARS staff met the deadlines in eight of 32 instances. In those eight instances, the actions completed were relatively simple, and DARS staff determined that a public comment period was not required. For example, DARS staff changed the DFARS to implement section 801 of the fiscal year 2018 NDAA which required DOD to revise the DFARS to include three specific statements about DOD acquisitions in 143 days, ahead of Congress s 180-day deadline. Four provisions had deadlines for implementation of 60 days or less. For example, sections 841 and 842 in the fiscal year 2012 NDAA called for changes to be made to the DFARS within 30 days. The short deadlines allowed for fewer days than DARS staff allocate for public comment (minimum of 30 days, by law) and outside agency review (no more than 90 days, by executive order). Deadlines that did not allow for these activities as well as time to draft language were typically not met. <4. Conclusions> DARS is responsible for developing and maintaining DOD acquisition regulations, which may include implementing acquisition-related NDAA provisions. The DARS staff has internal tools to track, manage, and communicate the status of DFARS changes, including implementation of NDAA provisions. However, DOD s DFARS change process does not have a reporting mechanism to clearly communicate to Congress, industry, and other interested parties the status of regulatory or other changes linked to specific NDAA provisions. Without a mechanism to better communicate DOD s actions to implement NDAA provisions, stakeholders potentially affected by reforms may be unaware of what and when changes may be implemented. Given the actions and length of time that it may take to implement provisions and see a change reflected in the DFARS or elsewhere, stakeholders would benefit from knowing the status of DOD s actions before implementation has been completed in order to, for example, prepare for compliance. <5. Recommendation for Executive Action> We are making the following recommendation to the Secretary of Defense to ensure that the Director of the Defense Acquisition Regulations System: Develop a mechanism to better communicate to all stakeholders the implementation status of acquisition-related NDAA provisions, particularly those provisions that direct a change or consideration of a change to the DFARS. (Recommendation 1) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for comment. DOD concurred with our recommendation to develop a mechanism to better communicate to all stakeholders the implementation status of acquisition-related NDAA provisions. The department said it will develop a matrix reflecting the implementation status of acquisition-related NDAA provisions and post the matrix on the Defense Pricing and Contracting public website. DOD s written comments on the report are reprinted in appendix II. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Acting Secretary of Defense; the Under Secretary of Defense for Acquisition and Sustainment; the Secretaries of the Air Force, Army, and Navy; the Director, Defense Acquisition Regulations System; appropriate congressional committees; and other interested parties. This report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-4841 or by e-mail at woodsw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology A House Armed Services Committee report related to the National Defense Authorization Act (NDAA) for Fiscal Year 2019 included a provision for us to review the Department of Defense s (DOD) process for revising the Defense Federal Acquisition Regulation Supplement (DFARS), among other things. This report (1) determines how DOD implements acquisition-related NDAA provisions and communicates implementation status, and (2) identifies the status of DOD s efforts to implement acquisition-related NDAA provisions from fiscal years 2010- 2018. To determine how DOD implements acquisition-related NDAA provisions, we reviewed DOD documents and supplemented our work with interviews with relevant DOD officials. Specifically, we reviewed the DFARS Operating Guide, January 2015; presentation on the Defense Acquisition Regulations System Rulemaking Process, DFARS open and closed cases reports, Federal Acquisition Regulation open and closed cases reports; decision matrices from the Defense Acquisition Regulations System (DARS), which document decisions on implementing NDAA provisions from fiscal years 2010-2018; and other applicable reports and information on provisions and cases from the DARS staff and the Defense Acquisition Regulations Council. We also referenced our past reports on DFARS rulemaking; U.S. Code on Publication of proposed regulations; the Federal Acquisition Regulation Operating Guide, July 2015; Federal Register notices related to DOD rulemaking; and the news listing on the DARS website. We adopted the DARS use of the term implementation, which includes both regulatory action as well as other actions, such as public meetings or a report. We interviewed DOD officials that are involved in the DFARS rulemaking process. Specifically, we interviewed members of the Defense Acquisition Regulations Council and DARS staff, including the Chair and Deputy Chair, the Regulatory Control Officer that prepares rules for submission to the Office of Information and Regulatory Affairs within the Office of Management and Budget, and DFARS case managers. We also interviewed officials from the DOD components Air Force, Army, Navy, Defense Contract Management Agency, and Defense Logistics Agency. We interviewed industry representatives from the Aerospace Industries Association, National Defense Industrial Association, and the Professional Services Council. We compared the DARS process with the Standards for Internal Control in the Federal Government. Specifically, we reviewed DOD s public reports of its implementation actions with internal control principle 15: management should externally communicate the necessary quality information to achieve the entity s objectives. Stakeholders in the acquisition process include executive agencies program and contracting officials, members of Congress, congressional staff, industry, contractors, and members of the public. The DARS staff provided a complete data extract of Defense Acquisition Regulations Management Information System as of October 31, 2018, to document the acquisition-related NDAA provisions that DARS staff identified as potentially requiring implementation. The Defense Acquisition Regulations Management Information System is the DARS database to track the status of individual cases that are associated with DARS rulemaking actions. We analyzed the data extract to identify which Title VIII provisions that the DARS identified for implementation from NDAAs from fiscal years 2010-2018, and to identify the cases related to those provisions. We focused on Title VIII Acquisition Policy, Acquisition Management, and Related Matters of the NDAAs, which contain acquisition-related provisions. We queried the data extract to identify cases with notes indicating NDAA provisions from fiscal years 2010-2018 as the source of change in the database synopsis field. We found 180 acquisition-related provisions from Title VIII of the NDAAs from fiscal years 2010-2018 that the DARS staff had identified for implementation. For these 180 provisions, we determined the number and types of cases by year, duration of cases, and duration of select steps for cases. We verified the validity of provisions and cases that were not in both the DARS reports that DARS staff manually produced and the Defense Acquisition Regulations Management Information System data with DARS officials as of April 19, 2019. To identify the implementation status of acquisition-related NDAA provisions from fiscal years 2010-2018, we further analyzed data from the Defense Acquisition Regulations Management Information System and DARS reports. For the actions associated with the 180 provisions, we analyzed the status history of each case, associated status dates for cases, and closed status indicators. We also reviewed DARS reports, such as the internal stats charts with case duration and closure metrics that DARS officials told us they manually verify. We reviewed a report that the DARS staff manually produced for us that showed actions and cases by provision for the NDAAs from fiscal years 2010-2018. We independently analyzed the NDAAs from fiscal years 2010-2018 and determined 36 provisions in Title VIII that expressly directed DOD to make or consider making an acquisition-related regulatory change, as well as one provision that directed DOD to issue guidance. We identified these provisions using a keyword search of individual and combined terms and criteria, such as regulation, defense, and acquisition regulation. To better understand the Defense Acquisition Regulations Council s recommendations and DARS implementation process, we selected 12 provisions that directed DOD to make or consider an acquisition-related regulatory change for case studies. The case study selection criteria included the year of the NDAA from which the provision originated for a mix of older and newer provisions and time duration for a mix of shorter and longer cases related to implement the provisions. We used DARS reports and our analysis of the Defense Acquisition Regulations Management Information System data to determine the year and time duration. Since the DFARS Case Standard Timeline is 52 weeks, we selected provisions with cases that were both more and less than 52 weeks. We also selected provisions with cases that were open and closed. We created a data collection instrument for the case studies that captured information, such as which provisions were associated with the case, to standardize our data collection process. For the 12 provisions, we reviewed the associated case files that are generally a record of the implementation process and the Defense Acquisition Regulations Council s recommendations, and the decisions made by the DARS staff. We also reviewed available publication folders associated with the cases that generally document input and decisions from other agencies, such as the Office of Management Budget s Office of Information and Regulatory Affairs. Finally, we used the information in the files to verify the information in Defense Acquisition Regulations Management Information System for those specific cases. We found the Defense Acquisition Regulations Management Information System data and information in the files that we reviewed to be sufficiently reliable for purposes of reporting on how the DARS staff implemented NDAA provisions and the time duration to do so. We conducted this performance audit from August 2018 to July 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense Appendix III: GAO Contacts and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Penny Berrier, Assistant Director; James Kim; Holly Williams; Beth Reed Fritts; Gail-Lynn Michel; Emily Bond; Lori Fields; Matthew T. Crosby; Lorraine Ettaro; and Tim Bober made key contributions to this report.

Why GAO Did This Study Congress has pursued acquisition reforms to make DOD's acquisition process more efficient and timely. Some statutes have directed DOD to revise or consider revising its acquisition regulations. The House Armed Services Committee's report accompanying the NDAA for Fiscal Year 2019 included a provision for GAO to review DOD's regulatory implementation of acquisition-related provisions in the NDAAs from fiscal years 2010 through 2018. This report (1) determines how DOD implements acquisition-related NDAA provisions in the DFARS and communicates with stakeholders throughout that process, and (2) identifies the status of implementation of provisions enacted in the specified NDAAs. To conduct this work, GAO reviewed DOD documents and interviewed DOD officials regarding the process for implementing acquisition-related NDAA provisions. GAO also analyzed DOD's data and reports on the implementation status of provisions enacted in NDAAs for fiscal years 2010 through 2018. GAO selected 12 of these provisions as case studies based on factors such as year enacted and time taken for implementation to obtain a mix of older and newer provisions, and shorter and longer implementation timeframes. What GAO Found The staff of the Defense Acquisition Regulations System are responsible for making changes in the Defense Federal Acquisition Regulation Supplement (DFARS)—the Department of Defense's (DOD) regulation augmenting the Federal Acquisition Regulation, which guides government purchases of products and services. They begin their process by first tracking legislation that may affect acquisition regulations before Congress enacts the National Defense Authorization Act (NDAA). After enactment, they identify which provisions to implement through regulatory changes and which to implement through other means. In certain circumstances, rather than change the DFARS, DOD can issue a class deviation, which allows its buying organizations to temporarily diverge from the acquisition regulations. The figure below shows the primary means DOD uses to implement NDAA provisions, and the mechanisms DOD uses to make information on the status of any changes available to the public and others. Department of Defense's (DOD) Methods to Implement and Report on Actions Taken on National Defense Authorization Act (NDAA) Provisions DOD does not have a mechanism to clearly communicate to Congress, industry, and other interested parties the status of regulatory or other changes based on NDAA provisions. Using only publicly-available reports and information, it is difficult for an interested party to find the implementation status of any given acquisition-related NDAA provision. This is because no single DOD source communicates the status of regulatory or other changes in a manner that links the changes to specific NDAA provisions. As a result, interested parties are not always aware of what provisions have been implemented and when. This information is important for congressional oversight and to industry for planning and compliance purposes. Federal internal control standards state that management should address the communication expectations of external users. GAO found that DOD has taken action to address 180 acquisition-related provisions since 2010. On average, implementation was completed within 1 year from enactment. Some complicated provisions took more than 2 years to implement. For example, a fiscal year 2016 NDAA provision, directing a regulatory change for commercial item procurements, took more than 2 years to implement because DOD was reconciling a prior year's related but different NDAA commercial item provision into one DFARS change. What GAO Recommends DOD should develop a mechanism to better communicate the implementation status of acquisition-related NDAA provisions, particularly those that direct a change or consideration of a change to the DFARS. DOD concurred with the recommendation.

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<1. Background> The use of ESG factors has emerged as a way for investors to capture information on potential risks and opportunities that otherwise may not be taken into account in financial analysis. ESG factors like climate change impacts and workplace safety may affect a company s expected financial performance and thereby its value to shareholders. See table 1 for examples of ESG factors. ESG standard-setting organizations were created to improve transparency and consistency in companies disclosure of ESG information. Several independent and nonprofit organizations have created voluntary frameworks companies may use to disclose on ESG issues, as shown in table 2. Frameworks are generally comprised of single-issue categories that contain several specific disclosure topics related to that category. SEC rules and regulations generally require public companies to disclose, among other things, known trends, events, and uncertainties that are reasonably likely to have a material effect on the company s financial condition or operating performance, as well as potential risks to investing in the company. SEC considers information to be material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision in the context of the total mix of available information. Public companies disclose information on an ongoing basis through annual 10-K filings, quarterly 10-Q filings, and definitive proxy statements, among other disclosure requirements. Regulation S-K contains SEC integrated disclosure requirements for 10-K filings and other periodic reports filed with SEC. Staff in Corporation Finance are to selectively review 10-K filings for compliance with requirements outlined in Regulation S-K and other applicable accounting standards and form requirements. While federal securities laws generally do not specifically address the disclosure of ESG information, Regulation S-K s disclosure requirements for nonfinancial information apply to material ESG topics. Regulation S-K also includes prescriptive requirements for disclosure of certain topics considered to be ESG topics, such as board composition, executive compensation, and audit committee structure. Corporation Finance s legal and accounting staff review filings through seven offices organized by industry, and office managers assign different levels of reviews to 10-K filings, such as full reviews (which include financial and legal reviews) and financial-only reviews. The Sarbanes- Oxley Act of 2002 requires SEC to review the financial statements of each reporting company at least once every 3 years, which informs, among other factors, how Corporation Finance selects and determines the extent to which 10-K filings are reviewed. In conducting these reviews, Corporation Finance staff may provide comments to a company to obtain additional information, clarification on the company s disclosure, or to significantly enhance its compliance with applicable reporting requirements. Comments depend on the issues that arise in a particular filing, and staff may request that a company provide additional information to help them better evaluate disclosures. SEC occasionally issues interpretive releases on topics of general interest to the business and investment communities, which reflect the Commission s views and interpret federal securities laws and SEC regulations. For example, in 2010, SEC issued the Commission Guidance Regarding Disclosure Related to Climate Change, which described how existing disclosure requirements could apply to climate change-related information and how companies may consider climate disclosures in required filings. In 2018, SEC also issued the Commission Statement and Guidance on Public Company Cybersecurity Disclosures, outlining how existing reporting requirements could apply to cybersecurity-related risks and incidents. These interpretive releases do not establish new reporting requirements. Instead, they identify items in existing laws and regulations that may be most likely to require disclosure on these topics, such as description of the company s business and potential risk factors that may affect the company. <1.1. Most Large Investors Told Us They Sought Additional ESG Disclosures to Better Understand and Compare Companies Risks Most Investors Said They Engage with Companies to Address Gaps or Inconsistencies in ESG Disclosures That Limit Their Usefulness> Institutional investors with whom we spoke generally agreed that ESG issues can have a substantial effect on a company s long-term financial performance. All seven private asset managers and representatives at five of seven public pension funds said they seek ESG information to enhance their understanding of risks that could affect companies value over time. Representatives at the other two pension funds said that they generally do not consider ESG information relevant to assessing companies financial performance. While investors with whom we spoke primarily used ESG information to assess companies long-term value, other investors also use ESG information to promote social goals. A 2018 US SIF survey found that private asset managers and other investors, representing over $3.1 trillion (of the $46.6 trillion in total U.S. assets under professional management), said they consider ESG issues as part of their mission or in order to produce benefits for society. Institutional investors we interviewed identified various ways they use ESG disclosures to inform their investment decisions and manage risks related to their investments. Protecting long-term investments by monitoring companies management of ESG risks. Some investors with whom we spoke noted that they primarily make long-term investments in passively managed funds, which may prevent them from making investment decisions based on ESG information. However, 10 of 14 investors said that their focus on long-term factors that drive value leads them to monitor or influence companies management of ESG issues to protect their investments. Investors generally said they use ESG disclosures to determine which ESG issues companies monitor and to assess how companies manage these risks. Nearly all investors said ESG issues can be important to a company s operations and performance over time. For example, seven of 14 investors said they used ESG disclosures to identify companies that were less transparent than their peers or appeared to be outliers in their industries, such as having less board diversity than their peers. Investors then engaged with these companies to discuss their risk- management strategies, encourage disclosure on ESG issues, or provide information about what kind of disclosure they would find useful. Informing shareholder votes. Most investors with whom we spoke said they use ESG information to inform their votes as shareholders at annual shareholder meetings, either through a proxy advisory firm or independently. Specifically, nine of 14 investors said that ESG information informs how they vote on directors nominations to the board and other proposals at public companies annual meetings. For example, representatives from two large public pension funds said they withhold votes for directors if they determine that a company s board had not effectively disclosed issues, such as climate risk or executive performance metrics. Creating ESG funds or portfolios. Five of 14 investors we interviewed said they created ESG-focused investment funds or portfolios with goals such as promoting social responsibility and environmental sustainability. In creating these funds and portfolios, investors generally review companies ESG disclosures to determine which companies to include or exclude from these funds or portfolios. For example, two private asset managers said they created ESG funds or portfolios to attract investors focused on social goals, such as faith-based investors, while representatives from one pension fund said they had worked with an asset manager to create a low- emissions index intended to support the Paris Agreement s goals. Divesting. Some investors we interviewed said they typically would not divest based on a company s ESG disclosures, and three said that ESG information could lead them to divest. A mid-size asset manager noted that the firm works with companies to improve their disclosures rather than divest. Conversely, representatives from one mid-size pension fund said they found that buying or selling shares is a more efficient method for changing corporate behavior than the lengthier strategy of engaging companies in dialogue. Additionally, a large asset manager said that its portfolio managers sell shares if a company s ESG performance or response to engagement is poor. Although some studies report that the quantity and quality of ESG disclosures generally improved in the last few years, 11 of 14 investors with whom we spoke said they seek additional ESG disclosures from companies to address gaps and inconsistencies, among other issues. Investors described challenges with understanding and interpreting both quantitative and narrative disclosures. Quantitative disclosures. Investors cited examples of inconsistencies in companies quantitative disclosures that limit comparability, including comparability among companies that disclose on the same ESG topics. Specifically, investors described challenges such as the variety of different metrics that companies used to report on the same topics, unclear calculations, or changing methods for calculating a metric. For example, five of 14 investors said that companies disclosures on environmental or social issues use a variety of metrics to describe the same topic. A few studies have reported that the lack of consistent and comparable metric standards have hindered companies ability to effectively report on ESG topics, because they are unsure what information investors want. In addition, some investors said that companies may change which metrics they use to disclose on an ESG topic from one year to the next, making disclosures hard to compare within the same company over time. Narrative disclosures. Most investors noted gaps in narrative disclosures that limited their ability to understand companies strategies for considering ESG risks and opportunities. For example, some investors noted that some narrative disclosures contained generic language, were not specific to how the company addressed ESG issues, or were not focused on material information. For example, two private asset managers said that companies may provide boilerplate narratives or insufficient context for their quantitative disclosures, and representatives from one pension fund said that the fund would like additional disclosures on cybersecurity but has found that most disclosures on this topic are generic and not very helpful. Additionally, most institutional investors said that there is fragmentation in the format or location of companies ESG disclosures, which can make this information hard to compile and review. However, these investors generally said that it is more important for companies to focus on providing disclosures than on how or where the disclosures are presented. These investors said that they are able to purchase access to compiled data from third-party data providers to use in their analysis of companies ESG disclosures. Regarding how investors seek ESG disclosures, nearly all institutional investors with whom we spoke said they engage with companies to request additional ESG disclosures through meetings, telephone calls, or letters. Some investors said that companies responsiveness, which can include producing ESG presentations for investors and discussing ESG information on earnings calls, varied by size because larger companies have more resources to respond to investor engagement. Engagement also can be complicated by conflicting investor demands, as well as the proliferation of standards and surveys. According to representatives from an industry group that we interviewed, the large number of demands for specific ESG information from investors and third parties can pose a challenge to companies as they prioritize how to respond. For example, one company said it receives diverse requests for information that indicate that those investors do not agree on what issues are most important. <1.2. To a Limited Degree, Some Investors Seek ESG Disclosures through Shareholder Proposals> Some investors seek additional ESG disclosures by submitting shareholder proposals, which are requests from shareholders that the company take action on a specific issue or issues. These proposals are generally presented for a shareholder vote at public companies annual meetings. However, shareholder proposals can be withdrawn before coming to a vote when the company reaches an agreement with the shareholder who submitted the proposal prior to the annual meeting. Our analysis of a generalizable sample of companies listed on the S&P 1500 found that in 2019, an estimated 10 percent of companies received one or more shareholder proposals and an estimated 5 percent of companies received one or more shareholder proposals related to increasing ESG disclosures. For the ESG-related proposals in our sample, on average about 28 percent of shareholders voted in favor of these proposals and no proposals received more than 50 percent of the vote. As shown in table 3, the companies in our sample received a total of six proposals requesting additional ESG disclosures on a variety of social and governance topics. Most of these proposals were submitted to large companies. Investors that submitted proposals included one public pension fund, one labor organization, three socially focused asset managers, and one higher education endowment. All of the private asset management firms and representatives from three of seven pension funds we interviewed said they do not use shareholder proposals as a means to influence companies ESG disclosures. One of these pension funds said they have found filing shareholder proposals unnecessary after engaging in dialogue with companies. However, representatives from four of seven pension funds said they have filed shareholder proposals to seek additional ESG disclosures. Two large pension funds said they have found filing shareholder proposals an important engagement method for getting companies attention on ESG issues, while the other two funds noted that it was rare for them to file a proposal. Similarly, studies and reports we reviewed indicated that shareholder proposals are concentrated among a relatively small number of shareholders and that the number of proposals has been declining in the last 5 years. For example, a law firm s analysis of shareholder proposals filed with companies listed on the S&P 1500 in 2019 reported that 10 investors submitted over half of all proposals. This report also found that faith-based investors and socially focused asset managers, who seek to advance social causes in their investments, submitted the majority of environmental and social proposals in both 2018 and 2019. In addition, this analysis showed that the total number of shareholder proposals, including withdrawn proposals, submitted annually declined each year from 2015 to 2019. As the total number of proposals has declined, shareholder proposals related to environmental and social issues constituted over 45 percent of proposals each year from 2015 to 2019. While studies found that during this same time period shareholder support increased for these environmental and social proposals that went to a vote, shareholder support for most of them remained below 30 percent. <2. Selected Companies Generally Disclosed Many ESG Topics but Lack of Detail and Consistency May Reduce Usefulness to Investors Companies Considered Stakeholder Input and Regulatory Requirements in Disclosing on ESG Topics> Representatives from public companies with whom we spoke said they use several methods and consider multiple factors when deciding which ESG topics to report. Most companies (10 of 18) noted that legal and regulatory requirements were their primary consideration when determining which ESG factors to disclose. In addition, nearly all companies (15 of 18) told us they conduct some form of stakeholder engagement when determining what ESG information beyond regulatory requirements to report. As part of the engagement process, companies generally said they reach out to investors, representatives of communities they operate in, and other interested stakeholders to solicit their opinions about which ESG factors are important to them. Some companies described their ESG stakeholder engagement process as part of their broader company-wide outreach efforts, while others told us they hired outside firms to conduct this engagement on their behalf. In addition to stakeholder outreach, most companies (11 of 18) told us they perform assessments to determine which ESG topics to include in their regulatory filings or other reports. As part of these assessments, companies review a wide array of potential risks and identify the ones that would have the most impact on their business. In addition to requirements, outreach and assessments, most companies (nine of 18) told us they review ESG disclosure frameworks, such as GRI and SASB, to inform their consideration of which ESG factors to disclose. Similar to deciding which ESG topics to disclose, most companies (10 of 18) told us they also rely on legal and regulatory requirements when determining where to disclose ESG information. Specifically, companies said they identify those ESG factors that should be included in the 10-K or proxy statement according to SEC requirements, and publish information on these factors in their regulatory filings. In addition, some companies (six of 18) told us that they view their voluntary sustainability report as complementary to their regulatory filings. Specifically, four companies said they view their sustainability reports as a place to publish relevant ESG information that may not necessarily be material under the SEC definition and is therefore not included in regulatory filings. Lastly, some companies also told us that their voluntary sustainability reports provide an opportunity to disclose information that is of interest to ESG-focused investors or non-investor stakeholders. For example, some companies (five of 18) told us they use these reports to reach a broader stakeholder audience beyond investors, including employees and customers, when writing their sustainability reports. In addition to the regulatory and voluntary reporting that we reviewed, representatives from all 18 companies said they communicate ESG information in other ways. For example, most companies (13 of 18) said they also publish issue-specific ESG reports, most commonly on climate change. Most companies (12 of 18) also said they include ESG information on their company websites, because information could be updated more frequently and include more dynamic content, such as videos. Finally, most companies (11 of 18) told us they have developed ESG-focused presentations for investors, and some companies (four of 18) said they have begun including ESG information in their traditional investor communications, such as quarterly earnings calls and stockholder bulletins. <2.1. Most Companies Disclosed on Many ESG Topics, but Detail Varied on How ESG-Related Risks Are Managed> To assess the amount and characteristics of the ESG information companies report, we reviewed regulatory filings and voluntary reports issued by 32 large and mid-size public companies in eight industries. For each company, we reviewed two types of regulatory filings (10-K and the definitive proxy statement), annual reports (when distinct from the 10- K), and voluntary sustainability reports (where available). Of our selected companies, 25 published voluntary sustainability reports and 21 published annual reports separate from their 10-Ks. Using keyword search terms, we searched these documents to identify disclosures related to eight broad ESG factors and 33 more-specific disclosure topics under these factors (see fig. 1). We selected ESG factors from among those that a range of market observers frequently cited as important to investors or potentially material and selected ESG topics by reviewing ESG disclosure frameworks. For more information about this methodology, see appendix I. As shown in figure 2, we identified disclosures on six or more of the eight ESG factors for 30 of the 32 companies in our sample and identified 19 companies that disclosed information on all eight factors. All selected companies disclosed at least some information on factors related to board accountability and resource management. In contrast, we identified the fewest companies disclosing on human rights and occupational health and safety factors. With regard to the 33 more-specific ESG topic disclosures we examined, 23 of 32 companies disclosed on more than half of them. The topics companies disclosed most frequently were related to governance of the board of directors and addressing data security risks. Conversely, based on disclosures we identified, we found that companies less frequently reported information on topics related to the number of self-identified human rights violations and the number of data security incidents. In addition, we found that companies most frequently disclosed information on narrative topics and less frequently disclosed information on quantitative topics. There are several reasons why a company may not have disclosed information on a specific ESG topic, including that the topic is not relevant to its business operations or material. Figure 3 compares the amount of disclosure on the 33 ESG topics within and across the selected industries. We identified the most disclosure on the group of topics related to board accountability, climate change, and workforce diversity and the least amount on topics related to human rights. SEC requires companies to report certain governance information in their proxy statements in advance of shareholder meetings where shareholders elect members of the company s board of directors, which may help explain why board accountability topics are the most reported across industries in our sample. Additionally, differences in disclosure can result, in part, from the relevance of an ESG topic to a particular industry. For example, more companies in the airline and oil and gas industries disclosed information on climate change, while more companies in the internet media and banking industries disclosed information on data security. We identified disclosures on fewer topics by companies in the internet media industry than the other industries we assessed. None of the four internet media companies in our sample issued a stand-alone sustainability report. As discussed below, most companies tended to include more extensive ESG disclosures in their sustainability reports than in their regulatory filings. Figure 4 illustrates how the amount of disclosures on the 33 ESG topics compared across the four types of documents we reviewed. We found that companies generally reported information on a wider variety of ESG topics in their voluntary sustainability reports. Specifically, with the exception of a few topics, when companies disclosed information on an ESG topic, they most frequently did so in their sustainability reports. Certain ESG topics were reported more frequently in regulatory filings. For example, nearly all selected companies reported ESG information related to their board of directors in their proxy statements. Additionally, we found that companies disclosed on risks related to climate change, data security, hiring employees, and resource management in their 10- Ks, which includes a risk factors section where companies are required to discuss the most significant factors that make investment in the company speculative or risky. As discussed earlier, some investors with whom we spoke said they seek additional narrative disclosures from companies whose disclosures contained generic language or did not provide specific details about how the company manages ESG-related risks or opportunities. Among the 33 ESG topics we reviewed, 16 were topics for which companies reported a narrative rather than quantitative disclosure. We categorized these narrative disclosures as either generic or company-specific (see fig. 5 for examples). We defined company-specific disclosures as those that discussed specific ways that ESG-related risks and opportunities could affect the company s operations or specific steps the company takes to manage or respond to the ESG-related risks or opportunities. We defined disclosures that did not include such specific details as generic disclosures. As a result, such generic disclosures can be considered applicable to the reporting company as well as to many of its peers. According to two reports, companies may choose not to disclose more detailed information for a particular ESG topic for several reasons, including concerns that such disclosures would put the company at a competitive disadvantage or expose it to legal liability. For 11 of the 16 narrative topics, among companies for which we identified disclosures on these topics, at least 75 percent disclosed company-specific information (see fig. 6). For certain topics, such as those related to companies actions to add new directors to the board and promote diversity and inclusion, most companies disclosed information and nearly all of those companies reported company-specific information. In contrast, for other narrative topics, such as addressing data security risks and describing climate-related risks and opportunities, we identified company-specific information for less than two-thirds of disclosing companies. In addition, for one narrative topic, describing obstacles that might limit the company s ability to hire the talent it needs, less than one- third of disclosing companies reported company-specific information. We also found that disclosures we identified in companies 10-K filings were less likely to be company-specific than those in the other three types of documents we reviewed. Though most of the narrative ESG disclosures we reviewed contained company-specific details, these disclosures varied in the amount of detail they provided about how a company manages ESG-related risks and opportunities (see fig. 7). In particular, some companies disclosures included details about specific steps the company was taking to manage an ESG-related risk or opportunity and details about the results of such efforts, while others did not. To the extent that some companies provided more detailed disclosures, those companies disclosures could be of greater usefulness to investors trying to understand the ESG risks facing a company or the steps the company was taking to manage ESG risks. <2.2. Differences in How Companies Reported Some Quantitative ESG Topics Could Limit Comparisons across Companies> We identified inconsistencies in how companies disclosed on some of our selected quantitative ESG topics, which may limit investors ability to compare these disclosures across companies. Specifically, we found instances where companies defined terms differently or calculated similar information in different ways. We most frequently identified these inconsistencies in quantitative topics associated with climate change, personnel management, resource management, and workforce diversity. For quantitative topics related to data security, human rights, and occupational health and safety, five or fewer of the 32 companies in our sample disclosed information on these topics, limiting comparisons across companies. As previously discussed, some investors told us that one of the reasons they seek additional ESG disclosures is because it is difficult to compare disclosures across companies. SEC also noted in a 2016 concept release that sought comment on modernizing certain disclosure requirements in Regulation S-K that consistent disclosure standards can increase the efficiency with which investors process the information. Additionally, three of the most commonly used ESG disclosure frameworks GRI, SASB, and TCFD have a stated goal to help companies disclose information in a way that allows investors to compare information among companies. Despite this focus on comparable reporting from investors, regulators, and standard-setters, we identified instances where companies reported certain quantitative metrics differently from one another for some ESG topics. For example, in workforce diversity disclosures, some companies reported their employee demographics using broad groupings, such as minority or ethnically diverse, while others reported by specific racial or ethnic groups. Similarly, some companies defined greenhouse gas emissions differently. Most companies combined carbon dioxide and other greenhouse gases when reporting emission data, but a few reported carbon dioxide emissions alone. We also identified instances of companies using different calculation methods or units of measure when reporting information related to climate change and resource management. For example, companies used different base years when calculating their reduction in greenhouse gas emissions, limiting their comparability. Some companies reported reductions year-over-year, while many reported reductions over multiple years with no consistency within or across industries. For example, airline companies we reviewed reported emission reductions with base years ranging from 1990 to 2017. Similarly, when disclosing total water withdrawal, eight companies used metric units of measure while two companies used imperial units of measure. Companies that used the same ESG framework did not always disclose on ESG topics in a consistent manner. Specifically, we identified the types of inconsistencies discussed above in quantitative disclosures among those companies using the GRI framework. For example, we identified four different methods for reporting workforce diversity among companies that reported using the GRI framework to develop their disclosures. The GRI framework does not specify the method for reporting diversity information, as it does for certain other topics. <3. SEC Primarily Uses a Principles-Based Approach for Overseeing ESG Information and Has Taken Some Steps to Assess ESG Disclosures> <3.1. SEC Provides Flexibility to Companies to Determine Whether ESG-Related Information Is Material and Should Be Disclosed> SEC staff generally use a principles-based approach to overseeing public companies disclosures of nonfinancial information, including information on ESG topics. Under this approach, SEC staff rely primarily on companies to determine what information is material and requires disclosure in their SEC filings, such as the 10-K filing. SEC officials noted that companies are ultimately responsible for the disclosures they provide to investors, and they have liability for their disclosures under federal and state securities laws. While federal securities laws generally do not specifically address the disclosure of ESG information, Regulation S-K s disclosure requirements for nonfinancial information apply to material ESG topics. Corporation Finance officials noted that their reviews of public companies 10-K filings are not a checklist review for compliance with securities regulations. Instead, these reviews are meant to identify and address potentially significant disclosure issues, such as nondisclosure of information that the Corporation Finance review team believes is material and therefore may influence an investor s investment decision. Some Corporation Finance review staff told us that in their reviews of public companies 10-K filings they generally defer to companies determinations about which ESG information is relevant to their business and should be disclosed. Review staff also generally said they perform company- and industry-specific research as part of their review, including company websites, web searches for news articles, and earnings calls that may identify material ESG information. In a January 2020 statement that addressed climate change and environmental disclosures, the SEC Chairman reiterated his view that SEC s approach to disclosure on these topics should continue to be rooted in materiality, including providing investors with insight regarding the company s assessments and plans for addressing material risks to its business operations. The Chairman s statement also noted that this approach is consistent with the Commission s ongoing commitment to ensure that current disclosures on these issues provide investors with a mix of information that facilitates well-informed capital-allocation decisions. Corporation Finance has provided its review staff with internal review guidance that highlights relevant issues to consider, while emphasizing the use of professional judgment when reviewing companies 10-K and other filings. Staff use internal procedural guidance that provides steps for conducting and documenting reviews of filings. While this guidance does not include specific instructions for reviewing ESG disclosures, staff are instructed to conduct background research on companies and industries to determine if there is material information, such as potential risks, that may be relevant to a company s filing. As noted above, according to review staff, this company-specific research could include ESG information. In addition, Corporation Finance has distributed internal review guidance on a few ESG-related topics. This guidance illustrates how existing disclosure requirements may apply to a given topic and offers information for staff to consider when conducting background research and performing filing reviews. In cases where the SEC review team identifies a potential disclosure deficiency related to an ESG or other topic, they may issue a comment letter to the company to request additional information or additional disclosures when necessary. Most review staff with whom we spoke said ESG-related information generally does not rise to the level of comment unless they identify material information during background research that may be relevant to the company s operations. In April 2019, Corporation Finance reallocated responsibilities for reviewing nonfinancial information in 10-K filings, which also can include ESG information, from attorneys to accountants. Corporation Finance officials cited resource constraints, which reduced the number of attorneys within the Division, as a factor in this decision. While review teams vary by industry group and company, attorneys previously held primary responsibility for reviewing nonfinancial disclosures, whereas accountants primarily reviewed financial statements and related disclosures in 10-K filings. SEC staff provided training to accountants on how to conduct these reviews, which outlined Regulation S-K reporting requirements for nonfinancial disclosures and highlighted areas for staff to consider in various sections of the 10-K. Two of six accounting review staff with whom we spoke noted that this training was thorough and said they refer to training materials when conducting 10-K filing reviews. Additionally, most accounting review staff told us they can consult legal staff within their industry offices during reviews as necessary. According to Corporation Finance officials, attorneys may still participate in reviews of 10-K filings. Accounting staff also noted that they previously reviewed nonfinancial information within the context of financial disclosures as part of their financial reviews of 10-K filings. <3.2. SEC Took Steps to Assess Samples of Companies ESG Disclosures and Identify Emerging Issues> Corporation Finance has conducted assessments of samples of public companies 10-K filings to examine the amount and type of disclosure on selected ESG topics. Overall, Corporation Finance staff found that most sampled companies included disclosure of selected ESG topics within 10- K filings and told us they did not issue additional guidance or interpretive releases on these topics following these assessments. Climate change disclosures: In 2012 and 2014, SEC staff issued mandated reports to the Senate Committee on Appropriations that assessed the compliance of climate change disclosures included in a sample of 60 companies 10-K filings in selected industries. The Committee had required these reviews following SEC s issuance of its interpretive release on climate change disclosures in 2010. SEC staff found that most sampled companies included climate-related information within their 10-K filings with varying levels of detail. Since 2014, Corporation Finance has conducted additional internal assessments on these topics that have resulted in findings consistent with previous reviews. Additional ESG-related disclosures: In recent years, Corporation Finance staff conducted additional assessments of disclosures related to some ESG topics. These assessments involved staff reviewing the disclosures of a sample of companies filings and evaluating compliance with disclosure requirements. Corporation Finance found that while the level of detail among disclosures varied, nearly all companies included the relevant ESG topic within their filings. Additionally, Corporation Finance staff outlined action items for the Division, such as providing comments to companies as appropriate and monitoring press reports for information that may be material for companies to disclose. In addition to internal assessments, SEC has taken steps to identify significant emerging disclosure issues through the creation of the Office of Risk and Strategy within Corporation Finance. According to Corporation Finance officials, this office was created in February 2018 and was allocated additional resources in October 2019 to support its risk surveillance function, in which it identifies emerging issues that may be material for public companies by reviewing press articles, speeches, and information from other sources such as industry experts. According to Corporation Finance officials, once the office identifies an issue that may present material disclosure risks, it may perform research and analysis that can determine whether further internal or external guidance may be necessary. Corporation Finance officials also noted these efforts may result in additional guidance to review staff based on topics identified. <4. Policy Options to Enhance ESG Disclosures Range from Regulatory Actions to Private- Sector Approaches> Investors and market observers have proposed a range of policy options to improve the quality and usefulness of ESG disclosures. These options include legislative or regulatory action to require or encourage certain ESG disclosure practices, as well as private-sector approaches, such as industry-developed frameworks and stock-exchange listing requirements. These policy options can pose important trade-offs in relation to the extent to which they impose specific new disclosure requirements or encourage companies to voluntarily adopt certain ESG disclosure practices. For example, while new ESG-related requirements may help achieve greater comparability in ESG disclosures across companies and reduce investor demands on public companies, voluntary approaches may provide more flexibility to companies while limiting potential costs associated with disclosing ESG information that may not be relevant for their business. <4.1. Legislative or Regulatory Actions> Some institutional investors and market observers have proposed new legislative or regulatory requirements to enhance public companies ESG disclosures. These actions could take the form of new requirements for specific ESG disclosures, a new SEC regulation that endorses the use of an ESG disclosure framework, or new SEC interpretive releases on ESG disclosure topics. <4.1.1. Issue-Specific Rulemaking> Some market observers have recommended that SEC issue new rules requiring issue-specific ESG disclosures, such as disclosures related to climate change. For example, one investor association said that it has supported various petitions and requests for rulemaking at SEC on environmental and human capital issues. SEC has taken steps to consider these types of issue-specific ESG disclosures. For example, in August 2019, SEC proposed including disclosure topics related to human capital resources and management in the description of business section of Regulation S-K. The rule has not been finalized, but in comment letters to SEC on the proposed rule, some organizations requested more line-item disclosures and metrics on this topic. Gender Pay Gap Disclosure Requirements in the United Kingdom (UK) In 2017, the UK required issue-specific disclosure rules for large companies to report the difference in average pay for male and female employees, according to a report by the UK House of Commons Business, Energy, and Industrial Strategy Committee. An intended benefit of gender pay gap disclosure is achieving greater equity in pay by gender and improved economic performance among UK companies, according to this committee report. However, the committee found in its 2018 review of this reporting that some companies were unsure how to account for alternative compensation, such as child care vouchers and bonuses, and that additional guidance was necessary to help companies standardize their disclosures. The committee s report also recommended that the government mandate narrative disclosures where companies explain their action plan for closing any gender pay gap they may have. As previously mentioned, most investors told us they seek comparable information across companies, which line-item disclosure requirements may facilitate. Increasing comparability across companies also may reduce investor demands on companies, which have been increasing the last 5 years, according to most companies with whom we spoke. Additionally, requiring ESG disclosures in companies regulatory filings rather than across multiple locations could reduce information disparities between large and small investors, because the information would be located in a single place that was readily available to everyone. For example, some third-party data providers, which compile ESG information from various sources, may be prohibitively expensive to individual investors and small advisors, according to a study commissioned by the Department of Labor. One impediment to improved ESG disclosures that some institutional investors, companies, and market observers with whom we spoke cited was the lack of consensus around what information companies should be disclosing. Focusing on issue-specific ESG disclosure rules could allow SEC to enhance disclosures on the most pressing issues that may have more consensus, according to two academics we interviewed. As previously discussed, our review found that several ESG factors were commonly disclosed by companies across industries, including board accountability, climate change, and workforce diversity. On the other hand, regulatory requirements that necessitate new or additional disclosures may increase compliance costs for companies. None of the 18 companies with whom we spoke had quantified the costs associated with their ESG reporting. However, companies generally said that collecting and reporting ESG information required input from employees across the company. Three companies said ESG reporting represented an increasing opportunity cost as employees spent more time on reporting and away from business activities. Data not used in regular business operations or data that required outside assurance were the most costly disclosures, according to some companies. In addition, some market observers have noted that issue-specific rules can become outdated as issues evolve and that these types of disclosures would reduce flexibility for companies. Line-item or issue- specific disclosures also may not be relevant for all companies, possibly resulting in large volumes of immaterial information. According to one academic, compelling companies to disclose on issues that may not be relevant to them could distract companies from using resources on the relevant disclosures. <4.1.2. Endorse an ESG Framework in Regulation> Other market observers recommended that SEC issue a new rule endorsing one or more comprehensive ESG reporting frameworks, such as SASB or GRI, for companies reporting of material ESG issues. SEC has required the use of frameworks in other rulemakings, such as rules related to companies evaluation and disclosure of their internal controls. For that rule, SEC endorsed the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Framework as satisfying regulatory requirements. In its evaluation of several countries reporting policies, the United Nations Environment Programme recommended regulators use existing international standards and guidelines when developing sustainability reporting policies. Regulations that endorse one or more frameworks could maintain flexibility for companies, because companies could choose which parts of the framework are relevant to their businesses. In addition, frameworks can be updated over time without necessitating new rulemaking in contrast to issue-specific requirements that could become outdated. Some institutional investors and companies with whom we spoke noted the importance of flexibility if there were to be any new regulation for ESG disclosures. Additionally, frameworks could encourage companies to disclose on a wide range of ESG issues. Most investors told us they focused on a broad array of ESG issues in their analyses. European Union Directive Endorsement of ESG Frameworks A 2014 European Union directive that endorsed companies use of existing frameworks to report how they manage social and environmental challenges has needed several updates to improve comparability across companies, according to a report by the European Securities and Markets Authority (ESMA). In 2017 and 2019, the European Commission issued voluntary guidelines for the directive that encouraged companies to use an established disclosure framework to make nonfinancial information easier to report and compare, according to ESMA. However, respondents to a 2019 survey by ESMA said that among other obstacles, the lack of specificity in the directive s requirements and the use of various frameworks contributed to a lack of comparability among companies environmental, social, and governance (ESG) disclosures. As a result, ESMA recommended the European Commission amend the directive to include both general principles for reporting ESG information as well as a set of specific, universal disclosures. However, companies reporting based on different frameworks may limit comparability across companies, and there was not consensus on which framework companies should use. While some institutional investors told us they supported SASB s framework, investors also mentioned other frameworks such as GRI, TCFD, and CDP. In a 2019 survey of 46 global institutional investors, a consulting firm found that agreeing on ESG standards that are relevant to companies performance was a challenge. Additionally, the Chamber of Commerce noted that companies said in roundtable discussions that the lack of universally accepted ESG reporting standards was a major challenge to effective ESG reporting. There have been initiatives recently to standardize ESG frameworks. However, a project to improve comparability across frameworks found that there were already high levels of agreement between climate change disclosures standards and that standard-setting organizations needed to more clearly communicate how their standards were interconnected. Additionally, companies reporting under a framework may choose not to disclose certain ESG information, which could result in less comparability. As previously discussed, among the company disclosures we reviewed, we identified instances of calculation inconsistency among quantitative disclosures for companies that reported information according to GRI the most prevalent reporting framework in our sample because GRI does not always include prescriptive disclosure recommendations and sometimes allows for different calculation methods. <4.1.3. SEC Interpretative Releases> Some institutional investors and companies with which we spoke indicated that additional SEC interpretative releases addressing how ESG topics fit within existing disclosure requirements could be helpful. These releases can highlight the importance of ESG disclosures without requiring a rule change, because they clarify without changing the existing disclosure requirements. Some investors and SEC review staff said that interpretive releases serve as a good reminder for companies to consider ESG issues in their disclosures. Interpretive releases also maintain flexibility for companies to disclose the information that is material for each company. However, two market observers noted that because these releases do not create new disclosure requirements, they may not have much impact on ESG disclosures on their own. About half of the companies told us previous SEC releases had been helpful, but most investors said disclosures on these issues remain inconsistent. Eight of 18 companies said SEC s previous releases on climate change and cybersecurity had helped create an even playing field for companies or underscored the need for more transparency on these issues, among other things. However, two investors and one international organization noted that the release on climate change did not appear to expand disclosure of climate change risk among U.S. companies. As previously discussed, SEC staff reviewed samples of company s disclosures on climate change and found that most sampled companies included climate-related information within their 10-K filings with varying levels of detail. As a result, SEC staff decided against recommending that the Commission issue additional releases. <4.2. Private-Sector Approaches> Some institutional investors, companies, and market observers have cautioned against legislative and regulatory intervention in ESG disclosures and have recommended private-sector approaches to improve companies ESG disclosures. One advantage of private-sector approaches is that because they are voluntary, they provide companies with flexibility. Some investors and companies said flexibility was important in ESG reporting because the relevance of ESG issues can vary by company and change over time. Conversely, because ESG disclosures remain voluntary under these approaches, companies may choose not to use them in their reporting. Private-sector approaches could include industry-developed frameworks and stock exchange listing requirements. <4.2.1. Industry-Developed Frameworks> Some market observers with whom we spoke recommended that industries develop their own industry-specific ESG framework. For example, Edison Electric Institute and the American Gas Association partnered to develop standards to guide electric and natural gas companies ESG reporting. According to the American Gas Association, the framework was created to provide the financial sector with more uniform and consistent ESG data and information. SASB s framework also provides industry-specific standards, covering 77 different industries. Industry-specific standards focus on ESG issues that industry representatives believe are relevant to that industry. Some investors, companies, and market observers said that ESG issues vary by industry and therefore industry-specific standards are preferred. As previously discussed, we identified some differences in the amount of disclosures on specific ESG topics between industries. Agreed-upon industry-specific standards provide consensus across various stakeholders and provide comparability of ESG disclosures across companies, according to some market observers, which also may reduce investor demands on companies. One disadvantage of relying on industries to create standards is that some industries may be diverse and unable to find consensus on standards. For example, two companies told us that their unique business model does not fit into one industry group. Company and trade association interests also may conflict with those of investors and other stakeholders. According to two academics with whom we spoke, individual companies do not have an incentive to work towards standardized ESG reporting standards and will not do so on their own. <4.2.2. Stock Exchange Listing Requirements> In some countries, stock exchanges have used ESG disclosure listing requirements to try to improve companies disclosures. The United States has several stock exchanges that list publicly traded companies, and none have extensive ESG disclosure listing requirements. NASDAQ produces a voluntary ESG reporting guide for companies and the New York Stock Exchange, as a subsidiary of the Intercontinental Exchange, has declared its support for ESG disclosures of its listed companies, but neither requires such ESG reporting to be listed on its exchange. Johannesburg and Tokyo Stock Exchange Listing Requirements Stock exchanges in Japan and South Africa are examples where listing requirements have been implemented to improve public companies environmental, social, and governance (ESG) reporting in those countries. According to officials from Japan s Financial Services Agency, listing requirements on the Tokyo Stock Exchange have helped change how Japanese companies disclose ESG-related information and engage in proactive risk management. Similarly, officials from the Johannesburg Stock Exchange said that its listing requirements have had a positive impact on companies integrated reporting, which includes ESG information. However, these officials stated that other factors also have contributed to the increase in integrated reporting in South Africa. These include an understanding by local companies of how ESG factors affect their day-to-day operations and increased investor interest in ESG disclosures. According to research comparing integrated reporting in 10 countries, a number of factors contributed to South African companies high-quality integrated reports, including a framework for integrated reporting developed by a local nonprofit organization to assist companies in meeting the listing requirements. according to two industry studies. One third-party data provider noted that listing requirements provide an incentive listing on the exchange for companies to report on ESG issues. However, competition between U.S. stock exchanges could give companies alternative listing opportunities if one stock exchange enacted ESG disclosure listing requirements. According to officials from the Johannesburg Stock Exchange, as commercial entities, stock exchanges may choose to avoid imposing mandatory listing requirements on companies because they would risk losing listings that generate revenue to other exchanges or discouraging companies from listing publicly. Finally, some institutional investors, companies, and market observers noted that it was too early to prescribe standards for ESG disclosures, because there is not consensus among companies, investors, and market observers on which ESG issues should be disclosed. The marketplace should be given time to resolve these issues, according to these market participants and observers. Government officials in the United Kingdom and Japan and industry association representatives from South Africa noted that increased investor interest prompted more meaningful ESG disclosures from companies in their countries. However, they said that nonfinancial reporting requirements can be a catalyst for changing attitudes towards ESG disclosures. <5. Agency Comments> We provided a draft of this report to SEC for review and comment. SEC provided written comments that are reprinted in appendix II. SEC also provided technical comments, which we incorporated as appropriate. In its written comments, SEC generally concurred with our findings and stated that our report will contribute to the ongoing discussion around ESG disclosures among public companies, investors, and policy makers. SEC also highlighted some of its related activities, such as issuing interpretive releases on climate change and cybersecurity and soliciting public comments on disclosure requirements. In addition, SEC reiterated its commitment to materiality as the foundational principle for public company disclosure requirements. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 4 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Chairman of the Securities and Exchange Commission, and other interested parties. In addition, the report will be available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or clementsm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report examines (1) why and how investors have sought additional environmental, social, and governance (ESG) disclosures; (2) how public companies disclosures of selected ESG factors have compared within and across selected industries; (3) steps the Securities and Exchange Commission (SEC) staff have taken to assess the effectiveness of the agency s efforts to review the disclosure of material ESG factors; and (4) the advantages and disadvantages of policy options that investors and market observers have proposed to improve ESG disclosures. <6. Why and How Investors Have Sought Additional ESG Disclosures> To obtain information about why and how investors have sought additional ESG disclosures, we reviewed relevant reports and studies by academics, investment firms, and others published in the last 5 years. We identified these reports and studies through interviewing investors and market observers, reviewing sources cited in documents we obtained, and conducting internet searches. These reports and studies provided investor perspectives on issues related to ESG disclosures, including how investors use ESG disclosures, the types of ESG disclosures investors seek from companies, and investors use of shareholder proposals to request ESG information. In addition, we selected a nongeneralizable sample of 14 institutional investors and conducted semi-structured interviews with them to obtain information and perspectives on how and to what extent they incorporate ESG information into their investment decisions, why they do or do not incorporate ESG information, and why and how they engage with companies around these disclosures. Institutional investors include public and private entities that pool funds on behalf of others and invest the funds in securities and other investment assets. For our sample, we selected private-sector asset management firms and public pension funds of varying size: four large private asset management firms (each with more than $1 trillion in worldwide assets under management as of December 31, 2018); three mid-sized private asset management firms (each with from $500 billion to $1 trillion in worldwide assets under management as of December 31, 2018); three large public pension funds (each with more than $100 billion in total assets as of September 30, 2018); and four mid-sized public pension funds (each with from $40 billion to $100 billion in total assets as of September 30, 2018). To get a mix of regional perspectives, we incorporated geographic location into our selection when possible. For example, we selected at least one of the seven public pension funds from each of four U.S. census regions (Northeast, South, Midwest, and West). The information collected from this sample of institutional investors cannot be generalized to the larger population of all institutional investors. To obtain information about the extent to which investors have used shareholder proposals to promote improved ESG disclosures, we analyzed proposals submitted to a stratified random sample of 100 companies listed as of October 4, 2019, on the S&P Composite 1500, which combines three indices the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600 (see table 4). For our sample, we refer to companies appearing in the S&P 500 as large, companies in the S&P MidCap 400 as mid-sized, and companies in the S&P SmallCap 600 as small. With this probability sample, each company on the S&P Composite 1500 had a nonzero probability of being included, and that probability could be computed for any company. We stratified the population into three groups on the basis of company size, and each sample element was subsequently weighted in the analysis to account statistically for all the members of the population, including those that were not selected. All sample estimates in this report are presented along with their 95 percent confidence intervals. For each company in our sample, we obtained and reviewed its definitive proxy statement for the annual meeting that took place in calendar year 2019 to identify shareholder proposals. Using a data collection instrument, we analyzed each shareholder proposal submitted to a company in our sample to determine if it was related to ESG disclosures, what type of ESG disclosure it was requesting (environmental, social, or governance), and what type of investor (such as individual, labor union, or pension fund) requested the proposal. For any company in our sample that disclosed one or more shareholder proposals in its definitive proxy statement, we obtained and reviewed the company s 8-K that included the number of votes each proposal received at the company s annual meeting. We then calculated the percentage of votes in favor of the proposal, using the number of votes shareholders cast in favor of the proposal divided by the sum of votes cast in favor, against, and to abstain. We downloaded these SEC filings from its online Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. <7. How Selected Public Companies ESG Disclosures Compared within and across Industries> To compare public companies ESG disclosures within and across industries, we identified and analyzed disclosures related to eight ESG factors by 32 large and mid-sized public companies across eight industries. First, we judgmentally selected eight ESG factors by reviewing ESG factors frequently cited by a range of market observers (such as ESG standard-setting organizations, academics, nonprofits, and international organizations) as being important to investors or possibly material for companies in several industries and through discussions with market observers, including two ESG standard-setting organizations and one investor association. We selected eight factors that were among the most frequently cited, including at least two from each of the three categories of ESG (environmental, social, and governance). The eight ESG factors we selected were (1) climate change, (2) resource management (water and energy), (3) human rights, (4) occupational health and safety, (5) personnel management, (6) workforce diversity, (7) board accountability, and (8) data security. We then judgmentally selected 33 specific topics to represent company disclosures on the eight ESG factors. Among these 33 specific topics, we selected 16 narrative disclosure topics that companies can address by providing a narrative discussion of ESG-related risks and opportunities and their management of them and 17 quantitative disclosure topics that companies can address by providing numbers and percentages. We selected these topics by reviewing four ESG disclosure frameworks and identifying commonly occurring disclosure topics associated with the selected ESG factors. For a list of the ESG factors and topics we selected, see figure 1 in the body of the report. We then selected a nongeneralizable sample of 32 large and mid-sized public companies to review their disclosures on the eight ESG factors and 33 ESG topics. First, we judgmentally selected eight industries from which to select public companies. We identified industries that were likely to disclose information on the selected ESG factors; had multiple companies included in the S&P 500; and, when taken together, represented a diverse range of industry sectors. The eight industries we selected were (1) airlines, (2) beverages, (3) biotechnology and pharmaceuticals, (4) commercial banks, (5) consumer retail, (6) electric utilities, (7) internet media and services, and (8) oil and gas production. We used industry classifications from the Standard Industrial Classification system, which SEC s Division of Corporation Finance uses as a basis for assigning review responsibilities for industry groups. We then selected four public companies within each of these eight industries for a total of 32 companies. We selected four companies per industry that were among the eight largest in terms of market capitalization and that, when considered collectively within industries, provided representation across different U.S. regions. We limited our selection to U.S. public companies that were traded on either of the two largest American stock exchanges. The information collected from this sample of public companies cannot be generalized to the larger population of all public companies. We reviewed recent regulatory filings for these companies and voluntary reports, such as corporate social responsibility reports, to identify relevant disclosures on the selected ESG topics. We reviewed companies 2018 10-Ks, 2019 definitive proxy statements (which typically covered the same reporting period as the 2018 10-K), and 2018 annual reports (when different from the 10-K). We also reviewed companies most recent sustainability reports available on their websites, accessed from July through December 2019. We defined a sustainability report as a voluntary, stand-alone document that provided information on sustainability and other issues related to environmental, social, and governance factors. Companies can use other means to report ESG information, such as their websites or issue-specific company reports. We did not include single-issue documents or information included on websites that was not also part of the sustainability report. There are several reasons why a company may not disclose information on a specific ESG topic; for example, the topic may not be relevant to its business operations or the company may not consider it to have a significant enough impact on its financial performance to warrant disclosure. To identify relevant disclosures, we searched each document for a list of keywords related to each of the eight ESG factors to help identify passages likely to contain ESG disclosures on the 33 specific ESG topics. We selected these keywords by reviewing the 33 topics we selected and identifying unique terms associated with them. We categorized each narrative disclosure as being generic or company-specific. We categorized a narrative disclosure as company-specific if it included details about how ESG-related risks and opportunities affect the company s specific operations or how the company manages these risks or opportunities. Otherwise, we characterized the narrative disclosure as generic. Generic narrative disclosures are disclosures that could apply to the reporting company as well as to many of its peers. We considered each disclosure as a whole and, if it provided some company-specific information, we categorized the disclosure as company-specific. In addition, we conducted semi-structured interviews with representatives of 18 of the 32 selected companies to obtain their perspectives on how they determine what ESG information to disclose, where to disclose it, and the benefits and challenges of ESG reporting. We requested interviews with all 32 of the selected companies, but eight companies declined and six companies did not respond to our request. For those that did not respond, we made at least three requests by email. We interviewed at least one company from each of the selected industries. Furthermore, through the semi-structured interviews with investors described above, we obtained investors perspectives on characteristics of ESG disclosures that may limit their usefulness to investors. <8. SEC Staff Efforts Related to the Disclosure of Material ESG Factors> To understand SEC s current regulatory framework for overseeing public companies disclosures, we reviewed relevant laws and regulations, such as Regulation S-K and the Sarbanes-Oxley Act of 2002. To review SEC s efforts related to ESG disclosures, we reviewed relevant SEC policies and procedures, such as internal guidance and SEC s interpretive releases to public companies on climate change and cybersecurity disclosures. We also reviewed SEC s 2012 and 2014 reports on climate change disclosures to the U.S. Senate Committee on Appropriations. We reviewed additional internal SEC assessments on selected ESG- related topics to obtain information on steps taken by SEC to review ESG disclosures. To obtain information on how staff conduct reviews of annual 10-K filings and ESG information, we interviewed SEC officials from the Division of Corporation Finance and a nongeneralizable sample of 15 review staff from the same division (six attorneys, six accountants, and three office chiefs). For our sample, we judgmentally selected staff in industry groups in accordance with those selected for our sample of public companies and with varying levels of tenure at SEC. The information collected from this sample of SEC review staff cannot be generalized to the larger population of all SEC review staff. <9. Policy Options to Improve ESG Disclosures> To identify relevant policy proposals to improve ESG disclosures, we reviewed reports and public statements from investors, ESG standard- setting organizations, and other groups that provided their perspectives on the current state of ESG disclosures and potential policy proposals, including advantages and disadvantages of these proposals. For example, we reviewed letters submitted by various groups to SEC in response to its 2016 request for public comment on possible changes to regulation S-K, as well as press releases by large asset management firms. We conducted searches of government and academic literature for research on ESG disclosures from the previous 5 years. We searched the internet and various databases, such as ProQuest Newsstand Professional and Scopus. Using broad search terms, we identified articles related to our research objectives that provided useful context and discussion topics for interviews with market observers, investors, and companies. We also identified relevant reports and studies through investor and market observer interviews, by reviewing sources cited in documents we obtained, and through internet searches. In addition, we reviewed reports and studies on international ESG disclosure requirements to identify and obtain information about relevant policy approaches implemented in other countries. We interviewed government officials in the United Kingdom and Japan and stock exchange and industry association representatives from South Africa to obtain their perspectives on the quality of ESG disclosures in their countries and the advantages and disadvantages of their current ESG disclosure laws and policies. We selected these countries for interviews because each had implemented one or more of the ESG policies that had been discussed as potential policy proposals by investors and market observers in the United States. Finally, we interviewed a nongeneralizable sample of 13 market observers selected to represent a range of stakeholders, including ESG standard-setting organizations, academics, and representatives of industry and investor groups, to obtain their perspectives on issues and policy options related to ESG disclosures. We selected these market observers through studies and reports of companies ESG disclosures that identified leading observers with subject matter expertise and through referrals obtained during interviews for this study. We also used information obtained from our interviews with investors and companies to inform our analysis for this objective. We conducted this performance audit from January 2019 to July 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Securities and Exchange Commission Appendix III: GAO Contact and Staff Acknowledgments <10. GAO Contact> Michael Clements at (202) 512-8678 or clementsm@gao.gov. <11. Staff Acknowledgments> In addition to the contact named above, John Fisher (Assistant Director), Katherine Carter (Analyst in Charge), Emily Bond, Rachel DeMarcus, David Dornisch, Justin Fisher, Christopher Lee, Elizabeth Leibinger, Efrain Magallan, Adam Martyn, Patricia Powell, Jena Sinkfield, Tyler Spunaugle, Winnie Tsen, and Jack Wang made key contributions to this report.

Why GAO Did This Study Investors are increasingly asking public companies to disclose information on ESG factors to help them understand risks to the company's financial performance or other issues, such as the impact of the company's business on communities. The Securities and Exchange Commission requires public companies to disclose material information—which can include material ESG information—in their annual 10-K filings and other periodic filings. GAO was asked to review issues related to public companies' disclosures of ESG information. This report examines, among other things, (1) why investors seek ESG disclosures, (2) public companies' disclosures of ESG factors, and (3) the advantages and disadvantages of ESG disclosure policy options. GAO analyzed 32 large and mid-sized public companies' disclosures on 33 selected ESG topics. Among other criteria, GAO selected companies within eight industries that represented a range of sectors in the U.S. economy and selected ESG factors that were frequently cited as important to investors by market observers. GAO also reviewed reports and studies on ESG policy proposals and interviewed 14 large and mid-sized institutional investors (seven private-sector asset management firms and seven public pension funds), 18 public companies, 13 market observers (such as ESG standard-setting organizations, academics, and other groups), and international government, stock exchange, and industry association representatives. What GAO Found Most institutional investors GAO interviewed (12 of 14) said they seek information on environmental, social, and governance (ESG) issues to better understand risks that could affect company financial performance over time. These investors added that they use ESG disclosures to monitor companies' management of ESG risks, inform their vote at shareholder meetings, or make stock purchasing decisions. Most of these institutional investors noted that they seek additional ESG disclosures to address gaps and inconsistencies in companies' disclosures that limit their usefulness. GAO's review of annual reports, 10-K filings, proxy statements, and voluntary sustainability reports for 32 companies identified disclosures across many ESG topics but also found examples of limitations noted by investors. Twenty-three of 32 companies disclosed on more than half of the 33 topics GAO reviewed, with board accountability and workforce diversity among the most reported topics and human rights the least. Disclosure on an ESG topic may depend on its relevance to a company's business. As shown in the figure, most companies provided information related to ESG risks or opportunities that was specific to the company, though some did not include this type of company-specific information. Additionally, differences in methods and measures companies used to disclose quantitative information may make it difficult to compare across companies. For example, companies differed in their reporting of carbon dioxide emissions. Policy options to improve the quality and usefulness of ESG disclosures range from legislative or regulatory action requiring or encouraging disclosures, to private-sector approaches, such as using industry-developed frameworks. These options pose important trade-offs. For example, while new regulatory requirements could improve comparability across companies, voluntary approaches can provide flexibility to companies and limit potential costs.

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<1. Background> <1.1. Family Caregiver Program Organizational Structure> Within VHA, the Caregiver Support Program Office, VISNs, and VAMCs all have a role in administering and overseeing the Family Caregiver Program. Caregiver Support Program Office. The Caregiver Support Program Office administers the Caregiver Support Program, which has two main components 1. the Family Caregiver Program, which is available to eligible post-9/11 veterans, and their qualified caregivers, and 2. the Program of General Caregiver Support Services, which is available to covered veterans from any service era and their qualified caregivers. The Caregiver Support Program Office develops policy and procedures and provides guidance, oversight, and support for both components of the Caregiver Support Program. As of April 2019, this office had 11 full-time staff, with authorization to hire eight additional staff. VISNs. Each of VHA s 18 VISNs has a lead official for the Family Caregiver Program either a VAMC CSC who serves in the VISN lead role for at least 25 percent of the CSC s time or a VISN employee who is responsible for the Family Caregiver Program as one of their VISN duties. The VISN lead official s role is to provide guidance to CSCs within the VISN and to help address their questions or concerns. VISN lead officials are also responsible for disseminating information, collecting data when needed, conducting quality assurance audits, assisting and coordinating responses to inquiries from the Caregiver Support Program Office, and monitoring the Family Caregiver Program workload across the VISN. VAMCs. The program is administered at the local level at 140 VAMCs. Each VAMC has staff that are assigned to the program on either a full- time or part-time basis, as well as other VAMC staff that may assist with specific Family Caregiver Program-related activities as a collateral duty. VAMC staff assigned to the Family Caregiver Program may include the following: CSCs. CSCs are the primary program staff administering the program at VAMCs. They are generally licensed clinical social workers or registered nurses. CSCs have clinical responsibilities that may include identifying and coordinating appropriate interventions for caregivers or referrals to other VA or non-VA programs, such as mental health treatment, respite care, or additional training and education. CSCs also have administrative responsibilities that may include responding to inquiries about the program, overseeing the application process, and entering information about applications and approved caregivers into IT systems. During the first quarter of fiscal year 2019, there were approximately 436 CSCs assigned to 140 VAMCs. Administrative staff. Administrative staff are typically responsible for activities such as mailing communications to program applicants and participants, scheduling appointments, entering data into CAT, and otherwise supporting the administrative needs of the program. During the first quarter of fiscal year 2019, 24 of the 140 VAMCs or health care systems had administrative staff members assigned to the program. Clinical staff. Some VAMCs have clinical staff assigned to the program, which can include registered nurses, doctors, nurse practitioners, occupational therapists, or psychologists. These staff typically conduct in-home monitoring and may help with clinical eligibility determinations of veterans during the application process. During the first quarter of fiscal year 2019, 17 VAMCs had approximately 12 full-time-equivalent doctors, nurse practitioners, occupational therapists, and psychologists assigned to the program. Other VAMC clinical staff who are not assigned to the Family Caregiver Program may assist the program as a collateral duty. For example, they may serve as members of the clinical eligibility team or assist with program monitoring including quarterly contacts and annual home visits or program appeals (see fig. 1). <1.2. Funding for Family Caregiver Program Staff> The Caregiver Support Program Office directly funds the salaries for staff assigned to the Family Caregiver Program at VAMCs. Specifically, it funds the salaries of the CSCs, as well as some other staff who are assigned to the program, such as administrative staff or clinical staff. However, some VAMCs may also choose to fund additional staff for the program, if they identify a need. Additionally, the portion of time spent by VAMC staff assisting the program as a collateral duty may be reimbursed by the Caregiver Support Program Office. <1.3. Family Caregiver Program Application Process> To participate in the program, caregivers and veterans must submit applications to their local VAMC or to VHA s Health Eligibility Center. CSCs manage the multi-step application process, which includes administrative and clinical eligibility determinations, among other requirements (see fig. 2). According to VHA policy, VAMCs should review applications for the program within 45 days. However, this review can be extended up to 90 days if the veteran s caregiver has not completed required training, or the veteran is hospitalized during the application process. <1.4. Family Caregiver Program Monitoring> Once caregivers and veterans are enrolled in the Family Caregiver Program, VHA policy requires CSCs or other VAMC clinical staff to periodically monitor the veteran s overall health and well-being and the adequacy of the care and supervision being provided by the caregiver. This monitoring is to be documented in CAT as well as in the Computerized Patient Record System because it is a clinical encounter. The monitoring includes quarterly contacts. These contacts are supposed to occur every 90 calendar days, unless otherwise clinically indicated. They may be conducted as home visits, or if approved by the veteran s primary care team, the contacts can be completed via telephone, a face-to-face visit at a VHA medical facility, or using clinical video telehealth. annual home visits. Caregivers and veterans must receive at least one home visit each year. According to Caregiver Support Program Office officials, the annual home visit counts as one of the quarterly contacts. If a veteran demonstrates an improvement or decline in their functioning while in the program, VAMC staff are supposed to reassess the veteran to determine whether they remain clinically eligible for the program or whether a change in the stipend tier level (increase or decrease) may be appropriate. A reassessment may result in a discharge from the program, a tier level change, or no change. However, the VA Secretary announced a moratorium on discharges and tier level decreases on December 21, 2018 due to continued concerns from veterans, caregivers, and others about VAMCs inconsistent application of eligibility requirements. According to Caregiver Support Program Office officials, there is no current timeline for when the moratorium will be lifted. <1.5. VA Office of Inspector General Review of the Family Caregiver Program> In August 2018, the VA Office of Inspector General (VA OIG) issued a report on its review of the Family Caregiver Program, which focused on whether the program effectively provided services and support to qualified veterans and their caregivers. The VA OIG found that program applications were not reviewed in a timely manner, eligibility criteria were not consistently applied, caregivers and veterans were not routinely monitored, and that VHA had failed to effectively establish a governance structure that promoted program management accountability. The VA OIG made six recommendations to improve the program, including recommendations to establish a governance structure and to assess the adequacy of the program s staffing levels at VAMCs. In May 2019, the VA OIG reported that the program had implemented the two recommendations related to establishing a governance environment and designating VISN lead officials for the program. Specifically, the Family Caregiver Program issued an updated directive for the program and additional standard operating procedures in October 2018 to address the governance environment recommendation and issued a memorandum regarding VISN lead officials in January 2019 to address the VISN lead official recommendation. According to the VA OIG, the remaining recommendations have not yet been implemented. <1.6. VA MISSION Act> The VA MISSION Act, which was enacted in June 2018, included provisions directing VA to implement an IT system to support the Family Caregiver Program and the incremental expansion of program eligibility. Specifically, the Act required VA to implement an IT system by October 1, 2018. According to the Act, the IT system is to allow for data assessment and comprehensive monitoring of the program. The VA MISSION Act also required VA to submit an initial report to Congress regarding the status of the planning, development, and deployment of this system within 90 days of enactment of the Act and a final report by October 1, 2019. The final report is to include a certification by the VA Secretary that the system has been implemented, along with a description of how the Secretary is using the system to monitor the workload of the program. In addition, the VA MISSION Act requires an incremental expansion of eligibility for the Family Caregiver Program. Specifically, within 2 years of the VA Secretary certifying the IT system for the Family Caregiver Program, VHA is to expand program eligibility to caregivers of veterans with a serious injury incurred or aggravated in the line of duty on or before May 7, 1975 or on or after September 11, 2001. Two years after this initial expansion of eligibility, VHA is to further expand program eligibility to include any veteran with a serious injury incurred or aggravated in the line of duty and in need of personal care services as specified in the statute. <2. Staffing Requirements for the Family Caregiver Program Allow Variation across VAMCs; VHA Lacks Complete and Accurate Staffing Data for the Program> <2.1. Family Caregiver Program Staffing Varies across VAMCs> The Caregiver Support Program Office policy requires every VAMC to have at least one full-time CSC to administer the program. The policy also requires VAMCs to have an eligibility determination process, but does not specify staffing requirements for that process beyond stating that appropriate providers should be involved. This broad guidance provides VAMCs with flexibility in determining which providers to include in the eligibility determination process. We found that each of the four VAMCs we visited staff their Family Caregiver Program differently, including both the staff assigned to the program as well as other VAMC staff assisting the program as a collateral duty. While all four VAMCs had at least one CSC on staff, as required, other staff assigned to the program varied and included administrative staff, a non-CSC social worker, and non-CSC registered nurses. Furthermore, the differences we identified with VAMC staff assisting the program as a collateral duty included staff that assist with clinical eligibility determinations as well as staff that assist with other program requirements. Specifically, each of the four VAMCs had assembled their own clinical eligibility teams, which varied in composition and could include physicians, therapists, or mental health professionals. Other variations with staff assisting the program included three VAMCs that utilized members of the Home Based Primary Care team to assist with initial home visits, quarterly contacts, and annual home visits, and a VAMC that used physicians to assist the program with assigning stipend tier levels (see table 1). <2.2. VHA Lacks Complete and Accurate Information on Family Caregiver Program Staffing> We found that VHA s Caregiver Support Program Office does not have complete and accurate staffing information for the Family Caregiver Program. First, the Caregiver Support Program Office does not have complete information on all staff supporting the program. The office only tracks staff funded by the Caregiver Support Program Office, but does not track program staff that are VAMC-funded or other VAMC staff that assist the program as a collateral duty. For example, one site we visited had a VAMC-funded nurse that conducted quarterly contacts and home visits, but this nurse was not being tracked by the program office. Similarly, the program office was not tracking the time and resources related to VAMCs clinical eligibility team members. At each of the four VAMCs we visited, members of the clinical eligibility teams dedicated between 3 and 12 hours a month preparing for and attending the eligibility meetings. Furthermore, although the program s VISN lead officials collect data on the Caregiver Support Program Office funded positions at each VAMC annually at a minimum and submit these data to the Caregiver Support Program Office, there is no documented process to validate the data s accuracy. VHA employs a process that relies on VISN lead officials collecting data from facilities, and as a result, the overall accuracy of the data depends on the accuracy of the data VAMCs report. Based on our review of the staffing data, we identified discrepancies between the Caregiver Support Program Office s staffing data for the first quarter of fiscal year 2019 and the number of staff we observed at all four VAMCs we visited. At two VAMCs, the number of CSCs that the Caregiver Support Program Office reported was higher than what we found. Caregiver Support Program Office officials said that these staffing discrepancies could be due to vacant positions. However, officials at the two VAMCs did not indicate that they had vacant positions at the time of our site visits. The third VAMC had a part-time registered nurse staffed to the program that was not included in the Caregiver Support Program Office s staffing data even though this position was funded by VHA. Caregiver Support Program Office officials could not provide a reason for this discrepancy. The fourth VAMC had an administrative staff member funded by the Caregiver Support Program Office that was not included in the staffing data. Additionally, the Caregiver Support Program Office does not know the exact number of CSCs assigned to the program. The program office funds CSC positions, which can be filled by registered nurses or social workers. The program office also funds registered nurses who are not CSCs. However, the program office s staffing data does not distinguish between the two types of registered nurse positions because they do not currently have the capability to collect such staffing details. As a result, Caregiver Support Program Office officials told us they could not identify registered nurses who are CSCs from other registered nurses assigned to the program. Officials reported that they are working on finding a way to collect details on the types of registered nurse positions. Although Caregiver Support Program Office officials said that they are taking steps to collect more information about the staff involved in supporting the Family Caregiver Program to prepare for the MISSION Act expansion, these efforts do not fully address the problems with data completeness and accuracy that we identified. Officials said that they are starting to collect data on the Family Caregiver Program staff more frequently. Specifically, the program plans to collect information on Caregiver Support Program Office funded staff at each VAMC from the VISN lead officials quarterly instead of annually, to align with how other national programs collect such data. During the course of this review officials said they had begun working on updating the method they use to collect staffing data. Caregiver Support Program Office officials said that this revised data collection instrument will include mandatory fields and data entry rules to ensure that the data reported are more consistent. However, officials did not provide any timelines for when they will begin using the updated method. Program officials have begun to develop a staffing model in anticipation of future program growth when eligibility expands to include pre-9/11 veterans. To create the staffing model, officials are identifying current program staff at the VHA, VISN, and VAMC levels and the tasks these staff perform. However, officials indicated that the model will use Caregiver Support Program Office staffing data because those are the only staffing data available for the program. As a result, VAMC-funded staff and collateral staff will not be included. Consequently, the completeness of the staffing model will be compromised and the current and future staffing resources identified by the model may not accurately estimate the program s needs. The lack of complete and accurate staffing data for the Family Caregiver Program is inconsistent with federal internal control standards that require management to use quality information to achieve its objectives. Without complete and accurate information about the total number and types of staff that support the program, VHA does not know whether the program s staffing approach and available resources are sufficient to meet the program s requirements as well as the needs of participating caregivers and veterans. Furthermore, without complete and accurate staffing data, it is unclear how the Caregiver Support Program Office will develop projections of the staff that will be needed to enroll and support additional caregivers and veterans when the Family Caregiver Program s eligibility is expanded as required by the MISSION Act. <3. VHA Monitors VAMCs Performance Processing Applications but Lacks System-Wide Data to Monitor Required Contacts with Caregivers and Veterans> <3.1. VHA Monitors VAMCs Reviews of Family Caregiver Program Applications and Has Taken Steps to Improve Timeliness> Within VHA, the Caregiver Support Program Office monitors the timeliness of VAMCs processing of applications for the Family Caregiver Program. Specifically, Caregiver Support Program Office officials told us that they review a monthly report from CAT. These reports show the number of applications in process at each VAMC and how long they have been in process. Officials also said that they share this information with VISN lead officials each month. However, since the inception of the program, VAMCs have had difficulty meeting VHA s requirement to review applications within 90 days. Our analysis of CAT data found that about 68 percent of the 17,576 applications submitted from October 2017 through September 2018 were reviewed within 90 days. In January 2019, a memorandum was issued that required all VAMCs to develop action plans to address application processing delays beyond 90 days. Further, any VAMCs with more than 10 applications beyond 120 days or any exceeding 365 days were required to submit their action plans to the Caregiver Support Program Office. As a result of this memo, 11 VAMCs have submitted action plans. Caregiver Support Program Office officials said that they have assigned staff to monitor the action plans and have discussed the plans with the leadership of the VISNs that oversee these VAMCs. Additionally, in February 2019, VHA established a national level performance metric to measure application processing timeliness for the program that will be updated on a monthly basis, according to Caregiver Support Program Office officials. VHA s goal is for 90 percent of Family Caregiver Program applications submitted in fiscal year 2019 to be processed within 90 days. The May 2019 report from CAT shows that 94 percent of the 1,246 current applications have been in process 90 days or less. <3.2. VHA Lacks System-Wide Data on the Extent to Which VAMC Staff Have Completed Required Contacts and Visits with Caregivers and Veterans> VHA s Caregiver Support Program Office lacks system-wide data from CAT or other sources on the completion of VAMCs required quarterly contacts and annual home visits conducted with caregivers and veterans in the Family Caregiver Program. Although these contacts and visits are supposed to be documented in CAT, the system has limited reporting capabilities. As a result, Caregiver Support Program Office officials are unable to obtain system-wide data that would allow them to monitor VAMCs completion of these requirements. Furthermore, officials could not readily provide these data for the four VAMCs we visited because doing so would have required them to manually review each veteran s record (921 records across the four VAMCs). Given CAT s reporting limitations, some VAMC and VISN lead officials we spoke with indicated that they have developed their own methods for tracking contacts and visits at the facility or regional levels. For example, officials at one VAMC told us they had developed a spreadsheet for the purpose of tracking quarterly contacts and annual home visits. Further, the VISN lead officials from one VISN told us that their VAMCs report information on their ability to schedule and complete contacts and visits on a monthly basis. The program office does not collect these data from the VAMCs or VISNs. The Caregiver Support Program Office has been able to collect limited information on the extent to which quarterly contacts and annual home visits are completed through 1) bi-annual audits of a sample of Family Caregiver Program participant records that are rolled into in an annual report and 2) site visits to select VAMCs. Caregiver Support Program Office officials told us that the audits of program participants records serve as their main source of information on the completion of required contacts and visits. However, the focus of the audits vary each year, which means that officials cannot monitor trends in performance over time because the information is not comparable year-to-year. For example, in fiscal years 2017 and 2018, the focus was on the records of caregivers and veterans who had been discharged from the program, and in fiscal year 2016, the focus was on newly approved caregivers and veterans. In addition, because the audits are focused on a random sample of individual participants records, they do not provide the Caregiver Support Program Office with information to determine whether individual VAMCs are meeting these requirements. Program office officials also told us that their site visits to VAMCs include a review of the processes for required quarterly contacts and annual home visits. As of January 2019, program office officials had conducted 16 site visits since fiscal year 2016 representing about 11 percent of VAMCs. Caregiver Support Program Office officials also report that they intend to develop a site visit plan as part of MISSION Act implementation planning. Without system-wide data on VAMCs monitoring efforts, the program office does not know whether contacts and visits are being completed as required or whether VAMCs may need more staff to conduct them. The VAMC officials we spoke with acknowledged that their ability to complete quarterly contacts and annual home visits was dependent upon having enough staff. For example, one VAMC official reported that its facility did not complete an entire quarter of contacts and visits to caregivers and veterans because they did not have sufficient staffing resources. Similarly, a VISN lead official said that the VAMCs in its network also have had trouble meeting monitoring requirements due to insufficient staff. The lack of system-wide data on VAMCs completion of required contacts and visits is inconsistent with federal internal control standards that require management to use quality information to achieve their objectives. Furthermore, without these data, the Caregiver Support Program Office is also limited in its ability to estimate the additional staff that will be needed to conduct these contacts and visits once the program s eligibility expands. <4. VA Has Yet to Implement an IT System That Fully Supports the Family Caregiver Program> VHA and OIT have worked jointly over the last four years to both fix and replace the existing Family Caregiver Program IT system, CAT, but these efforts have not led to the implementation of an IT system that fully supports the needs of the program. The VA MISSION Act included provisions that directed the department to implement an IT system for the Family Caregiver Program by October 1, 2018 and required certification of the system from the VA Secretary by October 1, 2019. However, the department reported to congressional committees in October 2018 that meeting the system implementation deadline of the VA MISSION Act was not feasible. Consequently, that deadline has not yet been met. Specifically, VHA and OIT undertook two related efforts beginning in 2015: CAT Rescue was initiated in July 2015 as a short-term project intended to improve both the quality of CAT s data and the system s reliability and security. However, schedule delays and significant defects identified during system testing contributed to CAT Rescue s termination in April 2018. According to OIT officials, the department spent about $2.86 million on CAT Rescue. However, the project did not deliver viable software improvements. Caregivers Tool (CareT), a companion project to CAT Rescue, was initiated in September 2015 and was intended to produce a replacement for CAT. The project was to develop and deliver a replacement system with expanded capabilities, such as easier caregiver application submission and enhanced caregiver program analysis capabilities. However, the CareT acquisition depended on CAT Rescue, which did not deliver the needed data improvements. When CAT Rescue was terminated, data improvement and migration activities that were previously part of CAT Rescue were moved to the CareT project and contract extensions were necessary to allow more time for system development and testing in relation to these expanded requirements. Subsequently, OIT and VHA Caregiver Support Program Office officials acknowledged that development delays and the number and critical nature of system defects identified during user acceptance testing had led to the VHA Caregiver Support Program Office s loss of confidence in CareT as a viable replacement for CAT. As a result, VA suspended the CareT acquisition in January 2019 to assess the way forward. Ultimately, work on CareT ended in late February 2019. According to OIT officials, the department spent about $8.11 million on CareT between 2015 and 2019. However, no fully functioning system replacement was delivered as intended. VA commissioned two independent assessments that examined issues impacting the CAT Rescue and CareT projects. These assessments, completed by Digital Service at VA and the MITRE Corporation in early 2019, cited a number of deficiencies that likely contributed to the termination of CAT Rescue and impacted the ability of CareT to successfully deliver new system capabilities. For example, the assessments identified deficiencies in the following areas: Requirements management: The department did not effectively implement a process for requirements development and prioritization. As a result, OIT, program office staff, and the development contractors did not have a shared understanding of how the system was to perform. In addition, the requirements identified may have been overly complex and insufficient to facilitate IT development. Efforts to elaborate on the requirements over the course of the projects were not consistent and led to delays. Further, significant defects identified during testing were not effectively prioritized and requirements remained unmet. Leadership: CAT Rescue and CareT did not have stable leadership and experienced staff throughout the department s efforts to address issues with the program. Specifically, there was a lack of sustained leadership or a product owner needed to create and enforce a technical vision across contractors and the department. Without such leadership, there was a lack of effective governance and shared accountability across VHA, OIT, and the development contractor. According to the assessments, these deficiencies, among others, have resulted in VA s inability to successfully deliver IT improvements as planned. We have previously reported that successfully overcoming challenges in areas such as those identified in the independent assessments of CAT Rescue and CareT is critical to increasing an agency s odds for delivering an IT system acquisition. With the loss of confidence in CareT as a viable solution and the subsequent results of the independent assessments, VA has redirected its efforts for a third time and initiated a new project, referred to as the Caregiver Record Management Application (CARMA), in March 2019. Specifically, CARMA is focused on acquiring a solution to CAT using a commercial product that is to be configured to fit the needs of the Family Caregiver Program and support the program s expansion. The first CARMA release, planned for late October 2019, is intended to replace CAT and improve program reporting. According to program officials, this release is expected to include expanded capabilities needed to develop system-wide reports on the completion of the required quarterly contacts and annual home visits. The second release, planned for January 2020, is intended to refine initial functionality and improve stipend processing capabilities. Additional product releases are expected at least through the summer of 2020 to incorporate new capabilities, such as online application submissions for veterans and the ability to connect to existing VA systems that manage veteran and caregiver identity and relationship management. However, it is unclear what additional work may be necessary to accommodate the expansion of the Family Caregiver Program given that the department is only in the early stages of planning. Further, the department has not yet established a target date for certifying CARMA. According to OIT officials, the cost for CARMA is estimated to be between $5.7 million and $6.3 million, but additional costs for licensing and modifications to legacy systems are also expected. As of June 2019, OIT and VHA with assistance from the Digital Service at VA had taken steps to identify key project stakeholders, estimate costs, establish a timeline, and compile the initial set of requirements for implementing the first release. The department had also identified a Product Manager, who is to be responsible for coordinating efforts between OIT and VHA. According to officials from the Digital Service at VA, the CARMA project plans to use a better, more agile approach for managing requirements. In addition, the staff asserted that the department has established and filled the new Product Manager position, which is intended to improve project leadership. Despite these actions, VA has not yet demonstrated results to show whether these changes will be sufficiently effective to overcome the issues that contributed to the failure of both CAT Rescue and CareT. It is also not yet certain when VA will successfully implement and certify its IT system as required by the VA MISSION Act. Further, because the expansion of the program is contingent on the certification by the VA Secretary that the IT system fully supports the program, continued delays with the IT system will postpone needed assistance for caregivers and veterans who may qualify for these benefits when eligibility requirements are expanded. Thus, it will be important that VA ensure that the actions taken to improve requirements management and leadership of the CARMA project are effectively implemented in order to improve the likelihood that the project will deliver an IT system that fully supports the Family Caregiver Program. <5. Conclusions> As VA prepares for the expansion of the Family Caregiver Program to include caregivers of veterans who served prior to September 11, 2001, it will be important that VA have an informed understanding of the staffing resources needed to support the program. However, we found that VA continues to struggle to have the information and tools needed to effectively monitor the Family Caregiver Program. Since the Family Caregiver Program was implemented in 2011, it has experienced difficulties in meeting program requirements, such as for monitoring program enrollees, potentially impacting the caregivers and veterans it is intended to support. As both we and the VA OIG have reported, determining and ensuring there are sufficient program staff to support the program is one of VHA s greatest obstacles in meeting program requirements. In particular, VHA s Caregiver Support Program Office does not have complete and accurate staffing data with which to assess current and future staffing levels because it is not collecting data on all VAMC staff who support the program, and the data that are collected are not validated. The Caregiver Support Program Office is further impeded in its ability to assess whether VAMCs staffing levels for the program are adequate because it lacks system-wide data on the completion of periodic contacts and visits with caregivers and veterans. While the new IT system should address this issue, the program office would benefit from having an interim method to collect this information as VA s previous efforts to fix and replace CAT have not been successful. Until the program office has reliable data for oversight and planning, the difficulties VA has experienced since the Family Caregiver Program was implemented could be further exacerbated when the program s eligibility expands to include the caregivers of veterans of all eras. <6. Recommendations for Executive Action> We recommend that the Secretary of the VA direct the Under Secretary for Health to take the following actions: Collect complete staffing data for the Family Caregiver Program that includes Caregiver Support Program Office funded staff, VAMC funded staff, and staff that assist the program as a collateral duty at each VAMC. (Recommendation 1) Establish a process to ensure that the Family Caregiver Program staffing data that are collected and reported to the Caregiver Support Program Office are accurate. (Recommendation 2) Identify and use an interim method to collect data from VAMCs on their completion of required quarterly contacts and annual home visits with caregivers and veterans that can be used until a new IT system is implemented. (Recommendation 3) <7. Agency Comments> VA provided written comments on a draft of this report, which are reprinted in appendix I. In its written comments, VA concurred with all three recommendations. VA also provided technical comments, which we incorporated as appropriate. With respect to our recommendation on collecting complete staffing data, VA concurred and stated it is in the process of developing a data collection mechanism that will allow for the capture of more specific data about staffing roles and disciplines of Family Caregiver Program staff. VA also concurred with our recommendation to establish a process that ensures that the staffing data collected and reported to the Caregiver Support Program Office are accurate. VA stated that the VISN lead officials will be responsible for reviewing and validating the staffing data submitted and that the data collection mechanism under development for this purpose will have data validation processes in place for its data fields to ensure that the data entered by VISN leads are accurate. VA also concurred with our recommendation that it needs to identify and use an interim method to collect data on the completion of required quarterly contacts and annual home visits that can be used until a new IT system is implemented. In its technical comments, VA noted that data on quarterly contacts and annual home visits with caregivers and veterans are also captured in the Computerized Patient Record System because these visits are considered clinical encounters, which we note in our report. VA further stated that staff should be able to track the workload entered into the Computerized Patient Record System if VAMCs have appropriately set up their IT systems with the designated code for this program. VA asserted that in response to our recommendation it is exploring the feasibility of using data from the Computerized Patient Record System as an interim solution for monitoring the completion of quarterly contacts and annual home visits system-wide. Additionally, VA reiterated that the first release of CARMA, which it plans to release in October 2019, should include the capabilities necessary to develop system-wide reports on the completion of required quarterly contacts and annual home visits. We are sending copies of this report to the Secretary of Veterans Affairs, the appropriate congressional committees, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Sharon M. Silas at (202) 512-7114 or silass@gao.gov or Carol C. Harris at (202) 512-4456 or harriscc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Veterans Affairs Appendix II: GAO Contacts and Staff Acknowledgments <8. GAO Contacts> <9. Staff Acknowledgments> In addition to the contacts named above, Bonnie Anderson (Assistant Director), Mark Bird (Assistant Director), Alison Goetsch (Analyst-in- Charge), Emily Loriso, and Jennifer Stavros-Turner made key contributions to this report. Also contributing were Jennie F. Apter, Chris Businsky, Krister Friday, Monica Perez-Nelson, and Ethiene Salgado- Rodriguez. Related GAO Products VA Health IT: Use of Acquisition Best Practices Can Improve Efforts to Implement a System to Support the Family Caregiver Program. GAO-19- 581T. Washington, D.C.: May 22, 2019. Veterans Affairs: Addressing IT Management Challenges Is Essential to Effectively Supporting the Department s Mission. GAO-19-476T. Washington, D.C.: April 2, 2019. VA Health Care: Improvements Needed to Manage Higher-Than- Expected Demand for the Family Caregiver Program. GAO-15-245T. Washington, D.C.: December 3, 2014. VA Health Care: Actions Needed to Address Higher-Than-Expected Demand for the Family Caregiver Program. GAO-14-675. Washington, D.C.: September 18, 2014. Information Technology: Critical Factors Underlying Successful Major Acquisitions. GAO-12-7. Washington, D.C.: October 21, 2011.

Why GAO Did This Study Since 2011, the VA Family Caregiver Program has provided assistance to caregivers of seriously injured post-9/11 veterans at VAMCs nationwide. However, GAO previously reported that some VAMCs have struggled to manage the program's workload. The VA MISSION Act of 2018 requires the expansion of program eligibility to veterans of all eras contingent upon implementation and certification of a new IT system. The VA MISSION Act included a provision for GAO to review VA's efforts to implement a new IT system. GAO was also asked to examine staffing for the program. This report examines the extent to which VA 1) has established staffing requirements and has data to track program staffing; 2) monitors whether VAMCs are meeting departmental requirements for application review timeliness and required contacts; and 3) has implemented an IT system that fully supports the program. GAO reviewed program documentation and data. GAO also interviewed VHA officials and officials from four VAMCs and their VISNs that varied in their numbers of applications and approved caregivers. GAO also interviewed OIT officials and reviewed documentation related to their efforts to acquire and develop an IT system for the program. What GAO Found Within the Department of Veterans Affairs (VA), the Veterans Health Administration (VHA) has established staffing requirements for its Program of Comprehensive Assistance for Family Caregivers (Family Caregiver Program) that allow for variation, but its staffing data are not complete or accurate. VHA requires its local VA medical centers (VAMC) to have at least one Caregiver Support Coordinator to manage the program. Otherwise, VAMCs have flexibility in determining the additional staff needed. VHA's Caregiver Support Program Office funds most Family Caregiver Program staff at VAMCs. VAMCs also may fund additional program staff or have other VAMC staff assist the program as a collateral duty, but GAO found that the program office only tracks the staff it has funded. GAO also identified discrepancies between the number of staff it observed at selected VAMCs and the program office's staffing data. Without complete and accurate staffing data, the program office does not have reliable information about the program's current staffing levels, which could hamper its efforts to project needed staff when the program's eligibility is expanded. The program office routinely monitors VAMCs' performance in meeting departmental timeliness requirements for reviewing enrollment applications for the Family Caregiver Program. However, it is not able to monitor whether VAMCs are completing required quarterly contacts and annual home visits to enrolled caregivers and veterans. The Family Caregiver Program's current information technology (IT) system—the Caregiver Application Tracker (CAT)—has limited reporting capabilities and cannot provide system-wide data on the completion of these contacts and visits even though this information is documented in CAT. GAO found that some VAMCs and the regional Veterans Integrated Service Networks (VISNs) that oversee them use spreadsheets to track the completion of these requirements, but the program office does not collect these data. Without system-wide data on contacts and visits, the program office is limited in its ability to monitor and identify when VAMCs may need additional staff to meet these requirements, including once the program's eligibility is expanded. VA has yet to implement a new IT system that fully supports the Family Caregiver Program as required by the VA MISSION Act. VHA and the Office of Information and Technology (OIT) have been working jointly on projects since 2015 to improve and replace CAT. However, two of these projects were terminated without delivering viable software improvements or a replacement system. According to two independent assessments, these prior efforts lacked both effective leadership and implementation of the processes needed for requirements management. VA has asserted that its third project, in which OIT and VHA have begun to acquire and implement a commercial product to replace CAT, will take steps to avoid the issues that have impacted its past efforts. However, the initial replacement for CAT is not expected until late October 2019. Further, despite this initial deployment and additional releases expected through the summer of 2020, the department has not yet fully committed to a date by which it will certify that the new IT system fully supports the program. Until the system is implemented and certified, the expansion of eligibility for the Family Caregiver Program will be delayed. What GAO Recommends GAO is making three recommendations to VA to collect complete staffing data, establish a process to ensure the data are accurate, and establish an interim method for collecting system-wide data on required contacts and visits. VA concurred with all three recommendations.

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<1. Background> <1.1. Federal Programs for Low- Income Individuals and Families> We previously found that there are more than 80 federal programs that provide aid to people with low incomes, which are administered by several federal agencies as well as state and local providers. We reported that the low-income programs were created at various times, to serve different populations, and in response to different policy issues. We also found that many of these programs provide assistance such as cash aid, food, shelter, and health care for those who have limited means or are disadvantaged in other ways, while other programs are designed to help low-income people move toward self-sufficiency through education, training, and employment services. In their current strategic plans, some agencies include goals related to supporting individuals or families to help them move towards self- sufficiency. For example, HHS has a strategic objective to encourage self-sufficiency and personal responsibility, and eliminate barriers to economic opportunity. Officials from HHS s Administration for Children and Families (ACF) said they are currently updating ACF s strategic plan and it will likely include a vision of ending multigenerational poverty through primary prevention by using a whole family or two-generation approach that proactively connects families to services before they are in crisis. <1.2. Two-Generation Approaches to Poverty Reduction> Two-generation approaches are different from individual low-income programs because these approaches simultaneously address multiple areas, such as child and family economic supports, education, employment, health, well-being, and social capital, according to HHS. These approaches are based on findings that connect the well-being of parents to their children s social, emotional, physical, and economic well- being. For example, research indicates that parents improved economic security is linked to improvements in children s home environment, greater parental engagement in their children s schooling, and stronger parenting skills, which may lead to improved child outcomes. Similarly, children s well-being directly affects their parents ability to succeed in both school and the workplace. For example, if parents participate in a workforce training program, but cannot access safe and affordable child care, they may not be able to accept or keep the job for which they trained. Research developed by an ACF-sponsored project states that two-generation approaches are hypothesized to result in parents experiencing stronger labor force attachment or increased earnings, children improving their school readiness and academic achievement, and families increasing family functioning, community connectedness, goal-directed behavior, and executive functioning, among other potential outcomes. This approach is not a new idea. For example, Head Start programs, which started in 1965, provide early education services to low-income children while offering support to families, such as services that promote housing stability, continued education, and financial security. In addition, federal programs have supported past efforts to improve service coordination for low-income families, such as the use of one-stop centers that deliver workforce, education, and other support services at a single location. These previous efforts, however, often prioritized one generation over the other, according to researchers. Researchers also found that these previous efforts tended to not provide the intensity or duration of services needed to create change for low-income families. More recent two-generation approaches are intentionally meant to provide services for parents, children, and families in innovative ways by equally addressing the needs of children and parents using quality programs and interventions. For example, ACF is using a human- centered design approach to work across its programs to help families achieve economic independence. Human-centered design aims to create solutions from the point-of-view of families that are in need and the states that serve them and to design systems and service delivery to fit families instead of the other way around, according to ACF. These newer two- generation approaches, which aim to be higher quality and more intensive than previous efforts, are still being tested. ACF and others are currently evaluating the effectiveness of these two-generation approaches. <2. Selected State and Local Entities Most Commonly Reported Using 10 Federal Programs to Meet the Unique Needs of Local Communities> <2.1. The 10 Most Cited Federal Programs Have Characteristics That Allow State and Local Entities to Address Multiple Aspects of Child and Parent Well- Being> Ten federal programs were most commonly cited by selected state and local entities as being used to serve whole families and reduce poverty (see table 1). These programs are administered by USDA, HHS, and DOL. Federal officials have reported that the 10 programs have characteristics including the target populations, purposes, and services provided that allow state and local entities to address multiple aspects of child and parent well-being, and these have implications for their two- generation approaches. (See appendix I for the target population, purpose, and services provided by the 10 federal programs.) Specifically: Target Populations. Consistent with two-generation approaches, many of the federal programs target low-income, needy, or at-risk families. However, we previously reported that eligibility requirements for some low-income programs vary significantly with regard to who may obtain benefits and services, how income is counted, and the maximum income applicants may have. As a result, state and local officials told us that some families who they would like to engage in two-generation approaches are not eligible for some of the federally- funded programs they use for these approaches. Purpose. The purposes of Temporary Assistance for Needy Families (TANF) and the Community Services Block Grant (CSBG) are broad and can be used to support families in multiple ways. For example, CSBG s purposes are, among other things, to reduce poverty, revitalize low-income communities, and empower low-income individuals and families to become fully self-sufficient. In addition, according to HHS, these two broad programs allow state and local agencies to cover costs that other programs do not allow, such as salaries for staff to design the two-generation approach. Among the 23 state and local entities, officials from the three entities that reported using CSBG and seven of the 11 that reported using TANF said that they used the programs in combination with other federal programs that have more limited purposes. The other programs can be used to provide more specific supports, such as developing child care programs, increasing employment and earnings, alleviating hunger, or improving maternal and child health. Benefits or Services Provided. A range of benefits and services for both children and parents are available across the 10 federal programs, such as child care, food assistance, and job skills training. To create their two-generation approach, state and local entities can, to the extent permitted by law, combine services from multiple programs to provide a coordinated approach to addressing the needs of the entire family. In fact, according to HHS, combining services from multiple programs is common in two-generation approaches because single programs tend to cover only one type of service or may be for parents or children instead of both. In addition to the 10 most commonly cited federal programs, state and local entities reported using over 40 other federal programs to support their two-generation approaches (see appendix II). For example, one entity has a housing complex for single parents and their children. The families receive HUD Section 8 Project-Based Rental Assistance, and the entity also provides support services such as child care, parenting classes, and financial counseling. Two entities reported using Medicaid one of the nation s largest sources of funding for medical and other health-related services for low-income individuals. There may be additional federal programs beyond those cited that could be used for two-generation approaches that selected state and local entities did not report using. For example, HHS officials told us that the Social Services Block Grant could be used for two-generation approaches because it is one of the most flexible sources of social services funding. HUD officials said the Family Self-Sufficiency Program provides case management services and could be used for two-generation approaches. However, none of the 23 selected state and local entities reported using either program. <2.2. Selected State and Local Entities Combine Federal Programs with Other Resources in Multiple Ways to Support Their Unique Two-Generation Approaches> We found that selected entities leveraged the 10 most commonly cited federal programs in different ways to meet the unique needs of their individual communities. Officials from some entities reported using only one of the 10 programs, while one entity reported using as many as seven of the programs. In addition, all of the 23 selected entities reported using other resources, including state, local, and/or philanthropic funds, to create their two-generation approaches (see fig. 1). Some state and local officials said these additional resources were needed to provide flexibility in meeting the needs of families. For example, officials from one agency told us they used additional resources to provide services to families with incomes that exceeded the eligibility limits for federal programs, noting that some with higher incomes were still in need of assistance. To create their unique two-generation poverty reduction approaches and address the needs of their communities, selected entities reported the significance of involving leadership, changing policies, expanding services, modifying service delivery practices, and/or serving specific populations. Specifically: Involving Leadership. In some states, the governor or state legislature encouraged state agencies to adopt two-generation approaches and/or staff were hired to lead the state s efforts in implementing two-generation approaches, according to officials. For example, officials told us that Maryland s governor and Connecticut s state legislature created commissions with membership from state agencies, local organizations, and the public. The commissions made recommendations related to mitigating multigenerational poverty and developing local programs to pilot two-generation approaches. In addition, Colorado, Connecticut, Maryland, and Minnesota officials reported hiring a two-generation approach program manager within state government to coordinate the state s efforts across agencies and programs to implement such approaches. Changing Policies. Officials from some states said they changed policies to better support families as part of their two-generation approaches, such as modifying eligibility requirements for certain services. For example, officials from a Colorado state agency said they changed policies across a range of programs to be more family friendly, such as providing transitional food assistance to families no longer eligible for TANF. Officials from a Georgia state agency said they made a number of policy changes, such as increasing the income eligibility threshold for child care subsidies to help families retain this care as their income increases. Expanding Services. Some officials also reported providing additional services to families that they had not provided in the past. For example, a Colorado state agency is piloting an expansion of its maternal and child home visiting program that adds employment, education, and child care to the supports the program already provides in order to improve family economic self-sufficiency. A Colorado local department now provides short-term housing with support services, in addition to its existing emergency shelters, for some families experiencing homelessness. Modifying Service Delivery Practices. Selected state and local entities sometimes changed the methods they used to deliver services to families, according to officials. For example, families served by a local agency in Maryland complete an intake form and a strengths and needs assessment. A trained coach then helps the family complete a pathway plan with family goals and action steps. A Minnesota local department is implementing new tools to assess the health, nutrition, education, and employment needs of families and connect them to supports across the department. A Connecticut state agency is employing a family centered coaching model in its Jobs First Employment Services Program. The coaching goes beyond traditional job search assistance by identifying the needs of children and parents and providing financial literacy training. Serving Specific Populations. Two-generation approaches by selected non-governmental organizations generally provided services to more specific populations, such as single parents or the families of children in certain schools. For example, a non-governmental organization in Minnesota serves single mothers and their young children by providing housing, on-site early childhood education, and weekly life skills training while mothers earn post-secondary credentials. Another non-governmental organization in Minnesota serves families of children in Minneapolis schools and assists families in accessing a variety of services, such as housing stabilization, health, career, and financial counseling. A non-governmental organization in Connecticut provides support services for the parents of children attending its preschool, including helping parents become certified child care workers and obtain full-time employment in a preschool program. <3. Selected State and Local Entities Reported Challenges Related to Data Sharing and a Lack of Information on Successful Two- Generation Approaches> <3.1. Difficulties with Data Sharing Impeded Selected State and Local Entities Two-Generation Approaches> Officials from 14 of 23 state and local entities reported challenges related to sharing data across low-income programs. We found that some state and local entities have data sharing practices in place, while others are in the midst of designing or creating related systems. Sharing data across systems and programs serving low-income families could enhance state and local two-generation approaches. For example, officials in one county said that if more robust data sharing occurred across agencies and systems, they would have access to information that would help them make decisions based on the needs of the families they serve. Additionally, officials from one non-governmental organization said they wanted to share data with other relevant organizations in order to be able to measure the impact of their two-generation approach. We previously found that states and localities used data sharing to improve case management by helping caseworkers obtain client information more quickly and make more informed decisions. Yet, state and local officials said that data sharing is difficult due to issues with linking data across low-income programs and concerns about how to protect participant privacy. Specifically, officials from five state and local entities reported issues related to linking data, including that a lack of common data fields across low-income programs made it difficult for the entities to share data. For example, officials at one state agency said they wanted to link mental health and substance abuse data systems. However, the officials have spent 6 years creating matching fields across these systems to allow the data to be shared, and the process is not yet complete. In addition, officials from seven entities said concerns about protecting participant privacy contributed to their data sharing challenges. For example, an official at a state agency noted it can be difficult to balance protecting an individual s privacy while sharing enough data to be helpful to entities using two-generation approaches. Federal agencies have taken steps to assist state and local entities interested in data sharing by providing related resources and guidance (see fig. 2). Although this information may not be specific to two- generation approaches, federal officials reported that it could be useful to entities utilizing these approaches. <3.2. Selected State and Local Entities Reported a Need for More Information on Two-Generation Approaches> Officials from 11 of 23 state and local entities reported a lack of information on two-generation approaches to be challenging. Specifically, they wanted more examples of successful two-generation approaches, opportunities to learn from peers, and information on federal funding sources that can be used to implement these approaches. For example, officials at one state agency said they had difficulties learning about federal funding sources that do not directly relate to the agency, but could be used to support two-generation approaches. In addition, officials at a non-governmental organization said they would benefit from federally sponsored peer learning so that they could gain knowledge from states and localities to build into their two-generation work. We found that HHS has developed information memorandums and policy statements on two-generation approaches that address the topics desired by state and local entities. HHS also has hosted webinars and communities of learning to assist state and local entities that were interested in adopting two-generation approaches. For some of these efforts, HHS partnered with other federal agencies. Specifically, within HHS/ACF, at least seven offices have developed information related to two-generation approaches (see fig. 3 for examples). This information discusses a range of topics, from funding flexibility to options for building service models, that could assist state and local agencies in creating two- generation approaches. According to federal internal control standards, managers should externally communicate the information needed to achieve their organizational goals. To help to ensure effective external communication, managers may want to consider whether the information is readily available to the intended audience when needed. While HHS has created resources relevant to two-generation approaches, it has not made this information readily available to all entities using two-generation approaches. HHS officials said that they disseminate guidance and other resources through existing program or office-specific mechanisms, such as separate email lists and websites for each office. Other federal agencies in our review also created information relevant to two- generation approaches that they distributed through existing program mechanisms. For example, DOL officials said information related to two- generation approaches is woven into technical assistance as relevant to various grant programs. Similarly, Education officials said they published guidance on its website and sent it to state educational agencies and other stakeholders through program specific email lists. Given these current approaches to distribution, state and local entities using two-generation approaches may not have access to or be aware of all relevant resources if these resources are only available to recipients of certain federal programs or entities in contact with certain federal offices. Without access to all pertinent information, state and local agencies may be unaware of the breadth of information available on two-generation approaches and related topics and may be unable to use it to address challenges they face while designing and implementing such approaches. HHS recently identified an interagency effort that officials said should address challenges faced by state and local entities, including their desire for information on two-generation approaches. The interagency Council on Economic Mobility was recently established and is led by HHS with participation from USDA, Education, HUD, DOL, Department of the Treasury, Social Security Administration, Office of Management and Budget, Council of Economic Advisers, and Domestic Policy Council. Its tentative mission is to create an accountable and effective structure for federal interagency collaboration encouraging economic mobility and to use federal levers and tools to promote family-sustaining careers and economic mobility for low-income Americans. Since the Council on Economic Mobility was only recently established, it is too early to determine whether it will make information readily available across federal programs that is relevant to state and local entities using two-generation approaches. <4. Conclusions> Poverty negatively affects many aspects of a family s life, including a child s education and a parent s ability to participate in the labor force. Previous attempts to provide better service coordination for low-income families lacked the intensity and quality of services needed for parents and children to create effective change, according to researchers. Some state and local entities are attempting to use two-generation approaches to help families move towards economic self-sufficiency and alleviate the impact of poverty on children, adults, and families through quality programs that address the needs of both generations. State and local officials that we interviewed have implemented a variety of two-generation approaches, but some said they do not have sufficient information on these approaches to most effectively serve families. HHS and other agencies have taken steps to address these challenges, including providing webinars, information memorandums, and other assistance. However, most of these resources are shared through individual program and office mechanisms, potentially making them difficult to access by those not directly connected to certain programs and offices. Moving forward, readily available information and assistance could more effectively help state and local officials learn how to better serve families and help break the cycle of multi-generational poverty. <5. Recommendations for Executive Action> We are making the following recommendation to HHS: The Secretary of HHS, in consultation with the Council on Economic Mobility, should make information that would assist state and local entities in developing and implementing two-generation poverty reduction approaches readily available across federal programs and offices. (Recommendation 1) <6. Agency Comments> We provided a draft of this report to USDA, Education, HHS, HUD, and DOL for comment. We received written comments from HHS, which are reproduced in Appendix III. HHS concurred with our recommendation. The agency stated that through its coordination of the Council on Economic Mobility it will promote poverty reduction approaches that aim to provide more integrated, person-centered service delivery. In addition, HHS stated that it will work to identify opportunities for collaboration, promising practices, and successful models that promote economic mobility and will develop strategies for promoting them, such as through technical assistance. HHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretaries of the Departments of Agriculture, Education, Health and Human Services, Housing and Urban Development, and Labor, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or larink@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Characteristics of Federal Programs Most Commonly Cited by Selected Entities Implementing Two-Generation Approaches Appendix I: Characteristics of Federal Programs Most Commonly Cited by Selected Entities Implementing Two-Generation Approaches To develop child care programs that best suit the needs of children and parents in each state, to empower working parents to make their own decisions on the child care that best suits their family s needs, to provide consumer education to help parents make informed decisions, to provide child care to parents trying to achieve independence from public assistance, and to help states implement their child care regulatory standards. To enforce the support obligations owed by noncustodial parents for the support of their children through locating noncustodial parents, establishing paternity, obtaining child support, and assuring that assistance in obtaining support or order modifications will be available to all who request such assistance. Community Services Block Grant (CSBG) To reduce poverty, revitalize low-income communities, and empower low-income individuals and families in rural and urban areas to become fully self-sufficient. Noncustodial parent location, paternity establishment, establishment of child support orders, review and modification of child support orders, collection of child support payments, distribution of child support payments, and establishment and enforcement of medical support. A wide range of locally determined services and strategies may be supported to help low-income individuals and families become self- sufficient; address the needs of youth in low-income communities; and effectively use and coordinate with related programs. Comprehensive child development services, including educational, dental, medical, nutritional, and social services to children and their families. Services may be center based, home-based, family child care, or a combination, and may be full- or part-day or full- or part- year. To provide two-generation child development, family engagement, and family support services to pregnant women and young children from birth to age 5 and their families. The purpose of the program is to promote children s school readiness by enhancing social and cognitive development and by providing educational, health, nutritional, social and other services for children and families. To improve maternal and child health, prevent child abuse and neglect, encourage positive parenting, and promote child development and school readiness. Regular home visits and support services from a nurse, social worker, or other professional. Families are provided services that are tailored to their specific needs, such as teaching parenting skills, promoting early learning in the home, or conducting screenings and providing referrals to address caregiver depression, substance abuse, and family violence. Program Supplemental Nutrition Assistance Program (SNAP) To alleviate hunger and malnutrition and permit low-income households to obtain a more nutritious diet by increasing their food purchasing power. Temporary Assistance for Needy Families (TANF) To accomplish one or more of the following: (1) provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; (2) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (3) prevent and reduce the incidence of out-of-wedlock pregnancies; and (4) encourage the formation and maintenance of two-parent families. To provide a combination of education and training services that help job seekers obtain employment and advance in the labor market, to emphasize the alignment and integration of Workforce Innovation and Opportunity Act (WIOA) programs, to emphasize that employers are also customers of the workforce system, and to involve employers in helping the system provide the skilled workers they need. To provide a combination of education and training services that help job seekers obtain employment and advance in the labor market, to emphasize the alignment and integration of WIOA programs, to emphasize that employers are also customers of the workforce system, and to involve employers in helping the system provide the skilled workers they need. To provide a combination of education and training services that help job seekers obtain employment and advance in the labor market, to emphasize the alignment and integration of WIOA programs, to emphasize that employers are also customers of the workforce system, and to involve employers in helping the system provide the skilled workers they need. Benefit or service provided Benefits are provided through an electronic benefit transfer card to purchase food from authorized retailers. Allotments are determined on the basis of the thrifty food plan. TANF-funded services include: cash assistance (benefit levels and eligibility criteria defined by individual states); noncash services, including child care, work activities, work supports, and some child welfare services; and various other social services directed toward the statutory goals of family formation and reduced non-marital pregnancies. Employment services, including job searches and placement assistance, and referrals to employers. Training and services, such as occupational skills training, career counseling, and job searches. Educational supports, occupational skills training, counseling, and paid and unpaid work experiences. Appendix II: Additional Programs Cited by Selected State and Local Officials In addition to the 10 most commonly cited federal programs, state and local entities reported using over 40 other federal programs to support their two-generation approaches to poverty reduction. These programs are administered by the Corporation for National and Community Service and the Departments of Agriculture, Education, Health and Human Services, Housing and Urban Development, Justice, Labor, Transportation, and Treasury. See tables 3 through 11 below. Appendix III: Comments from the Department of Health and Human Services Appendix IV: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, the following individuals made key contributions to this report: Rachel Frisk and Danielle Giese (Assistant Directors), Andrea Dawson (Analyst-in-Charge), Gretel Clarke, Kelsey Kreider, and Kelly Snow. Also contributing to this report were Alex Galuten, Melissa Jaynes, Joy Solmonson, Almeta Spencer, Curtia Taylor, and Walter Vance.

Why GAO Did This Study In 2018, nearly one in six children in the United States lived in families with incomes below the federal poverty thresholds, or about $26,000 annually for a family of four. Research has shown that poverty is associated with negative outcomes for the entire family. State and local entities are currently using two-generation, or whole family, approaches to reduce poverty and move families towards economic self-sufficiency. Senate Committee Report 115-150 included a provision for GAO to review two-generation approaches. GAO examined (1) the primary federal programs that support two-generation approaches and how these programs were leveraged by selected state and local entities, and (2) the challenges selected state and local entities faced implementing two-generation approaches and steps federal agencies have taken to address those challenges. GAO reviewed relevant federal, state, and local agency documentation; and interviewed officials from five federal agencies, and from 23 state and local entities in five states. States were selected to achieve variation in approaches used and percentage of families with children in poverty, among other factors. What GAO Found To reduce poverty through a two-generation approach, which involves working simultaneously with adults and children in a family, selected state and local entities most commonly reported leveraging resources from 10 federal programs. Among the 10 programs were the Department of Health and Human Services' (HHS) Temporary Assistance for Needy Families and Head Start; the Department of Agriculture's Supplemental Nutrition Assistance Program; and three Department of Labor Workforce Innovation and Opportunity Act core programs. Some of these entities also reported using state, local, and/or philanthropic resources to enhance their flexibility to provide services. State and local officials told GAO that difficulties with data sharing and limited information on successful two-generation approaches made it challenging to implement them, and some federal agencies have taken steps to address these challenges. State and local officials said that data sharing is difficult due to various concerns, including protecting participant privacy. Multiple federal agencies have resources on data sharing that may be useful to entities implementing two-generation approaches. State and local officials also said they wanted more examples of successful two-generation approaches and information on federal funding to implement them. To help address this challenge, various federal offices provided information and technical assistance, but the information is distributed via separate email lists and websites, thereby limiting cross-programmatic access and availability. HHS officials said the interagency Council on Economic Mobility—led by HHS—may help address information sharing. Given its recent establishment, related efforts are yet to be seen. Without readily available information, state and local entities may lack useful resources when designing programs to serve families. What GAO Recommends GAO recommends that HHS, in consultation with the Council on Economic Mobility, make information on two-generation approaches readily available. HHS agreed with GAO's recommendation.

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<1. Background> <1.1. Death Registration Process> In the United States, deaths from all causes are recorded and tracked through a multi-step registration process, which may vary by state, according to CDC officials. According to CDC officials, when an individual dies, a death certificate is filed with the state. Funeral directors are responsible for providing demographic information about the deceased individual, while physicians, coroners, and medical examiners are responsible for providing information on cause of death. The local registrar of vital statistics is responsible for verifying the information, and then transferring copies of the death certificate to the city or county health department in some jurisdictions, and to the state registrar. The state vital registration office is responsible for verifying the information, maintaining official copies, and creating an electronic record. According to CDC officials we interviewed, state vital records offices submit their death certificate information to CDC electronically. In 2003, CDC revised the standard death certificate to include a checkbox to indicate whether a woman was pregnant at the time of her death or up to 1 year after delivery or end of pregnancy. (See fig. 3) The checkbox is part of the medical portion of the death certificate that is completed by a physician, coroner, or medical examiner. According to CDC officials, there has been staggered adoption of the revised death certificate by states, and not every state death certificate included the pregnancy checkbox until 2019. <2. CDC Has Two National Surveillance Systems Related to Maternal Mortality and Has Created a Resource to Facilitate State Efforts> CDC collects maternal mortality data using two national surveillance systems, NVSS and PMSS. In addition, CDC has developed a data application that state or local MMRCs can use to centrally collect information abstracted from various sources about each death. Federal law directs CDC s National Center for Health Statistics to collect statistics on maternal mortality. According to CDC officials, the National Center for Health Statistics receives copies of electronic records for deaths from all states and jurisdictions, such as the District of Columbia. It uses this death certificate information to assign ICD-10 codes based on the cause of death. According to CDC officials, the National Center for Health Statistics uses these coded records to compile national vital statistics files in NVSS, which is the source of official statistics on mortality in the United States, including maternal deaths. NVSS data are used to identify national trends and make international comparisons. CDC published national maternal mortality rates for deaths that occurred in 2007 based on data collected in NVSS in its report on all deaths in the United States. CDC also made these data publicly available in microdata files that can be downloaded through website applications and, according to officials, in response to specific requests when additional details, such as geography, are sought. However due to staggered implementation of the 2003 revised death certificate by the states and reliability concerns about the use of the pregnancy checkbox, CDC officials said that as of September 2019, they have not published NVSS statistics on maternal mortality in the agency s annual mortality reports since the report on deaths that occurred in 2007. For example, as specified in the technical notes of a June 2019 CDC report on national vital statistics for deaths in 2017, CDC noted evidence of an increase in false reporting of maternal deaths as a result of incorrect completion of the pregnancy checkbox on death certificates. According to CDC officials, the individual who completed the pregnancy checkbox may have incorrectly noted that a woman was pregnant or had been pregnant within 1 year of her death, and as a result, the death would have been recorded as a maternal death or late maternal death. However, prior to the addition of the pregnancy checkbox, there was a general concern that the United States was not identifying all of the maternal deaths and thus did not have a full picture of maternal mortality. According to CDC officials, the agency has recently taken steps to improve NVSS data on maternal mortality. For example, in 2018, CDC developed training for individuals who complete the cause of death portion of a death certificate, and in 2019 was developing guidance on completing the pregnancy checkbox. The agency also participated in a quality assurance pilot from January 2016 through March 2017 with four states, Georgia, Louisiana, Michigan, and Ohio, to test processes that may improve state-level data on maternal mortality. The results of the pilot were made available in articles in 2019, and CDC officials said the agency is currently disseminating the findings from the pilot to other states. According to agency officials, one of the findings from the pilot was that a greater proportion of deaths where the pregnancy checkbox on the death certificate was marked incorrectly were for women aged 45 and older. As a result, CDC officials said they plan to use additional criteria when classifying deaths for these women. Specifically, they will only code the death as a maternal death or late maternal death if the cause of death is explicitly reported on the death certificate as due to pregnancy or an obstetric cause. CDC officials stated that the changes they made improved the accuracy of data on maternal mortality, and they will implement the new reporting criteria for 2018 data. On January 30, 2020, CDC published maternal mortality statistics in a National Vital Statistics Report. For data on maternal mortality accessible through CDC s website, CDC officials said they will direct users of these data to its limitations that are noted in the annual report. Officials said they will also publish guidance on the limitations of the maternal mortality statistics, and they will continue to monitor the accuracy of the data. Taking these steps to improve the NVSS data on maternal mortality and noting their limitations should help provide federal, state, and local organizations with accurate data. For example, CDC notes on its CDC WONDER website that state, local, and county health departments rely on this source of publicly accessible data to review their community s population health trends, evaluate their program s performance for planning purposes, and compare their community with other locations. In 1986, CDC initiated a second national surveillance system for maternal mortality, PMSS. Unlike NVSS, PMSS is exclusively focused on pregnancy-related deaths. According to CDC, the system was developed because more clinical classification of the causes of these deaths was needed in order to fill data gaps and help clinicians and public health professionals to better understand circumstances surrounding pregnancy- related deaths, including the causes and appropriate actions to prevent them. This collection effort included expanding the scope of deaths under surveillance to those up to 1 year after the end of pregnancy, which is beyond the international standard of up to 42 days after the end of a pregnancy. To collect the additional data, CDC officials annually send requests to vital records offices for all 50 states and other applicable jurisdictions to provide the following: death certificates, linked live birth or fetal death certificates, and any other supporting information for 1) deaths with an ICD-10 Chapter O code for the previous year, and 2) all deaths from any cause (including injury or trauma) among women who were pregnant or were within 1 year of pregnancy as identified by matching the death certificate to a birth or fetal death certificate or by a pregnancy checkbox on the death certificate. According to CDC officials and related literature, linking information on death certificates to information on infant birth or fetal death certificates can help confirm that the pregnancy checkbox on the death certificate was completed accurately. In addition to confirming validity of a pregnancy-related death as indicated by the checkbox, linking information on death certificates to infant birth or fetal death certificates can identify pregnancy-related deaths where the checkbox did not indicate a pregnancy but should have (false negatives). CDC officials said that PMSS data are considered the most reliable source of national data on pregnancy-related deaths because (1) PMSS links death certificates with birth or fetal death certificates and additional information when available (e.g., hospital records), and (2) these files are reviewed by medically trained epidemiologists to determine if the cause and time of death are related to the pregnancy. CDC publishes national data from PMSS on the leading causes of pregnancy-related deaths and pregnancy-related mortality ratios using this system. However, the data are not published annually such as is generally the case with NVSS data on deaths and only national level data are made publicly available from PMSS in annual updates on the website and periodically in reports. According to agency officials, states and jurisdictions voluntarily provide the records in response to CDC s request that specifies that PMSS analyses will only be published at the national and regional level, and those records are subject to confidentiality protections. Additionally, according to CDC officials, because of the time involved in collecting documentation from states, the most recent data available from PMSS as of September 2019 were for deaths in 2016. To improve the timeliness of PMSS data, CDC is taking steps to gain access directly to the records that states have been submitting to the agency. Specifically, CDC entered into a contract, effective August 2019, for a pilot project with the National Association for Public Health Statistics and Information Systems to become an approved user of the State and Territorial Exchange of Vital Events system. According to the National Association for Public Health Statistics and Information Systems, this vital events system provides timely access to state vital records, including records on deaths, to federal and state data partners for use in authorized public health and administrative programs, like those at CDC. According to the contract, over the next 5 years, select CDC staff will receive training on the use of the system and will coordinate phased access to state and jurisdiction vital records. At the conclusion of the contract, authorized CDC staff are expected to have access to electronic vital records data from up to 51 states and jurisdictions. CDC officials said this should allow them to link birth and death certificate information and no longer rely on states and jurisdictions to conduct vital records linkages for PMSS. According to CDC officials, being able to access the vital events system will allow them to confirm and report pregnancy-related deaths with improved timeliness. In 2017, CDC released MMRIA, in which MMRCs multidisciplinary committees at the state and other jurisdictional level that review pregnancy-related deaths can collect and review data from various sources (e.g., medical records, social service records, autopsy reports, and vital records) to determine preventability, and identify factors that contributed to these deaths as well as prevention strategies to address these factors. As of June 2019, CDC officials said that 25 states and one other jurisdiction were using this system. While MMRCs provide the information collected in MMRIA, federally published reports only include aggregate information from select states collected through the application. For example, in May 2019, CDC published a study using information from 13 states. In the study, state MMRCs identified an average of three to four contributing factors per pregnancy-related death based on information collected through MMRIA, such as: community factors (e.g., unstable housing and limited access to transportation); health facility factors (e.g., limited experience with obstetric emergencies and lack of appropriate personnel or services); patient factors (e.g., lack of knowledge of warning signs and nonadherence to medical regimens); provider factors (e.g., missed or delayed diagnosis); and system-level factors (e.g., inadequate access to care and poor case coordination). Similar to PMSS data, the most current aggregated data that CDC publishes from the MMRIA can be for deaths that occurred 2 or more years prior to the date of the report. As noted in the May 2019 article, the most recent information from states contributing to the article varied with some state data on these deaths being as recent as 2017 while the most recent data from other states was from 2014. According to CDC officials, in August 2019, CDC awarded 24 cooperative agreements covering 25 states, and under these agreements, the committees will use the system to record review results within 2 years of a death. <3. Data Show an Overall Increase in the Pregnancy-Related Mortality Ratio, with Specific Causes Varying by Race/Ethnicity, Age, and Other Factors> Our analysis of CDC s PMSS data shows that from 2007 through 2016, over 6,700 women died of causes related to or aggravated by their pregnancy either while pregnant or within 1 year of the end of pregnancy. Our analysis also shows that while there was an overall increase in the pregnancy-related mortality ratio during this time frame, the annual mortality ratio in the United States fluctuated. As previously noted, CDC data also show that racial and age disparities exist in the rates of pregnancy-related deaths. For example, from 2007 through 2016, non-Hispanic black women were more than three times as likely to die than non-Hispanic white women, while non-Hispanic American Indian/Alaska Native women were more than two times as likely to die than non-Hispanic white women. Similarly, rates of pregnancy-related deaths for women 35 years old and older are higher than the rates for women under 30 years old. During this time period, the specific causes of death varied by race/ethnicity and age. Further, CDC data show that most of the deaths occurred within 42 days of delivery or the end of pregnancy. <3.1. Cardiovascular Conditions, Infection, and Hemorrhage Were the Leading Causes of Pregnancy-Related Deaths, though Causes Differed Among Racial/Ethnic and Age Groups> CDC s PMSS data show that among all pregnancy-related deaths, the cause of death varied. In general, what CDC classifies as other cardiovascular conditions was the most common cause of pregnancy- related deaths, followed by infection, hemorrhage, and cardiomyopathy. (See fig. 4.) These four leading causes comprised about 50 percent of all pregnancy-related deaths from 2007 through 2016. See appendix I for more information on leading causes of pregnancy-related deaths. CDC data shows that the leading causes of pregnancy-related deaths differed by racial/ethnic groups. Specifically, for non-Hispanic white and black women, the leading cause was other cardiovascular conditions from 2007 through 2016; for non-Hispanic American Indian/Alaska Native and Asian/Pacific Islander women, it was hemorrhage; for Hispanic women, it was infection, as indicated by figure 5. CDC has reported that multiple factors contribute to pregnancy-related mortality and to racial/ethnic disparities, including community, health facility, patient/family, provider, and system factors. Leading causes of pregnancy-related deaths also differed by the age of the woman, as indicated by figure 6. Specifically, the leading cause for women under 25 was infection, while for all other women the leading cause was other cardiovascular conditions. In a 2017 article, the authors noted that maternal morbidity and mortality rates increase with advanced maternal age, due in part to increased prevalence of chronic conditions (e.g., hypertension, diabetes, and chronic heart disease.). This may help explain the variation in the rate of pregnancy-related deaths among women of different ages. <3.2. Most Pregnancy-Related Deaths Occurred within 42 Days of the End of Pregnancy, while Specific Causes of Death Varied Depending on When the Death Occurred> Our analysis of CDC s PMSS data shows that from 2011 through 2016, most pregnancy-related deaths occurred between 0 and 42 days postpartum meaning that they occurred either on the day of delivery or end of pregnancy up to 42 days after pregnancy. (See fig. 7.) According to CDC officials, understanding the timing of pregnancy-related deaths is important for prioritizing intervention strategies. The officials noted that deaths resulting from cardiomyopathy can occur months after pregnancy but can also be prevented with appropriate interventions. In particular, the American College of Obstetricians and Gynecologists published guidance for managing pregnancy and heart disease that noted that complications are frequently encountered in the days, weeks, and months after delivery in women with known cardiovascular disease and in those with latent cardiovascular disease. Women with multiple risk factors for cardiovascular disease may be particularly at risk of manifesting symptoms for the first time during their postpartum course. CDC s data show that the leading causes of pregnancy-related death varied depending on when the death occurred. For example, over the period 2011-2016, hemorrhage and amniotic fluid embolism were leading causes of pregnancy-related deaths on the day of delivery or the end of pregnancy, while cardiomyopathy was the leading cause of pregnancy- related deaths between 43 and 365 days postpartum. (See fig. 8.) A recent article on pregnancy-related deaths stated that multiple factors contribute to pregnancy-related deaths during pregnancy, labor and delivery, and the postpartum period. Further, the article notes that no single intervention strategy is sufficient, and reducing these deaths requires reviewing and learning from each death, improving women s health, and reducing social inequities across the life span, as well as ensuring quality care for pregnant and postpartum women, according to the article. See appendix II for supplemental data on pregnancy-related deaths. <4. HHS Funds Multiple Ongoing Efforts Focused on Reducing Pregnancy-Related Deaths> State Participation in the Alliance for Innovation on Maternal Health (AIM) Initiative According to the American College of Obstetrics and Gynecology, as of June 2019, 26 states were enrolled in the AIM initiative. The AIM initiative, funded by the Health Resources and Services Administration, engages provider organizations, state-based public health systems, consumer groups and others in a national partnership to assist state- based teams in implementing evidence-based maternal safety bundles. Ten of the 26 states joined in the last year and are beginning to implement maternal safety bundles and collect data. Five of these bundles are being implemented by one or more states. Bundle topics: Maternal Venous Thromboembolism, Postpartum Care Basics for Maternal Safety: From Birth to Comprehensive Postpartum Visit, Obstetric Care for Women with Opioid Use Disorder, Obstetric Hemorrhage, Reduction of Peripartum Racial/Ethnic Disparities, Safe Reduction of Primary Cesarean Birth, Severe Hypertension in Pregnancy, and Postpartum Care Basics for Maternal Safety: Transition from Maternity to Well Woman Care. Preventing Maternal Deaths: Supporting Maternal Mortality Review Committees Cooperative Agreements. Under these cooperative agreements, CDC is providing funding to state agencies and organizations that coordinate and manage MMRCs. As previously mentioned, MMRCs systematically and comprehensively review pregnancy-related deaths in order to identify prevention opportunities. Funding recipients will identify and review deaths within 1 year of death and enter clinical and non-clinical data and committee decisions in MMRIA a standardized data system managed by CDC within 2 years of death. As part of the agreement, recipients in coordination with CDC analyze data and share findings with stakeholders, such as clinicians, to inform policy and prevention strategies to reduce pregnancy-related deaths, such as screening procedures. According to CDC officials, in August 2019, CDC awarded these 5-year cooperative agreements to 24 recipients covering 25 states. Recipients received different amounts ranging from $150,000 to over $550,000 in the first year to support their MMRC. CDC anticipates awarding a similar level of funding for the 5- year period of performance. Maternal and Child Health (MCH) Services Block Grant Program. HRSA provides funding through this program to 59 states and jurisdictions to improve maternal and child health. According to agency officials, many recipients reported using their MCH Services Block Grant funding to help support or complement other federal initiatives, such as an MMRC, a Perinatal Quality Collaborative (PQC), and Alliance for Innovation on Maternal Health (AIM) maternal safety bundles. For example, according to HRSA officials, in fiscal year 2018, 38 recipients self-reported that the block grant partially or fully funded their MMRCs, and additional states and jurisdictions reported using block grant support for planning activities to begin development of their MMRC. Further, states and jurisdictions cited PQCs, networks of multidisciplinary teams that work to improve measurable outcomes for maternal and infant health, in their block grant narrative. Additionally, implementation of a HRSA-supported AIM maternal safety bundle, sets of actionable, evidence-based practices for improving maternal outcomes was cited. (Appendix III includes more information on funding for PQCs and AIM maternal safety bundles.) Our review of HRSA documentation shows that in fiscal year 2017, total federal expenditures for the block grant program were about $540 million for women and children covered by the program, and expenditures for services for pregnant women from all sources federal funds, as well as state, local, program income, and other funds was about $300 million. Indian Health Service (IHS) Implementation of Alliance for Innovation on Maternal Health (AIM) Maternal Safety Bundles In 2017, IHS s leadership released a request that IHS federal hospitals that provide inpatient obstetric care implement at least one maternal safety bundle sets of evidence- based practices that when implemented collectively and reliably in the delivery setting may improve patient outcomes and reduce maternal mortality and severe maternal morbidity. According to IHS, since 2014, IHS has had phased implementation of the bundles in federal hospitals that provide inpatient obstetric care. Officials said that for many facilities, Obstetric Hemorrhage was the first bundle implemented. Others have also been implemented, such as the Severe Hypertension in Pregnancy bundle, and the Obstetric Care for Women with Opioid Use Disorder bundle. According to officials we interviewed in five selected states, they use these two efforts MMRC findings and MCH block grant funding and other efforts collectively to address pregnancy-related deaths. For example, according to Georgia officials, Georgia s PQC received funding from CDC and implemented the AIM obstetric hemorrhage maternal safety bundle in 2018 based on the state s MMRC finding that hemorrhage was a leading cause of pregnancy-related deaths in Georgia. According to officials, Georgia s MMRC was funded primarily through the MCH Services Block Grant. Similarly, according to Maryland officials, Maryland s PQC oversees implementation of the state s AIM initiative. Officials we interviewed from three of the five selected states said that the AIM initiative had an immediate or the largest effect on addressing maternal mortality in their state. Officials from the other two states said they could not identify which efforts had the largest or most immediate effect on addressing maternal mortality. Officials from one state noted the importance of their collaborative approach and the other noted that there is no one contributing factor for maternal mortality. See appendix V for more information about how the selected states we interviewed are using these funding efforts. All five states also mentioned beginning or continuing to address racial/ethnic or other health disparities with block grant funding, through their MMRCs, or other efforts. For example, officials in one state said they use block grant funding to support its Black Infant Health Program, which helps address maternal morbidity and mortality of black mothers in the late maternal period. Additionally, two of the HHS funding efforts awarded in fiscal year 2019 have outcomes related to decreasing racial and ethnic disparities in maternal mortality: the Alliance for Innovation on Maternal Health Community Care Initiative and the State Maternal Health Innovation Program. In addition to those efforts that are exclusive to maternal mortality or have a focus on maternal mortality, HHS agencies have other funding efforts that may reduce maternal mortality by improving maternal health. For example, agency officials also identified the following: HRSA s Maternal, Infant, and Early Childhood Home Visiting Program supports voluntary, evidence-based home visiting services for at-risk pregnant women and parents with children up to kindergarten entry. Our review of agency documentation shows that in fiscal year 2019, HRSA awarded about $351 million in funding to 56 states, territories, and nonprofit organizations to support communities in providing voluntary evidence-based home visiting services through the Maternal, Infant, and Early Childhood Home Visiting Program. The Substance Abuse and Mental Health Services Administration, which is responsible for leading public health efforts to advance the behavioral health of the nation and reducing the impact of substance abuse and mental illness on America s communities. The agency funds two programs that provide grants to public and private nonprofit entities and state substance abuse agencies for substance use disorder treatment and recovery services for pregnant and postpartum women. Our review of agency documentation and interviews with agency officials shows that from fiscal year 2017 through 2019, the Substance Abuse and Mental Health Services Administration awarded 41 Services Grant Program for Residential Treatment for Pregnant and Postpartum Women and six State Pilot Grant Program for Treatment for Pregnant and Postpartum Women grants. The Centers for Medicare & Medicaid Services, which administers the Medicare and Medicaid programs, developed the Maternal Opioid Misuse Model. Through this model, state Medicaid agencies will coordinate with care-delivery partners to test whether payments for evidence-based, coordinated care delivery improve outcomes and reduce costs for pregnant and postpartum Medicaid beneficiaries with opioid use disorder and their infants. According to agency officials, funding for cooperative agreements with 10 state Medicaid agencies began in January 2020. <5. Agency Comments> We provided a draft of this report to HHS. HHS provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of HHS, and appropriate congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-7114 or deniganmacauleym@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Appendix I: Pregnancy Mortality Surveillance System Cause of Death Categories In 1986, the Centers for Disease Control and Prevention (CDC) initiated national surveillance of pregnancy-related deaths in the Pregnancy Mortality Surveillance System (PMSS) because more clinical information was needed to fill data gaps about causes of these deaths. A pregnancy- related death, as defined in statute, is the death of a woman while pregnant or within 1 year of the end of a pregnancy regardless of the outcome, duration or site of the pregnancy from any cause related to or aggravated by the pregnancy or its management, but not from accidental or incidental causes. As of September 2019, CDC used 11 categories when coding the cause of death for pregnancy-related deaths in PMSS, and 2016 data were the most recent data available. From 2007 through 2016, there were 6,765 pregnancy-related deaths, according to PMSS data. See table below for information on the 11 cause of pregnancy-related death categories, including PMSS data on leading causes, most common time frame, and most common age group affected. Appendix II: Supplemental Data on Pregnancy-Related Deaths The following tables include supplemental data on pregnancy-related deaths by racial/ethnic and age groups. Appendix III: Ongoing Department of Health and Human Services Funding Efforts to Reduce Pregnancy-Related Deaths As of September 2019, the Department of Health and Human Services was providing funding for 13 efforts with a stated outcome, goal, or focus on reducing pregnancy-related deaths. One of the these Supporting Maternal Mortality Review Committees is funded by CDC and has an exclusive focus on reducing deaths of the women during pregnancy or up to 1 year of pregnancy, while the other 12 have additional focus areas, such as improving infant health. Two of these efforts are not discrete funding opportunities, but rather a variety of research funding opportunities offered by the Health Resources and Services Administration and the National Institutes of Health. Table 5 lists the 13 efforts, their current awards, funding, purpose, and examples of goals or research. Appendix IV: Health Resources and Services Administration and National Institutes of Health Research Health Resources and Services Administration (HRSA) and National Institutes of Health (NIH) officials noted research the agencies support, including funding related to maternal health that also includes projects specific to maternal mortality or that can affect maternal mortality. The Maternal and Child Health Bureau supports field-based, applied and translational research through an extramural research program that provides leadership and funding that support innovative research to inform practitioners, the scientific community, and the public. According to HRSA officials, this research program helps to advance the field of maternal and child health; improve the health and well-being of women, children, and families; and address the needs of economically or medically vulnerable maternal and child health populations. According to HRSA officials, in fiscal year 2018, HRSA awarded a total of about $1.2 million in funding for six research projects related to maternal illness. The following HRSA website includes an option for searching for funded projects using key terms, https://mchb.hrsa.gov/research/. <6. Surveillance of Maternal Mortality> Baeva, S., D.L. Saxton, K. Ruggiero, et al. Identifying Maternal Deaths in Texas Using an Enhanced Method, 2012 , Obstetrics & Gynecology, vol. 131, no. 5 (2018): 762-769. <7. Maternal Health> Casey, M.M., P. Hung, C. Henning-Smith, et al. Rural Implications of Expanded Birth Volume Threshold for Reporting Perinatal Care Measures. Joint Commission Journal on Quality and Patient Safety, vol. 42, no. 4 (2016): 179-187. Hung, P., K.B. Kozhimannil, M.M. Casey, et al. Why Are Obstetric Units in Rural Hospitals Closing Their Doors? Health Services Research, vol. 51, no. 4 (2016): 1546-1560. Kozhimannil, K.B., C. Henning-Smith, P. Hung, et al. Ensuring Access to High-Quality Maternity Care in Rural America. Women s Health Issues, vol. 26, no. 3 (2016): 247-250. Kozhimannil, K.B., P. Hung, M.M. Casey, et al. Factors Associated with High-Risk Rural Women Giving Birth in Non-NICU Hospital Settings. Journal of Perinatology, vol. 36, no. 7 (2016): 510-515. Kozhimannil, K.B., M.M. Casey, P. Hung, et al. Location of Childbirth for Rural Women: Implications for Maternal Levels of Care. American Journal of Obstetrics and Gynecology, vol. 214, no. 5 (2016): 661e1- 10. Kozhimannil, K.B., C. Henning-Smith, and P. Hung. The Practice of Midwifery in Rural US Hospitals. Journal of Midwifery & Women s Health, vol. 61, no. 4 (2016): 411-418. Kozhimannil, K.B., P. Hung, M.M. Casey, et al. Relationship between Hospital Policies for Labor Induction and Cesarean Delivery and Perinatal Care Quality among Rural U.S. Hospitals. Journal of Health Care for the Poor and Underserved, vol. 27, no. 4 (2016): 128-143. Weigel, P.A., F. Ullrich, D.M. Shane, et al. Variation in Primary Care Service Patterns by Rural-Urban Location. Journal of Rural Health, vol. 32, no. 2 (2016): 196-203. NIH support research, including funding maternal health research through a number of its institutes and centers, such as the Eunice Kennedy Shriver National Institute of Child Health and Human Development; the National Heart, Lung, and Blood Institute; the National Institute of Alcohol Abuse and Alcoholism; the National Institute of Diabetes and Digestive and Kidney Diseases; the National Institute of Mental Health; the National Institute of Nursing Research, and the Office of Research on Women s Health. For example, NIH officials noted that The Eunice Kennedy Shriver National Institute of Child Health and Human Development supports essential research designed to overcome many of the complex challenges that women encounter in trying to achieve and maintain healthy pregnancies, and to prevent maternal mortality and severe maternal morbidity. In fiscal year 2018, NIH funded 661 projects totaling almost $303 million that included a focus on maternal health. The following NIH website includes a link to funded research for fiscal years 2015 through 2018 and estimates for fiscal year 2019 and 2020 by category, including maternal health, https://report.nih.gov/categorical_spending.aspx. <8. Surveillance of Maternal Mortality> MacDorman, M.F., E. Declercq , and M.E. Thoma. Making Vital Statistics Count: Preventing U.S. Maternal Deaths Requires Better Data. Obstetrics & Gynecology, vol. 131, no. 5 (2018): 759-761. MacDorman, M.F., E. Declercq, H. Cabral, et al. Recent Increases in the U.S. Maternal Mortality Rate: Disentangling Trends from Measurement Issues. Obstetrics & Gynecology, vol. 128, no. 3 (2016): 447-455. Thoma, M.E., D.A. De Silva, and M.F. MacDorman. Examining Interpregnancy Intervals and Maternal and Perinatal Health Outcomes Using U.S. Vital Records: Important Considerations for Analysis and Interpretation. Paediatric and Perinatal Epidemiology, vol. 33, no. 1 (2019): O60-O72. <9. Maternal Health> Brogly, S.B., K.E. Saia, M.M. Werler, et al. Prenatal Treatment and Outcomes of Women with Opioid Use Disorder. Obstetrics & Gynecology, vol. 132, no. 4 (2018): 916-922. Dimidjian, S., S.H. Goodman, J.N. Felder, et al. Staying Well During Pregnancy and the Postpartum: A Pilot Randomized Trial of Mindfulness-based Cognitive Therapy for the Prevention of Depressive Relapse/Recurrence. Journal of Consulting and Clinical Psychology, vol. 84, no. 2 (2016): 134-145. Hauspurg, A., S. Parry, B.M. Mercer, et al. Blood Pressure Trajectory and Category and Risk of Hypertensive Disorders of Pregnancy in Nulliparous Women. American Journal of Obstetrics and Gynecology, vol. 221, no. 3 (2019): 277.e1-277.e8. Liu, T., M. Zhang, E. Guallar, et al. Trace Minerals, Heavy Metals, and Preeclampsia: Findings from the Boston Birth Cohort. Journal of the American Heart Association, vol. 8, no. 16 (2019): e012346. Miller, E.C., M. Gallo, E.R. Kulick, et al. Infections and Risk of Peripartum Stroke during Delivery Admissions. Stroke, vol. 49, no. 5 (2018): 1129-1134. Sheen, J.J., J. D. Wright, D. Goffman, et al. Maternal Age and Risk for Adverse Outcomes. American Journal of Obstetrics and Gynecology, vol. 219, no. 4 (2018): 390.e1-390.e15. Appendix V: Maternal Mortality Efforts in Selected States To describe how selected states use Department of Health and Human Services (HHS) funds to implement select efforts to reduce maternal mortality, we interviewed officials from five states California, Georgia, Illinois, Maryland, and Texas selected because of their geographic diversity and because these state have the following efforts shown in Table 6. Officials from three of the five states we interviewed said that the Alliance for Innovation on Maternal Health (AIM) Initiative had an immediate or the largest effect on addressing maternal mortality in their state. Officials from the other two states said they could not identify which efforts had the largest or most immediate effect on addressing maternal mortality. Officials from one state noted the importance of a collaborative approach and the other noted that there is no one contributing factor for maternal mortality. Some of the HHS-funded efforts previously described in appendix III had not been awarded at the time of our interviews, such as the State Maternal Health Innovation Program cooperative agreements. See table 6 below for information about these states efforts. Appendix VI: GAO Contact and Staff Acknowledgments <10. GAO Contact:> Mary Denigan-Macauley, Director, (202) 512-7114 or deniganmacauleym@gao.gov. <11. Staff Acknowledgments:> In addition to the contact above, Raymond Sendejas (Assistant Director), Natalie Herzog (Analyst-in-Charge), Sam Amrhein, Margaret Cullinan, Kaitlin Dunn, Laura Ann Holland, Diona Martyn, Jennifer Rudisill, and Vikki Porter made key contributions to this report. Other contributors include Jieun Chang, Leia Dickerson, Sandra George, and Amy Leone.

Why GAO Did This Study Every year in the United States, hundreds of women die of complications related to pregnancy and childbirth. According to CDC data, racial/ethnic disparities exist with regard to these deaths. For example, non-Hispanic black women were more than three times as likely to die as non-Hispanic white women, and non-Hispanic American Indian/Alaska Native women were more than two times as likely to die as non-Hispanic white women. GAO was asked to review issues related to maternal mortality in the United States. In this report, GAO describes, among other things, (1) trends in pregnancy-related deaths in the United States, including trends in causes and timing of these deaths, and (2) HHS funding efforts focused on reducing pregnancy-related deaths. GAO reviewed documentation about HHS's surveillance efforts related to pregnancy-related deaths; and analyzed CDC data on leading causes of pregnancy-related deaths from 2007 through 2016 (the most recent 10-year period available at the time of GAO's review). GAO also reviewed documentation and interviewed HHS and state public health officials in five selected states about HHS's funding efforts aimed at reducing pregnancy-related deaths, including select efforts used in these states. GAO selected these states primarily based on their geographic diversity and their implementation of select efforts to address maternal mortality. GAO provided a draft of this report to HHS. HHS provided technical comments, which GAO incorporated as appropriate. What GAO Found GAO's analysis of the Centers for Disease Control and Prevention's (CDC) Pregnancy Mortality Surveillance System data shows that from 2007 through 2016, over 6,700 women died of causes related to or aggravated by their pregnancy—either while pregnant or within 1 year of the end of pregnancy. While CDC data show an overall increase in the pregnancy-related mortality ratio in the United States during this time frame, the annual ratio fluctuated. Cardiovascular conditions, infection, and hemorrhage were the leading causes of pregnancy-related deaths, and comprised about 50 percent of all pregnancy-related deaths from 2007 through 2016. In addition, CDC data show that the leading causes of pregnancy-related deaths differed by racial ethnic groups. (See figures.) The Department of Health and Human Services has 13 ongoing efforts aimed at reducing pregnancy-related deaths. The following are key examples of these: Supporting Maternal Mortality Review Committees Cooperative Agreements . According to CDC officials, in September 2019, CDC awarded 5-year cooperative agreements to 24 recipients covering 25 states with amounts ranging from $150,000 to over $550,000 in the first year, totaling about $8.4 million. Under these agreements, CDC is providing funding to state agencies and organizations that coordinate and manage Maternal Mortality Review Committees. The committees are responsible for comprehensively reviewing deaths to identify prevention opportunities. Maternal and Child Health (MCH) Services Block Grant Program .The Health Resources and Services Administration provides funding through this program to 59 states and jurisdictions to improve maternal and child health. In fiscal year 2017, total expenditures for services for pregnant women from all sources—federal funds, as well as state, local, program income, and other funds—was about $300 million. According to agency officials, many recipients reported using their block grant funding to help support or complement other federal initiatives, such as their review committee, quality collaborative, and use of maternal safety bundles. According to officials GAO interviewed in five selected states, they use these efforts and others collectively to address pregnancy-related deaths. For example, according to officials in one state, they implemented an obstetric hemorrhage maternal safety bundle in 2018 based on the state's Maternal Mortality Review Committee finding that hemorrhage was a leading cause of pregnancy-related deaths in the state. According to officials, the state's Maternal Mortality Review Committee was funded primarily through the MCH Services Block Grant. All five states also mentioned beginning or continuing to address racial/ethnic or other health disparities with block grant funding, through their Maternal Mortality Review Committees, or other efforts. For example, officials in one state said they use block grant funding to support their Black Infant Health Program, which helps address maternal morbidity and mortality of black mothers in the late maternal period. Additionally, two of the HHS funding efforts awarded in fiscal year 2019 have outcomes related to decreasing racial and ethnic disparities in maternal mortality: the Alliance for Innovation on Maternal Health Community Care Initiative and the State Maternal Health Innovation Program.

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<1. FEMA Experienced Challenges in Planning, Coordinating with Stakeholders, and Tracking the Use of Contracts> <1.1. Challenges in Acquisition and Workforce Planning> Ensuring that there is adequate time to complete acquisition planning activities and identifying the contracting workforce required to execute mission needs can help agencies establish a strong foundation for successful acquisition outcomes. However, our prior work identified challenges FEMA faced in its acquisition and workforce planning efforts for disaster contracting. The Federal Acquisition Regulation (FAR) requires agencies to perform acquisition planning activities for all acquisitions to ensure that the government meets its needs in the most effective, economical, and timely manner possible. In our December 2018 report, we found that FEMA had guidance in place establishing timeframes for certain FEMA acquisitions following the completion of the acquisition package. Further, FEMA implemented an acquisition tracking tool in 2016 the 5-Year Master Acquisition Planning Schedule (MAPS) which monitors the status of and provides acquisition planning timeframes for certain high value and mission-critical acquisitions, including advance contracts, regardless of dollar value. However, we found that FEMA had not established timeframes or released guidance for the pre-solicitation phase of the acquisition planning process, when program officials identify a need and develop key acquisition package documents (see figure 1). Not adhering to suggested timeframes can place a burden on contracting officers and increase the likelihood of not awarding a contract on schedule. This, in turn, may create a need for FEMA to non-competitively extend the existing contract this extension may be considered a bridge contract. Given the lack of a government-wide definition, we defined bridge contracts in our prior work as: extensions to an existing contract beyond its period of performance (including base and options) and new, short-term contracts awarded on a sole-source basis to an incumbent contractor to avoid a lapse in service caused by a delay in awarding a follow-on contract. FEMA officials acknowledged that the use of non- competitive bridge contracts is not an ideal practice as they cannot ensure the government is paying what it should for goods and services. However, in December 2018, we found that FEMA used bridge contracts for at least 10 of its advance contracts used in response to the 2017 disasters with some of these contracts lasting for several years. To decrease dependence on bridge contracts, FEMA established MAPS to help track and monitor the status of acquisition planning timeframes for certain acquisitions. However, most of the program office and contracting officials we spoke with during our December 2018 review had limited familiarity with the tool. In our December 2018 report, we recommended that FEMA update and implement existing guidance to identify acquisition planning timeframes and considerations across the entire acquisition planning process and clearly communicate the purpose and use of its acquisition planning tool to relevant personnel. DHS concurred, but in its response to our report stated it believed existing outreach and training on MAPS had resolved these challenges. We acknowledged FEMA s training in our report, but noted that not all relevant staff we spoke with were familiar with MAPS, and that there was no formal guidance on the timeframes for the entirety of the acquisition planning process. Given these issues, we continue to believe FEMA needs to take additional steps to implement our recommendation. Without planning and guidance on its use of advance contracts, FEMA lacks reasonable assurance that it is maximizing their use to the extent practicable and cost-effective to quickly provide goods and services following a disaster. PKEMRA requires the FEMA Administrator to develop a contracting strategy that maximizes the use of advance contracts to the extent practical and cost effective, and FEMA contracting officials told us that advance contracts should be used before awarding new contracts. However, in December 2018, we found that FEMA s advance contract strategy and guidance did not clearly identify the objectives of advance contracts or whether and how they should be prioritized for use in relation to new post-disaster contracts. For example, we reported that FEMA s lack of an updated strategy and guidance contributed to confusion and challenges with the use of advance contracts for tarps, used to cover small areas of roof damage. Although FEMA had awarded advance contracts to provide tarps, a subsequent modification to these contracts limited the ability to use them for immediate disaster response needs one of FEMA s stated purposes. Furthermore, we found that FEMA awarded vendors new post-disaster contracts for tarps before using its existing advance contracts. According to FEMA officials at that time, neither of the post-disaster contract vendors was able to provide the required tarps when needed. We concluded that the timing and use of the existing tarp advance contracts raised questions about the ability of contracting officers to use these contracts to provide tarps immediately following disasters. Additionally, we concluded that an updated advance contracting strategy could have enabled FEMA to more quickly provide the needed tarps to survivors, considering the additional time and staff resources needed to award new post-disaster contracts. In our December 2018 report, we recommended that FEMA update its strategy to clearly define the objectives of advance contracts, how they contribute to FEMA s disaster response operations, and whether and how they should be prioritized in relation to making new, post-disaster contract awards. We also recommended FEMA update its guidance accordingly. DHS concurred with these two recommendations and identified actions it plans to take to address them. Our prior work also showed that FEMA s ability to adequately plan for and manage its disaster contracts is further complicated by persistent acquisition workforce challenges, including attrition and staffing shortages. In April 2019, we found that FEMA had identified workforce shortages as a continuing challenge for disaster response and recovery. But FEMA had not assessed its contracting workforce including regional contracting workforce needs since at least 2014. We recommended FEMA assess its workforce needs to address these shortcomings and develop a plan, including timelines. DHS agreed, identified steps FEMA has taken and plans to take to address the recommendation, and estimated addressing the recommendation by September 2019. <1.2. Continued Challenges Coordinating with Federal, State, and Local Partners on Contracting Issues> Our prior reports found that FEMA experienced challenges coordinating with state, local, and federal partners over disaster preparation and response efforts. Coordination is critical to ensuring that states and localities have their own tools in place to facilitate disaster response, and that contracting needs are clearly communicated and considered among federal agencies. Yet FEMA faced continued challenges and inconsistencies in its coordination with states and localities over the use of advance contracts. In January 2017, FEMA updated guidance to include requirements for coordination with state and local governments on the use of federal advance contracts. This update was in response to our September 2015 finding that there were inconsistencies in whether and how staff in FEMA s regional offices performed state and local outreach on advance contracting efforts. However, in December 2018, we reported on similar inconsistencies in state and local outreach. We found that FEMA s guidance did not specify how often or what types of advance contract information should be shared with states and localities, or instruct FEMA contracting officers to encourage states and localities to establish their own advance contracts for the types of goods and services needed during a disaster. As a result, we found that while some FEMA regional officials regularly performed outreach with states and localities to assist them with establishing advance contracts for goods and services commonly needed during a disaster like security, transportation, and office supplies other FEMA regional officials did so less frequently. According to regional officials, coordinating more frequently with states and localities allows them to avoid overlap between state and federal contracting efforts, and helps FEMA officials know what resources the states have in place before a disaster occurs and how long states are capable of providing those resources following a disaster. We recommended in our December 2018 report that FEMA update its guidance to provide specific direction for contracting officers to perform outreach to states and localities on the use and establishment of advance contracts. DHS concurred and stated it would update guidance and continue efforts to establish resources for state and local governments on advance contracts. Information on FEMA s advance contracts can be used to facilitate state and local coordination over the use and establishment of advance contracts. However, our work showed that this information was inconsistent and could further hinder FEMA s information sharing and coordination efforts. In December 2018, we reviewed FEMA s advance contract list and other resources FEMA contracting officials said they used to identify advance contracts like biannual training documentation and found differences in the advance contracts identified. For example, we reported that FEMA officials told us that the advance contract list available to contracting officers is updated on a monthly basis. However, our analysis found that 58 advance contracts identified on the June 2018 advance contract list had not been included in contracting officers May 2018 training documentation. The missing contracts included those for telecommunications services, generators, and manufactured housing units. Recognizing some of the shortcomings in communicating with state and local governments following the 2017 disasters, FEMA stated it would develop a toolkit to provide states and localities with recommendations for advance contracts, emergency acquisition guidance, and solicitation templates. However, at the time of our December 2018 review, FEMA officials were uncertain what information they would share with states and localities on advance contracts, and said they did not plan to provide the complete list of the advance contracts FEMA has in place to avoid being overly prescriptive. Yet without a centralized and up-to-date resource on advance contracts, FEMA contracting officers and their state and local counterparts may not be able to effectively communicate about advance contracts and use them to respond to future disasters. Given FEMA s recent emphasis on the importance of states and localities having the capability to provide their own life-saving goods and services in the immediate aftermath of a disaster, we concluded that clearly communicating consistent and up-to-date information on the availability and limitations of federal advance contracts is imperative to informing state and local disaster response efforts. In our December 2018 report, we recommended that FEMA identify a single centralized resource listing its advance contracts and ensure that resource is updated regularly. Further, we recommended that FEMA should communicate information on advance contracts using that resource to states and localities to inform their advance contracting efforts. DHS concurred with these two recommendations and identified some steps it planned to take, but also stated it believes the existing advance contract list satisfies our recommendation for a single centralized resource. However, as our report noted, we found inconsistencies in this list that FEMA needs to address for advance contract information to be complete and up-to-date for the contracting officers who rely on it. In addition to challenges coordinating with state and local governments, we identified coordination and planning concerns between FEMA and other federal agencies. As the federal disaster coordinator, FEMA obtains requirements from states and localities. It then tasks the appropriate federal agencies with specific missions, based on their emergency support functions. Agencies assigned to specific missions are then responsible for fulfilling requirements, and may use contracts to do so. However, we reported in April 2019 that some federal agencies experienced challenges coordinating with FEMA and state and local partners. For example, USACE officials reported that, during their debris removal mission following the California wildfires, local officials believed that the soil removed would be replaced. However, this was not part of the mission assignment from USACE to FEMA. In these instances, agency officials told us they relied on FEMA to communicate information on their mission assignments to be able to administer contracts. According to a FEMA official during our April 2019 review, coordination and planning concerns related to mission assignments like contracting considerations should be worked out in advance between FEMA and agencies such as USACE. However, we found that FEMA policy and guidance lack details on how that coordination should take place. Further, a FEMA official told us that contracting considerations are not necessarily built into mission assignments. We recommended in April 2019 that FEMA revise its mission assignment policy and guidance to better incorporate consideration of contracting needs and ensure clear communication of coordination responsibilities related to contracting. DHS concurred and plans to develop tools and training within the next year to provide the necessary guidance. <1.3. Challenges with Tracking of Contract Use> Limited transparency into disaster contracting obligations further complicates the challenges noted above. We found in April 2019 that the full extent of disaster contracting for both advance and post-disaster contracts related to the 2017 disasters was and continues to be unknown. This was due to changes in the criteria for establishing and closing a national interest action (NIA) code a mechanism for government-wide tracking of emergency or contingency-related contracting in FPDS-NG, and DHS s inconsistent implementation of the updated criteria for closing codes. Specifically, the codes for Harvey and Irma closed on June 30, 2018, less than a full year after the hurricanes hit. The code for Maria is valid through June 15, 2019, about 21 months after that hurricane made landfall. This is in contrast to prior hurricanes, for which codes sometimes remained open more than 5 years after the disaster, with the code for Hurricane Katrina being open for 13 years after the disaster. The ability to identify disaster contracting for the 2018 hurricanes was similarly limited as the NIA codes for Hurricanes Florence and Michael expired on March 15, 2019 and April 12, 2019, respectively, about 6 months after those storms made landfall. Based on a memorandum of agreement, the General Services Administration (GSA), DHS, and the Department of Defense (DOD) are jointly responsible for determining when a NIA code should be established and closed. DHS delegated its role, on behalf of civilian agencies for disaster or emergency events, to its Office of the Chief Procurement Officer. The agreement outlines criteria DHS should consider in making determinations to establish and close a NIA code. For our April 2019 review, we identified changes in these criteria between June 2012 and June 2018. For example, the updated agreement does not include the national interest and visibility of an event as criteria for extending a NIA code, allowing a NIA code to expire regardless of the high visibility of the event and information needs of key users. DHS officials reported several rationales to support their decision to close the NIA codes for the 2017 hurricanes, but these were inconsistent with the criteria in the agreement and did not consider key user needs or fully explain the decisions to close the codes. Once a NIA code in FPDS-NG is closed, there is no other publicly available, government-wide system available to comprehensively track contract obligations for specific events. Our April 2019 report demonstrated the magnitude of contract dollars that are no longer easily trackable once a NIA code is closed. For example, using the description field in FPDS-NG, we found that between July 1 and September 30, 2018 after the NIA codes were closed agencies obligated at least $259 million on contracts for Hurricanes Harvey and Irma. However, not all agencies put event-specific information in the description field, and we found for the 2017 hurricanes only 35 percent of contract obligations linked to a NIA code included this information. Moreover, as we have previously reported, and illustrate in figure 2, it can take years to fully account for federal contract obligations related to response and recovery after a hurricane. In our April 2019 report, we made two recommendations, including that GSA, in coordination with DOD and DHS, assess whether the criteria in the current NIA code agreement meets the long-term needs for high visibility events and account for the needs of users, such as FEMA, other agencies, and Congress; and in the interim, DHS, in coordination with DOD and GSA, should keep the existing NIA codes for disasters open, reopen the NIA codes for Hurricanes Harvey, Irma, Florence, and Michael, and request that agencies retroactively update applicable contract actions to reflect these codes, to the extent practicable. GSA and DOD indicated they would work jointly with DHS to assess the criteria in the agreement within the year. DHS did not comment on that recommendation. Given the high visibility and national interest in these events, assessing the criteria, keeping NIA codes open, and reopening closed codes for the recent disasters to the extent practicable would help ensure visibility over federal disaster contracts. In conclusion, given the circumstances surrounding the 2017 disasters, and the importance of preparedness for future disasters, it is critical to ensure that FEMA is well-positioned to respond through its use of contracts. Our work has shown that without effective planning on the use of contracts, FEMA may face challenges in quickly providing critical goods and services to survivors following a disaster. Further, without effective coordination, FEMA cannot ensure that local, state, and federal partners have the tools they need to assist in disaster response. Moreover, not tracking certain information on a government-wide basis in FPDS-NG may result in key users lacking the information necessary to provide oversight of FEMA s and other agencies disaster contract actions. Implementing our recommendations to update its planning guidance and advance contract strategy; assess acquisition workforce needs; improve coordination with state, local, and federal partners; and improve tracking of disaster contracting actions will help FEMA overcome key challenges it faces in contracting during a disaster, and improve future response efforts. Chairman Payne, Chairwoman Torres Small, Ranking Members King and Crenshaw, and members of the subcommittees, this concludes my statement. I would be pleased to respond to any questions. <2. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this statement, please contact me at (202) 512-4841 or makm@gao.gov. Contacts for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Janet McKelvey (Assistant Director); Caryn Kuebler and Meghan Perez (Analysts in Charge); Emily Bond; Erin Butkowski; Suellen Foth; Julia Kennon; Sylvia Schatz; Lindsay Taylor; and Robin Wilson. Key contributors for the previous work on which this statement is based are listed in the products cited. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study According to FEMA—a component within DHS—the 2017 disasters affected 47 million people, or about 15 percent of the nation's population. Federal contracts have played a key role in responding to these disasters and in long-term community recovery. So far, FEMA has obligated billions of dollars on these contracts. This testimony is based primarily on GAO's recent reports on disaster contracting—specifically advance contracting and post-disaster contracts related to the 2017 disasters—which detail much of FEMA's disaster contracting activities. It addresses key challenges FEMA faced contracting for goods and services in response to these disasters. To conduct this work, GAO analyzed data from the Federal Procurement Data System-Next Generation through June 30, 2018, the latest and most complete data available for the 2017 disasters. GAO also analyzed FEMA guidance and documentation and interviewed FEMA officials to discuss the use of contracts to respond to the 2017 disasters. What GAO Found Following Hurricanes Harvey, Irma, and Maria, and the 2017 California wildfires, federal agencies entered into disaster-related contracts worth about $9.5 billion, according to data as of June 30, 2018—the latest and most complete data at the time of GAO's review (see figure). The Federal Emergency Management Agency (FEMA) obligated about $2.9 billion of this total through advance contracts, which it establishes prior to a disaster to rapidly mobilize resources. FEMA obligated an additional $1.6 billion through post-disaster contracts, which are established after disasters hit. In its December 2018 and April 2019 reports, GAO made 10 recommendations to strengthen FEMA's ability to address challenges GAO identified in how FEMA plans, coordinates, and tracks its contracts: Planning: FEMA has an outdated strategy and unclear guidance on how contracting officers should use advance contracts and has not fully assessed its contracting workforce needs. Effectively planning its contract use is critical to FEMA quickly providing critical goods and services. Coordination: FEMA did not fully coordinate with states and localities on certain contracts and encountered communication and coordination challenges with other federal agencies. Effective coordination helps FEMA ensure stakeholders have the tools needed to facilitate their disaster response efforts. Tracking: The full extent of 2017 disaster contracting activities, for FEMA and other agencies, is unknown. GAO found that codes used to track obligations for these disasters in a federal procurement data system were closed without full consideration of user needs or due to inconsistent implementation of criteria established by the Department of Homeland Security (DHS) and other agencies, limiting visibility over federal disaster contracts. What GAO Recommends GAO has made a total of 19 recommendations—most of which were to FEMA—related to contracting activities in response to the 2017 disasters. Ten of these are described in this statement. DHS concurred with most of these recommendations, and has some actions underway, but it has not fully implemented them. Attention to these recommendations can assist FEMA as it uses contracts to respond to future disasters.

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<1. Background> DOD s guidance states that its FFRDCs are created to (1) provide strategic value through independent, intellectually rigorous, relevant, and timely products and services; and (2) support the department s goals of long-term improvement in operations and enhanced national security. They are managed by various military departments or divisions within the department, called primary sponsors. FFRDCs are operated by universities, other not-for-profit or nonprofit organizations, or private firms called parent organizations under long-term contracts. They provide special research and development services that generally cannot be readily satisfied by government personnel or private contractors. For example, the Lincoln Laboratory develops key radar and electronic warfare technologies for integrated air and missile defense systems. The Software Engineering Institute provides cybersecurity solutions for defense entities. DOD s FFRDCs are grouped into three categories: research and development laboratories, study and analysis centers, and systems engineering and integration centers. DOD oversees 10 FFRDCs (see table 1). According to the Director of Laboratories and Personnel within the OUSD for Research and Engineering, he took over responsibility for managing FFRDCs in July 2018, following a reorganization of OUSD for Acquisition, Technology and Logistics. DOD and each FFRDC have a sponsoring agreement, which is a stand- alone, bilateral, written agreement between the primary sponsor and the parent organization. It must be approved by the Under Secretary of Defense for Research and Engineering prior to award of an FFRDC contract and is incorporated into the contract. According to DOD s guidance, the sponsoring agreement defines the FFRDC s purpose and mission, establishes the conditions under which DOD may award an FFRDC contract, and describes the overarching requirements for operation of the FFRDC. For example, the primary sponsor must include provisions in the sponsoring agreement to prevent real or perceived organizational and personal conflicts of interest. As part of that, sponsors are to require FFRDC parent organizations to establish and maintain policies and procedures to protect information, such as sensitive data, from disclosure and provide training that covers ethics and conflicts of interest. We reported in December 2019 that representatives from the five study and analysis center FFRDCs said they provide annual training covering ethics and conflicts of interest for all personnel. DOD may use FFRDCs to perform work that is closely associated with the performance of inherently governmental functions or that is critical to maintaining control of the department s missions and operations. Work could include activities such as support for financial analyses, policy development, acquisition planning, source selection, and contract management. In the course of performing work, FFRDCs may need access to acquisition data collected from DOD s prime contractors and program offices. FFRDCs may obtain these data through DOD personnel, government databases, or directly from prime contractors. Government- held data may be stored and managed in department-wide databases or by individual program offices. For example, the Cost Assessment Data Enterprise is a web application that allows users access to various reports that include information such as major defense acquisition programs cost, software, and technical data. On December 21, 2017, DOD issued implementing guidance that marked the launch of its 3-year pilot program. According to DOD officials, prior to the start of the pilot program, FFRDC researchers needed to obtain permission from each data owner (e.g., DOD prime contractor or supplier), typically by signing a nondisclosure agreement. According to DOD officials that requested the authority to allow FFRDCs to have increased access, one of the purposes of the pilot was to allow for a streamlined nondisclosure agreement process. Under the pilot program, FFRDC researchers no longer have to obtain nondisclosure agreements with each data owner. To participate in the pilot, the FFRDC and DOD sponsor must first take steps to ensure certain protections are in place to protect against unauthorized disclosure or use of the data being accessed. For example, according to the statute, in order to be eligible, participating FFRDCs and its personnel (FFRDC researchers) had to agree to be subject to and comply with appropriate ethics standards and requirements applicable to government personnel, including the Ethics in Government Act of 1978, the Trade Secrets Act, and the Procurement Integrity Act. After the protections are in place, the FFRDC and DOD sponsor can enroll individual projects in the pilot program. Per the implementing guidance, the FFRDCs and DOD sponsors agree to collect and provide information about the enrolled projects. For example, DOD sponsors must provide the Laboratories and Personnel Office quarterly updates on a project s progress obtaining data and, once the project is complete, information on the results of its access to sensitive data under the pilot program. <2. Over Half of DOD s FFRDCs Used the Pilot for A Small Percentage of Projects and Reported Benefits of Participating> <2.1. As of September 2019, Six of 10 DOD FFRDCs Participated in the Pilot and Enrolled 33 Projects> Six of 10 DOD FFRDCs elected to participate in the pilot program during its first 21 months (figure 1). According to FFRDC representatives, the decision regarding whether an FFRDC would participate in the pilot program primarily depended on two factors: (1) the data needs of the FFRDC s projects and (2) the ability of FFRDCs to access necessary data without the pilot program. Representatives from the six participating FFRDCs told us they elected to participate because they required access to sensitive data and, in some cases, lacked viable options for obtaining that data. For five of these FFRDCs, representatives said their researchers had identified specific projects for which they were interested in using the pilot to gain access to data sources with sensitive data from numerous contractors. Representatives from the four nonparticipating FFRDCs said that the existing processes the FFRDCs have in place provide the access they need for their projects. For example, Lincoln Laboratory representatives said their researchers are often working with an individual program or working to advance a specific technology; therefore, their work is generally with a limited number of contractors. In cases where they have needed access to sensitive data to do this work, they have executed a blanket nondisclosure agreement with their primary sponsor and, in some cases, have executed more tailored nondisclosure agreements with companies when obtaining information directly from a defense contractor. Aerospace has a blanket nondisclosure agreement with the Air Force Space and Missile Systems Center and the center included a provision in its contracts that requires its prime contractors to directly share information with the FFRDC. A Center for Communications and Computing representative said existing processes already provide the access they need for their projects. According to the FFRDC s sponsor, its work focuses more on technological development rather than acquisitions analysis. Participating FFRDCs reported 33 projects enrolled in the pilot program from January 2018 through September 2019. Pilot projects represented about 1.5 percent of these FFRDCs total number of projects as of June 2019. Of the projects enrolled in the pilot program, 11 were complete and 10 were ongoing as of the end of September 2019. In addition, 11 projects enrolled in the pilot initially, only to realize they did not require access to the requested data and thus were removed. One project was put on hiatus pending a decision about whether it will continue. Table 2 summarizes the status of the projects in the pilot program as of September 2019. According to DOD officials, the fiscal year 2018 reorganization of OUSD for Acquisitions, Technology and Logistics into two offices, coupled with changes in leadership, shifted attention away from the pilot program design and implementation. For example, an official from the Acquisition and Sustainment office also told us it missed an opportunity to conduct outreach with its FFRDC because the office did not hold its biannual meetings in 2017 or 2018 due to the reorganization. In these biannual meetings, he explained, they would have discussed the department s future research priorities and how the pilot program may have helped. This official who was involved in the pilot s implementation also noted that the shift in attention meant they did not engage with the offices that maintain the data repositories as fully as they would have liked. We found it took sponsors and FFRDCs from a few weeks to 7 months to resolve questions about pilot program requirements and update the FFRDCs sponsoring agreements to incorporate the pilot protections. During that time, FFRDCs were unable to move forward with certain analyses for their proposed projects. <2.2. DOD Officials and FFRDC Representatives Reported Benefits from Using the Pilot> Of the six projects we selected for further review (shown in table 3), four have been completed and FFRDCs reported benefits from their pilot program participation. The two remaining projects are on hiatus or removed. DOD officials and representatives from the four completed projects shared with us the following benefits: Systems and Analyses Center assessment of the U.S. munitions defense industrial base capacity. Portions of the research required access to sensitive data about the availability and production levels of manufacturing parts for a large number of contractors and suppliers. The FFRDC researchers used these data in their microlevel assessments of the manufacturing capacity and supply chain resiliency of the U.S. defense munitions industrial base. They said they were able to provide DOD s Industrial Policy office with a more complete picture by combining these microlevel analyses with broader analyses of employment trends and economic outputs. A DOD industrial policy official who requested the work also said that the analysis enabled her office to meet an executive branch reporting requirement, which DOD did not have the manpower to conduct. National Defense Research Institute support for analysis of munitions industrial base. FFRDC researchers worked in collaboration with government officials to perform analyses on the adequacy of the munitions and missiles industrial base using government-held data from prime contractors and subcontractors. For example, the researchers supported working groups examining propulsion and chemicals in munitions and provided analysis for a report to Congress on solid rocket motors. The DOD official that requested the work and National Defense Research Institute representatives said that, without the pilot, the FFRDC would not have been able to access the data used to support DOD in these efforts. The official also noted that in this case the FFRDC helped fill a gap in DOD s workforce to meet a congressional reporting requirement. National Security Engineering Center and Software Engineering Institute analysis of software acquisitions practices. FFRDCs supported a Defense Innovation Board study that aimed to identify correlations between software complexity, cost, and schedule evolution. FFRDC researchers access to and use of the data provided important insights about the quality and reliability of the department s data. Specifically, DOD gained further insight into the kinds of software data the department holds and the significant gaps that would need to be addressed to improve overall DOD-held data quality. The Defense Innovation Board s report included findings related to the quality of the software data accessed and analyzed by these two FFRDCs. Project AIR FORCE assessment of contractor risk. According to FFRDC representatives and an Air Force official involved in the work, the pilot program facilitated the FFRDC s access to sensitive data held by the Defense Contract Management Agency that researchers used to identify early indicators of contractor performance risks. In response to the results of this work, the Air Force has funded a follow- on project to further research the potential of data analytics to provide early indicators of challenges in contract execution, according to an Air Force official involved with project. In addition to the benefits at the project level, several DOD sponsor officials and FFRDC representatives also noted the benefits of using the streamlined nondisclosure agreement process to accomplish their work. According to several DOD sponsor officials and FFRDC researchers we spoke to, completing the requested analysis without the pilot program would have required individual nondisclosure agreements with hundreds of individual contractors and suppliers. Systems and Analyses Center representatives said this would have been essentially impossible, and would have prevented researchers from completing important parts of the analyses. In another case, a Software Engineering Institute representative told us that, before the pilot, their team could not access software data when attempting to complete a 2017 project involving DOD software costs and production time frames. For that project, the DOD organization responsible for the data repository had recommended researchers send out a data request letter to each of the contractors with data in the system. Researchers sent out roughly one hundred requests to contractors for permission, but received no responses. They pointed out this was in part because contractors have no incentive to respond to an FFRDC s request for access to their data. As a result, Software Engineering Institute was unable to use updated data for the 2017 report. While several sponsoring agency officials noted benefits of using the data for analyses to inform key program decisions, they also noted that a causal relationship between the pilot program activities and acquisition process improvements would be hard to establish, in part due to the length of time needed for projects to effect change. DOD officials responsible for two completed projects examining the munitions industrial base said they expect the analyses performed will lead to improved acquisition processes but that it would take many years to see the benefits. Specifically, they said the FFRDCs work helped identify areas for improvement in the department s budget and acquisition strategy to better signal future demand to its lower tier munitions industrial base suppliers. In addition to noting these expected improvements, several DOD officials also acknowledged that expanding access of sensitive data to more people increases the potential for unauthorized use or disclosure but said that the pilot program put in place important protections to help mitigate these risks. <3. DOD s Pilot Established Protections for Accessing Sensitive Data but Did Not Establish Procedures to Verify Compliance> DOD s guidance to implement the pilot program outlined protections the FFRDCs must agree to, in order to guard against unauthorized disclosure or use of sensitive data, and required that these protections be incorporated into the sponsoring agreements between the FFRDCs and the DOD sponsor. However, we found some instances where details of the required protections were not incorporated into the agreements. We also found that the Laboratories and Personnel Office, which is responsible for managing the pilot program, does not have a procedure to verify whether protections were implemented, in part because it has not developed a process for doing so. Table 4 explains the protections. Some of these protections were already part of the FFRDCs business operations, while others are new. For example, the prohibition on their use of sensitive data to compete against a third party was already a fundamental aspect of FFRDCs role in supporting DOD. Similarly, participating FFRDC representatives told us that certain protections, such as implementing nondisclosure agreements and training, required only small adjustments to their existing procedures. However, the pilot s financial disclosure program, annual certifications by parent organizations, and instructions for researchers to notify contracting officers of employment offers when supporting source selection decisions were new and specific to the pilot, according to a DOD official involved in the pilot s implementation. We found that not all the details of protections were incorporated into the sponsoring agreements we reviewed. According to DOD s implementing guidance, to participate in the pilot program, FFRDCs must agree to and follow these protections, which are to be incorporated into FFRDCs sponsoring agreements. We found that all six participating FFRDCs sponsoring agreements were updated and that most of the protections were incorporated. However, none included the instructions for FFRDC personnel involved in source selections to notify contracting officers if they are contacted about employment by an entity whose proposal is being evaluated and recuse themselves. We also found that the sponsoring agreements omitted one of the three officials that should be notified in the event of a Trade Secrets Act violation. These details were also not included in the templates DOD provided sponsors to use when updating FFRDC sponsoring agreements. When we raised these gaps to the attention of the DOD office responsible for managing the pilot program, the officials we spoke with were unaware of these omissions. In addition, the Laboratories and Personnel Office has not taken steps to ensure that another protection the certification of the annual review of financial disclosure forms has occurred, even though it was incorporated into the sponsoring agreements. The implementing guidance states that FFRDCs parent organizations must certify the annual review of financial disclosure forms and archive these forms for 6 years. However, only two FFRDC parent organizations provided us with this certification. According to representatives from parent organizations of the other four FFRDCs, the review of financial disclosures is generally performed as part of their conflict of interest programs. They review the disclosures on an annual or rolling basis when researchers are assigned to new projects but had not certified, as the sponsoring agreements require, that they have taken this step for the pilot program. We found that the Laboratories and Personnel Office had not taken steps to verify FFRDC parent organization compliance with this protection, such as collecting or reviewing the certification. When we raised this gap to the attention of the DOD office responsible for managing the pilot program, the officials were unaware of the missing annual certifications. By not ensuring the annual review is occurring, DOD has limited information about FFRDCs adherence to this pilot program protection. The pilot s implementing guidance also states that, before government personnel provide access to sensitive data, the FFRDCs and researchers must have addressed these protections. However, the Laboratories and Personnel Office has not taken steps to ensure it is done. In our review of the six specific projects, we found that different people were checking that some of the protections were in place. For example, For two of the six projects, a primary sponsor official had a copy of the FFRDC addendum, and collected and reviewed the nondisclosure agreements and certifications of financial disclosure for individual researchers on each project. For a third project, a DOD official in the office that requested the project told us she confirmed that FFRDC researchers working on the project were part of the pilot program and told the official from the data repository that he could share information with the researchers. For the remaining three projects, representatives for a data repository that provided researchers with data access told us they confirmed that the addendum was incorporated into the sponsoring agreement and that researchers had the individual protections, such as a nondisclosure agreement, in place before providing access to the data. Standards for internal controls in the federal government state that responsibilities for control activities, such as sponsors ensuring the protections are incorporated into the agreements and that FFRDCs are following these protections, should be documented through policy and procedures. Without a process that includes clearly defined roles and responsibilities to ensure the protections are followed, DOD cannot ensure that its goal to safeguard sensitive data is achieved. <3.1. DOD Is Collecting Some Pilot Information but Lacks a Plan for Evaluation DOD Collects Information from FFRDCs Quarterly but Does Not Ensure Comprehensive Reporting> DOD established what information sponsors must collect about the projects enrolled in the pilot in its implementing guidance to sponsors and notified FFRDCs about these responsibilities. The requirements include: pre-action information to be collected when the project is enrolled in the pilot, which includes basic details about the project, the data required, and planned analysis; quarterly status updates, which include progress obtaining access to sensitive data and any challenges or barriers to access; and post-action information regarding the results of pilot access when the project s analyses are completed, which includes a summary of how the pilot supported FFRDC research, and any benefits accrued to DOD from pilot participation. The implementing guidance also instructs sponsors to collect information about the project s results again 6 months after the project is completed. The Laboratories and Personnel Office, which is responsible for managing the pilot program, sends an email quarterly requesting that sponsors submit information. However, we found that the Laboratories and Personnel Office did not receive pre-action information from 11 of the 33 projects in the pilot program. For example: Systems and Analyses Center has not submitted pre-action information for six of its eight projects. An official from the Systems and Analyses Center s primary sponsor office told us that in his view, pre-action information can be obtained by other means, and he had not requested it. Project AIR FORCE and Arroyo Center have submitted project pre- action information for five projects to the FFRDCs primary sponsors: Air Force and Army, respectively. However, the primary sponsors have not provided this information to the Laboratories and Personnel Office. An Air Force official explained that he gets a request from the Laboratories and Personnel Office for the quarterly reports, but not the pre-action information, and thus had not provided it. In addition, the office did not collect a quarterly report for three projects in the pilot, and, as of September 2019, two completed projects had passed the 6-month post-completion time frame and only one had submitted post-action information. These gaps in reporting have occurred because the Laboratories and Personnel Office is not monitoring the project information it receives to ensure sponsors are submitting all required reporting. DOD s implementing guidance states that primary sponsors will collect and submit this information for each project enrolled in the pilot program. Further, GAO s leading practices for pilot design state, among other things, that a well-designed pilot program should have a clear approach to gathering information for the purpose of supporting the future evaluation of the pilot and tracking the pilot program s implementation and performance. Consistency in collecting pre-action, quarterly, and post- action reports is important because each contains different information, which could be useful for the department to track the pilot program s progress and in an evaluation of the pilot program. For example, without the pre-action information from Systems and Analyses Center, Arroyo Center, and Project AIR FORCE, the Laboratories and Personnel Office will not have general descriptions of their pilot projects or information about the kinds of data these FFRDCs initially planned to access. Without complete information, DOD will not be able to effectively evaluate the pilot program and inform future decisions about the program s status. <3.2. DOD Established Pilot Goals but Does Not Have a Plan to Evaluate Its Results> We found that DOD followed some but not all of the leading practices for evaluating its pilot program. According to GAO s leading practices for pilot design, a well-developed and documented pilot program can help ensure that agency assessments produce information needed to make effective program and policy decisions. Such a process enhances the quality, credibility, and usefulness of evaluations, in addition to helping to ensure that time and resources are used effectively. Five leading practices form a framework for effective pilot design and evaluation. (See figure 2.) We found DOD generally addressed the first of the leading practices of pilot design establish objectives by establishing goals for the pilot program, summarized below. Make sensitive data previously restricted or unavailable available for analysis. Use sensitive data in accordance with the FFRDC contract. Safeguard sensitive data. Document results of pilot program. Document risks or costs of FFRDC access to sensitive data. Gain analytic value from FFRDC access to sensitive data. Demonstrate benefits to government from sharing sensitive data. Inform future actions for making FFRDC access to sensitive data permanently available. However, DOD has not fully addressed the other leading practices. Specifically, we found that the Laboratories and Personnel Office does not have: a plan that (1) includes an assessment methodology to ensure DOD is collecting the correct information to evaluate whether the pilot has met the department s goals and (2) defines how DOD will use the information collected to evaluate the implementation and performance of the pilot program, when the evaluation will take place, and by whom; a plan for identifying or documenting lessons learned; and a plan for gathering input from stakeholders, such as DOD sponsors, FFRDCs, and officials from DOD s data repositories, for the pilot program s evaluation. According to officials involved in its implementation, DOD did not consider creating such plans when developing the pilot program. The pilot program guidance, however, stated that information collected would be used for the department to assess the ongoing efficacy of the pilot program and GAO s evaluation. These officials explained that, when the pilot s guidance was formulated, the department was in the process of reorganizing the former Acquisition, Technology, and Logistics Office and they pointed out that GAO was to do the assessment of the pilot program. They said the reason the program collected information such as quarterly reports was to inform our review. Thus, they had no plan to assess the information collected and no plans to talk to stakeholders or to collect and share lessons learned. While our review occurred during pilot implementation, an evaluation of the pilot conducted by DOD after more projects are completed would provide an opportunity to identify lessons learned and gather valuable input from stakeholders such as the offices that manage the data repositories and the sponsors requesting the projects. We found cases where FFRDC researchers had problems accessing data and where gathering this input from stakeholders involved with pilot projects would have been useful for DOD. For example, some FFRDC researchers described barriers when trying to gain access to certain government- and department-wide databases. In one case, Project AIR FORCE researchers reported not being able to access information in the Electronic Document Access database and various databases containing contractor performance information because researchers lacked military or government email addresses. Further, some of the databases that FFRDC researchers and a DOD official said would be useful are not owned by DOD. We found that guidance for one such database explicitly prohibits disclosure of contractor evaluation data to any contractor or non- government entity. In addition, the researchers were able to gain only partial access to DOD s Acquisition Information Repository (a database containing acquisition documents for DOD s major weapons programs) and, as a result, were unable to access individual documents, such as program assessment reports. They told us the repository is set up such that the researchers must request access to individual documents directly from document owners, who set permissions when uploading documents, rather than from a central source that can grant access across the repository. Without further evaluation of the pilot, DOD is missing an opportunity to benefit from gathering input from its stakeholders and identifying lessons learned, such as learning and understanding more about these barriers to accessing certain databases. There is still time for DOD to develop an evaluation plan with elements described in our leading practices. The pilot program ends December 21, 2020. Our review comes at a time when 11 of the overall 33 projects have been completed; therefore, information exists to report on outcomes. Officials and representatives from the Laboratories and Personnel Office and participating sponsors and FFRDCs expressed a continued need for access to the sensitive data. Without an evaluation plan, DOD will have difficulty determining the effectiveness of the pilot to meet its goal of accruing more analytic value for the department while also safeguarding sensitive data. <4. Conclusions> The FFRDC pilot program has already provided DOD with some benefits, as a few FFRDCs have reported success in completing analysis that would not have been possible without it. However, in implementing the pilot, DOD has room for improvement. A key control of this pilot that provides access to sensitive data is ensuring protections are in place to prevent improper disclosure. Another control is to establish a process to ensure these protections are followed, yet the responsible office within DOD has not done so. Further, despite the fact that the pilot is past the midpoint of implementation, this office still has an opportunity to develop a plan on how to evaluate it. But to do this, it must develop a mechanism to ensure it is collecting complete information on the pilot activities. Ensuring comprehensive reporting and implementing a well-developed evaluation plan will help DOD understand and articulate the benefits the department has accrued because of FFRDC s access to sensitive data. Further, through identifying lessons learned and obtaining stakeholder input, the Laboratories and Personnel Office has an opportunity to better understand the challenges FFRDCs and the department face when attempting to access and use sensitive data included in government- and department-wide databases. Such an evaluation could help inform Congress decision whether to extend, make FFRDC access permanent, or end the pilot. <5. Recommendations for Executive Action> We are making the following six recommendations to the Department of Defense: The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to take steps to ensure that the details of the pilot program s data protections are incorporated into the existing agreements. (Recommendation 1) The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to take steps to ensure that the FFRDCs and sponsors are implementing the pilot program s protections for sensitive data. (Recommendation 2) The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to establish a monitoring and oversight mechanism to ensure that primary sponsors submit complete information on pilot projects, as required by DOD s guidance for the pilot program. (Recommendation 3) The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to develop a plan that outlines the methodology by which DOD will assess the pilot and how and when information collected will be analyzed to evaluate the pilot program. (Recommendation 4) The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to develop a plan to identify and evaluate lessons learned from the pilot program. (Recommendation 5) The Under Secretary of Defense for Research and Engineering should direct the Laboratories and Personnel Office to develop a plan for obtaining input from stakeholders on the pilot program. (Recommendation 6) <6. Agency Comments> We provided a draft of this product to DOD for comment. DOD provided a letter response, reproduced in Appendix I. DOD agreed with our recommendations and described actions that it intends to take in response. We also provided excerpts of this product to FFRDCs for comment, of which three provided technical comments that we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Secretary of Defense. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or makm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix II. Appendix I: Comments from the Department of Defense Appendix II: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Tatiana Winger (Assistant Director), Leslie Ashton (Analyst-in-Charge), Evan Nemoff, Tanya Waller, Jenny Chanley, Laura Greifner, Christine Pecora, and Roxanna Sun made key contributions to this report.

Why GAO Did This Study FFRDCs provide federal agencies with research and development functions, technical systems engineering capabilities, and policy development and decision-making studies, among other services. The Federal Acquisition Regulation states that FFRDCs have a special relationship with DOD, which can give FFRDCs access to sensitive data beyond what would commonly be shared with contractors. The National Defense Authorization Act for Fiscal Year 2017 directed DOD to establish a 3-year pilot program that allows FFRDCs streamlined access to sensitive data maintained by DOD. It also included a provision for GAO to report on the pilot program within 2 years of implementation. This report addresses the extent to which (1) FFRDCs are using the pilot program, (2) DOD put procedures in place to protect data accessed, and (3) DOD is evaluating the pilot program. GAO reviewed DOD guidance and FFRDC processes, pilot reports for January 2018 through September 2019, and DOD's plans and efforts for evaluating the pilot program. GAO also selected a nongeneralizable sample of six projects—at least one from each FFRDC with an enrolled project as of December 2018—for further review. In addition, GAO assessed the pilot program against leading practices for pilot design. What GAO Found The Department of Defense (DOD) launched a 3-year pilot program in December 2017 to enable a streamlined process to share certain sensitive data, such as data collected from its contractors, with its Federally Funded Research and Development Centers (FFRDC). At times, FFRDCs need to access such data to support DOD. The pilot was intended to reduce the burden on FFRDCs to seek permission from hundreds of contractors to access information needed for their research. Six of DOD's 10 FFRDCs have taken part in the pilot, enrolling a combined total of 33 projects, as shown in the table. DOD officials and FFRDC representatives reported that the streamlined process made the use of sensitive data feasible. As a result, FFRDCs with completed projects in GAO's sample indicated they were able to provide more robust analyses or insights to DOD. DOD guidance for the pilot program established procedures to protect sensitive data. But GAO found that DOD did not incorporate all of the details of the required protections into its agreements with FFRDCs. Further, GAO found that not all FFRDCs were performing annual certification of financial disclosure forms, as required by its agreements with DOD. DOD does not have a process to ensure that all the protections pertaining to FFRDCs' streamlined access to sensitive data are being followed. Without a process that defines roles and responsibilities, DOD cannot ensure that FFRDCs adhere to the protections. DOD developed goals for the pilot program and outlined what information was to be obtained for each participating project, actions that are consistent with GAO's leading practices for pilot design. However, DOD has not developed a plan for evaluating the program nor has it consistently collected information on about a third of the pilot projects. Leading practices for pilot design call for an evaluation plan, which should include an assessment methodology and identify responsibilities as to how the evaluation will be conducted. Without an evaluation plan and a mechanism to collect information on pilot projects, DOD will not be positioned to identify the effectiveness of the pilot program and benefit from lessons learned. Such information will be useful as Congress considers the path forward after the pilot ends in December 2020. What GAO Recommends GAO is making six recommendations, including that DOD take steps to ensure data protections are in the agreements and followed, collect information on projects, and evaluate the pilot. DOD agreed with the recommendations.

gao_GAO-19-239

gao_GAO-19-239_0

<1. Background> <1.1. Housing Finance System> In the primary market, lenders originate mortgage loans to borrowers to purchase homes. To evaluate the creditworthiness of a potential borrower (called underwriting), the lender considers the borrower s credit scores and history, monthly debts including mortgage payments relative to income (debt-to-income ratio), and the amount of the mortgage loan relative to the home s value (loan-to-value ratio). Borrowers with strong credit histories typically receive prime mortgages with the most competitive interest rates and terms. Lenders generally require borrowers to purchase private mortgage insurance when the loan-to-value ratio is higher than 80 percent. Some borrowers also may qualify for federal mortgage insurance programs (discussed later in this section). Mortgage lending creates certain risks: Credit risk is the risk that the borrower will default on the mortgage by failing to make timely payments. Prepayment risk is the risk that borrowers will pay off the principal of the loan before the mortgage term ends. Prepayment reduces or eliminates future interest payments. The lender must relend or reinvest the prepaid amount and may have only lower-interest options available for lending or investing the funds if interest rates have decreased. Interest rate risk is the risk that an increase in interest rates will reduce the value of a loan for the lender. For example, a lender might fund mortgage lending through short-term deposits. If interest rates rise and the lender previously made a long-term fixed-rate mortgage at a lower rate, the difference between the interest payments the lender receives from the mortgage and the interest the lender has to pay to its depositors decreases. Liquidity risk is the risk that an institution will be unable to meet its financial obligations as they come due without incurring unacceptable losses. For example, firms can be exposed to liquidity risk by funding longer-term asset purchases with shorter-term debt obligations. After origination, mortgages are serviced until they are paid in full or closed due to nonpayment. Servicers can provide borrowers with account statements, respond to customer service questions, and collect monthly payments, among other duties. The servicer can be the same institution that originated the loan or the servicer can change as institutions sell servicing rights. Lenders hold mortgage loans in their portfolios or sell them to institutions in the secondary market (see fig. 1). Lenders sell their loans to transfer risk (such as interest rate risk in the case of fixed-rate mortgages) or to increase liquidity. Secondary market institutions can hold the mortgages in their portfolios or pool them into MBS that are sold to investors. Participants in the secondary market include federal entities, issuers of private-label MBS, and investors. Private institutions, primarily investment banks, may issue MBS (known as private-label securities) which are backed by mortgages that are not federally insured and do not conform to the enterprises requirements. <1.2. Federal Participation in the Housing Finance System> The federal government participates in the primary and secondary mortgage markets as both an actor and a regulator. In the primary market, the federal government operates mortgage guarantee and insurance programs to promote homeownership for certain types of borrowers. For example, the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Department of Agriculture s Rural Housing Service, and HUD s Office of Public and Indian Housing offer programs that insure mortgages against default or guarantee lenders payment of principal and interest. In the secondary market, the federal government facilitates mortgage lending through the enterprises (discussed below) and the Government National Mortgage Association (Ginnie Mae). Ginnie Mae is a federally owned corporation within HUD that guarantees the timely payment of principal and interest to investors in securities issued through its MBS program. Ginnie Mae-guaranteed MBS consist entirely of mortgages insured or guaranteed by federal agencies (such as FHA) and are issued by financial institutions it approves. The federal government also regulates the housing finance system through FHFA, which oversees the enterprises; the Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau (CFPB); and the federal banking regulators, which enforce regulatory standards for mortgage lending. <1.3. Enterprises> Congress chartered Fannie Mae and Freddie Mac as for-profit, shareholder-owned corporations in 1968 and 1989, respectively. They share a primary mission to enhance the liquidity, stability, and affordability of mortgage credit. The enterprises generally purchase mortgages that meet certain criteria for size, features, and underwriting standards (known as conforming loans) and hold the loans in their own portfolios or pool them into MBS that are sold to investors. In exchange for a fee, the enterprises guarantee the timely payment of interest and principal on MBS that they issue. The enterprises also have obligations to support housing for certain groups. Following the enactment of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the enterprises have been required to meet specific goals for the purchase of mortgages supporting underserved groups (such as low- and moderate-income families) or certain geographic areas. In 2008, the Housing and Economic Recovery Act (HERA) tasked the enterprises to fund new affordable housing programs, including the Housing Trust Fund and the Capital Magnet Fund. The enterprises fund these programs with a dollar amount based on their unpaid balance of new business, purchases, and the funds distribute the money to states and housing organizations to support affordable housing. <1.4. Conservatorship> HERA established authorities for providing capital support to the enterprises and established FHFA as an independent regulatory agency for the enterprises. HERA also authorized the Director of FHFA to appoint FHFA as a conservator or receiver for the enterprises. FHFA put the enterprises into conservatorship in September 2008. FHFA has a statutory responsibility to ensure that the enterprises operate in a safe and sound manner and that their operations and actions of each regulated entity foster a liquid, efficient, competitive, and resilient national housing finance market. FHFA sets strategic goals for its conservatorship of the enterprises. According to FHFA, the enterprises boards of directors oversee day-to-day operations, but certain matters are subject to FHFA review and approval. For example, FHFA officials told us that FHFA reviews and approves some pilot programs. Fannie Mae and Freddie Mac retain their government charters and continue to operate legally as business corporations. Using authority provided in HERA, Treasury has committed to providing up to $445.6 billion in capital support to Fannie Mae and Freddie Mac while they are in conservatorship through the senior preferred stock purchase agreements. If Fannie Mae or Freddie Mac has a net worth deficit at the end of a financial quarter, Treasury will provide funds to eliminate the deficit. Under the most recent agreement in December 2017, the enterprises must pay Treasury a dividend of all their quarterly net income above a $3 billion capital reserve that each enterprise is allowed to retain. <1.5. Reforming the Housing Finance System and Our Framework for Considering Reform Proposals> Since the 2007 2009 financial crisis, Congress has taken steps to improve regulation and consumer protection related to the housing finance system. For example, to address challenges related to limitations on mortgage information, HERA requires FHFA to collect market data. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) created CFPB, which has undertaken a number of consumer protection initiatives related to mortgage lending and servicing. The Dodd-Frank Act also updated the Truth in Lending Act to prohibit lenders from making certain mortgage loans without regard to a consumer s ability to repay the loan (known as the ability-to-pay rule). A lender is presumed to have met the ability-to-repay requirement when it originates a qualified mortgage a category of loans that have certain more stable features that make it more likely a borrower will repay the loan. Congress also has considered proposals to make significant changes to the housing finance system. During the 113th Congress (January 2013 January 2015), three proposals the Housing Finance Reform and Taxpayer Protection Act of 2014, S. 1217; the FHA Solvency Act of 2013, S. 1376; and the Protecting American Taxpayers and Homeowners Act of 2013, H.R. 2767 were reported out of committee but no further action was taken. In September 2018, the Protecting American Taxpayers and Homeowners Act of 2018 (H.R. 6746) was reintroduced in the 115th Congress and referred to committee. As of the end of the 115th Congressional session, no further action had been taken. Industry groups and think tanks also have published reform proposals. We discuss reform proposals made since 2014 in more detail later in this report. Federal agencies also have commented on housing finance reform. In early 2018, the Director of FHFA sent a letter to the Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs stating that conservatorship is not sustainable and needs to end, and provided suggestions on how the enterprises could be reformed. For example, the letter states that the housing finance system should preserve 30-year fixed-rate mortgages, end taxpayer bailouts for failing firms, maintain liquidity, and provide a level playing field for lenders of all sizes. It also states that secondary market activities should be managed by shareholder-owned firms chartered by a regulator and operating as utilities with an explicit paid-for federal guarantee on MBS issued by regulated firms. In June 2018, the Office of Management and Budget released recommendations to reform the federal government in a number of areas, including housing finance. The recommendations propose privatizing the enterprises, allowing new private entities to enter the market, and providing an explicit federal guarantee on MBS that could only be accessed in limited, exigent circumstances. In a 2014 report, we outlined a framework composed of nine elements we consider to be critically important to help policymakers assess or craft proposals to change the housing finance system (see table 1). <2. Government Continues Significant Support of Housing Market but Recent Trends Present Risks to Enterprises and Others> The housing market has recovered since the financial crisis, with significant federal support. Indicators of recovery include rising house prices and declining mortgage delinquency rates. However, the federal government has continued to support the housing market with guarantees on more than two-thirds of new mortgages each year since 2008, either through government-insured originations or by guaranteeing timely payment to investors on mortgage loans purchased and securitized by the enterprises. The government also has continued to play a very substantial role in the secondary market, guaranteeing around 95 percent or more of all MBS issued annually since 2008. But recent trends some loosening of underwriting standards, the rise of nonbank mortgage lenders and servicers, and less access to affordable housing and homeownership may pose additional risks and challenges to the housing market and participants, including the enterprises. <2.1. Enterprises Have Benefited from Housing Recovery but Government Still Supports a Majority of Mortgages> Several indicators demonstrate that the housing market has recovered since the financial crisis of 2007 2009. For example, real national average house prices have consistently risen each year since 2012 (see fig. 2). The rise in house prices also has been complemented by consistent economic growth, declining unemployment, and low mortgage rates since 2009. Higher house prices have some positive implications for the financial soundness of the enterprises: higher prices can reduce the enterprises potential losses due to defaulted loans because the enterprises can recover more value from properties securing the loans. Serious delinquency rates (90 or more days delinquent) for mortgages purchased by Fannie Mae and Freddie Mac have declined steadily and since 2014 have remained between 1 and 2 percent for both enterprises (see fig. 3). Examining delinquency rates for mortgages by origination year reveals significant differences for mortgages originated before and after the financial crisis. According to Fannie Mae and Freddie Mac reports, mortgages originated since 2009 have had lower delinquency rates than those originated before 2009. For example, in 2017, Fannie Mae s serious delinquency rate was 6.6 percent for mortgages originated in 2005 2008, compared to 0.5 percent for mortgages originated since 2009. As of October 2018, mortgages originated since 2009 represented more than 90 percent of Fannie Mae s and 80 percent of Freddie Mac s outstanding held loans and guaranteed MBS. Serious delinquency rates for mortgages insured by FHA are higher on average than those purchased by the enterprises but generally have followed similar trends. Compared to pre-2007 levels, trends in mortgage originations indicate a smaller-volume market largely composed of prime conforming and government-insured mortgages, as shown in figure 4. During 2008 2017, total mortgage origination volume the dollar value of mortgage loans remained below pre-crisis levels. Much of the decrease in volume resulted from large declines in prime jumbo and nonprime originations since 2008. Prime jumbo and nonprime originations represented a significant share of originations (market share) before 2007 but declined sharply since 2008. Prime jumbo market share recovered somewhat, increasing from a low of 6 percent in 2009 to approximately 18 percent of originations each year since 2014. Riskier nonprime originations remain very low compared to their pre-crisis levels. Meanwhile, federally insured mortgages (such as those insured by FHA or guaranteed by VA) grew significantly in 2008 and retained a market share between 19 and 25 percent in 2008 2017. Finally, prime conforming origination volume varied year-to-year but these mortgages have represented the majority of originations since 2007. Federally insured and prime conforming mortgages represented 80 percent or more of originations every year since 2008. The federal government has continued to support a significant share of the mortgage markets since the financial crisis. For instance, while down from the peak in 2009, the federal government has guaranteed more than two-thirds of new mortgages since 2014, either by insuring mortgages or by guaranteeing timely payment to investors on loans purchased and securitized by the enterprises (see fig. 5). Government-insured mortgages declined leading up to the financial crisis, largely due to the availability of nonprime mortgages and securitization by fully private institutions. But when the availability of these products declined sharply, government agencies such as FHA and VA insured or guaranteed significantly higher volumes of mortgages. For instance, the share of mortgages insured or guaranteed by federal agencies grew from 6 percent ($134 billion) in 2007 to more than 20 percent ($328 billion) in 2008. As of 2017, federally insured mortgages were 25 percent ($444 billion) of total originations. Similarly, as the share of conventional mortgages held in banks portfolios declined during the financial crisis, the enterprises purchased and securitized large volumes of these mortgages. The share of mortgage originations purchased by the enterprises peaked at 65 percent in 2008 and still accounted for nearly half of new mortgages in 2017. The federal government also has maintained a very substantial role in the secondary mortgage market since the financial crisis. The enterprises and Ginnie Mae guaranteed around 95 percent or more of all MBS issued each year since 2008, despite a nearly decade-long economic expansion. In line with the rise in federally insured originations, Ginnie Mae s market share increased substantially, from 5 percent ($110 billion) in 2007 to 22 percent ($301 billion) in 2008, and about 33 percent ($455 billion) in 2017 (see fig. 6). Conversely, private-label MBS issuance since 2008 has been minimal, as many private-label issuers left the market and nonprime originations declined. The growth in the market share of Ginnie Mae and the enterprises resulted in part from actions by Congress and the Board of Governors of the Federal Reserve System (Federal Reserve). Congress increased the loan limits for FHA-insured loans and loans eligible for securitization by the enterprises. The federal government also made its backing of securities issued by the enterprises explicit by committing to provide them financial assistance, and Ginnie Mae continued to provide guarantees for securities backed by federally insured mortgages. According to several mortgage originators, securitizers, investors, and researchers with whom we spoke, the enterprises will continue to dominate the MBS market because the federal guarantee through conservatorship offers a competitive advantage over other participants without such a guarantee. In response to the financial crisis, the Federal Reserve provided additional support for the mortgage market, becoming one of the largest purchasers of MBS issued by the enterprises and guaranteed by Ginnie Mae. Among other impacts, this action made these securities somewhat more attractive to secondary market participants. In June 2017, when the Federal Reserve s MBS holdings had peaked at $1.78 trillion, it announced plans to gradually reduce its MBS holdings as part of its efforts to reduce the size of its balance sheet. As of November 2018, the Federal Reserve had $1.66 trillion in MBS holdings. <2.2. Recent Trends in the Housing Market May Present Risks and Challenges> Recent trends particularly changes in underwriting standards and borrowers credit risk profiles, the rise of nonbank mortgage lenders and servicers, and limited access to affordable housing and homeownership pose risks and challenges to the housing market and participants, including the enterprises. <2.2.1. Underwriting Standards and Borrower Credit Risk> Indicators of borrower credit risk and surveys of loan officers indicate a loosening of underwriting standards in recent years. More specifically, indicators of borrower credit risk for mortgages the enterprises purchased suggest underwriting standards tightened in 2008 but loosened slightly since 2012, which could pose increased risk to the enterprises. Specifically, average combined loan-to-value ratios (for all loans on the property) and debt-to-income ratios have increased, while average borrower credit scores have declined. The enterprises and FHA include assessments of these measures in setting their underwriting standards. As discussed earlier in the report, mortgages originated since 2009 have performed much better than those originated before 2008, but remain untested by a large-scale stressful economic event. Furthermore, mortgages to refinance an existing mortgage (as opposed to mortgages for purchasing a home) declined since 2012. According to FHFA officials, credit scores, loan-to-value ratios, and debt-to-income ratios tend to be stronger for refinance mortgages than purchase mortgages. FHFA and HUD officials also told us that reduced refinancing volume due to rising interest rates may put additional pressure on lenders to maintain volume and profitability by offering more relaxed credit terms to borrowers. Average combined loan-to-value ratios for mortgages purchased by the enterprises peaked in 2014 and have remained roughly similar to pre- crisis levels (see fig.7). In December 2014, FHFA began allowing the enterprises to purchase mortgages with loan-to-value ratios up to 97 percent. In the first three quarters of 2018, 22 percent of mortgages Fannie Mae purchased included a loan-to-value ratio over 90 percent, which is higher than shares in 2005 2008. FHA s loan-to-value ratio is limited to 96.5 percent, and the average among borrowers has remained relatively consistent around 93 percent since 2008. The higher the loan- to-value ratio when a loan is originated, the less equity borrowers will have in their homes and the more likely they are to default on mortgage obligations, especially during times of financial stress or falling home values. Additionally, house price valuation measured by the price-to- rent ratio has increased substantially since 2012 to levels last seen in 2004. Higher valuations could increase the risk of future price decreases which would reduce collateral values that protect the enterprises against losses in the event of default or more modest price increases. This could signal increased risk when associated with higher loan-to-value ratios. Average credit scores for enterprise-purchased loans rose significantly from their pre-crisis lows and remained historically high through 2012 but have since slightly declined (see fig. 8). The average credit score of FHA-insured borrowers, while lower than those for loans purchased by the enterprises, followed a trend similar to those of the enterprises. Generally, a higher score indicates a greater credit quality and potentially lower likelihood of default. Lenders continue to use credit scores as a primary means of assessing whether to originate a loan to a borrower. Average debt-to-income ratios for mortgages purchased by the enterprises remained below their pre-crisis levels but have deteriorated since 2012, and the share of high debt-to-income mortgages rose. Additionally, according to Fannie Mae financial reports, in the first three quarters of 2018, roughly 25 percent of mortgages it purchased included a borrower debt-to-income ratio over 45 percent, up from roughly 7 percent of mortgages in the first three quarters of 2017. The share of high debt-to-income ratios for FHA-insured borrowers also has risen significantly. For example, nearly half (49 percent) of FHA- insured borrowers in fiscal year 2017 had high debt-to-income ratios, surpassing the previous high of 45 percent of borrowers in 2009. According to FHA, as of March 2018, about 24 percent of mortgages included debt-to-income ratios above 50 percent, up from 20 percent of mortgages in March 2017. The Dodd-Frank Act requires mortgage lenders to make a reasonable, good faith determination of a borrower s ability to repay the loan. A lender that originates a qualified mortgage is presumed to have met this requirement. All qualified mortgages must meet mandatory requirements including restrictions on points and fees, and loan structure. In addition, the borrower s debt-to-income ratio must be 43 percent or less; however, loans eligible for purchase by the enterprises or to be insured by the FHA, VA or USDA are not subject to a specific debt-to-income ratio. Additionally, according to results from the October 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices, more loan officers reported loosening than tightening their underwriting standards for enterprise-eligible mortgages every quarter from 2015 through the second quarter of 2018. More officers reported loosening their standards for government-insured mortgages during 12 of the last 16 quarters. <2.2.2. Nonbank Mortgage Lenders and Servicers> Our review found that the increased role of nonbank mortgage lenders and servicers in recent years has helped provide liquidity and access to mortgage credit but also presented additional liquidity risks. FHFA and HUD officials reported that the share of nonbanks mortgage originators and servicers grew since the financial crisis. According to data from Inside Mortgage Finance, nonbanks originated roughly half of all mortgages sold to the enterprises in 2017 and the first three quarters of 2018. Of the top 10 mortgage sellers to the enterprises in the first three quarters of 2018, six were nonbanks that originated more than 20 percent of all enterprise purchases during that period. Nonbank servicers of loans backing enterprise MBS have grown from 25 percent in 2014 to 38 percent as of the third quarter of 2018. For FHA-insured mortgages, nonbank originations represented 74 percent in 2003, declined to 56 percent in 2010, and then increased to 86 percent in fiscal year 2017. While FHFA and HUD officials told us nonbanks have helped provide access to mortgage credit, several stakeholders and experts in all four of our panels identified the increased presence of nonbank lenders as a current risk in the housing finance system. A 2018 paper published by the Brookings Institution cited that nonbanks are exposed to significant liquidity risks in their funding of mortgage originations and servicing of mortgages, because nonbank lenders rely more on credit lines provided mostly by banks, securitizations involving multiple players, and more frequent trading of mortgage servicing rights than banks. For instance, during times of financial stress, lenders to nonbanks have the right to quickly pull their lines of credit and seize and sell the underlying collateral if nonbanks do not maintain certain levels of net worth. HUD officials identified similar risks and added that this may reduce borrower access to credit in the event of financial stress or a liquidity crisis. Additionally, while nonbanks are subject to some federal and state oversight, they are not federally regulated for safety and soundness. State regulators may require nonbanks to be licensed and may examine their financial soundness and compliance with relevant state laws, but there are no such federal regulations, unlike with banks. The Conference of State Bank Supervisors has a series of initiatives with the goal of all state regulators adopting a nationwide nonbank licensing and supervisory system by 2020. CFPB oversees nonbank issuers for compliance with consumer financial protection laws but not for financial safety and soundness. We reported in 2016 that incomplete information on the identity of nonbank servicers may hinder those responsible for their oversight. The lack of federal safety and soundness oversight of nonbank lenders and servicers may pose risks for the enterprises and federal housing finance entities. The enterprises conduct financial and operational reviews of their counterparties in accordance with FHFA guidance. But, as we reported in 2016, FHFA does not have the authority to independently evaluate the safety and soundness of entities that conduct business with the enterprises. In 2014, the FHFA Office of Inspector General found that nonbank lenders may have limited financial capacity and are not subject to federal safety and soundness oversight, creating an increased risk that these counterparties could default on their financial obligations. They also found that rapid business growth among specialty servicers could put stress on their operational capacity or overrun their quality control procedures, potentially increasing representation and warranty claims and credit losses on mortgages they sell to the enterprises. Representation and warranty claims allow the enterprises and other federal entities to recover some losses from lenders in the event of misrepresentation by the seller. From 2009 through 2013, the enterprises received $98.5 billion through repurchase requests to sellers (that is, they required sellers to repurchase the enterprises interests in the loans). According to the FHFA Office of Inspector General, due to lower capital levels, nonbanks may be less able to honor these representation and warranty commitments. FHFA and HUD officials also told us nonbanks have helped increase servicing capacity. We previously reported that nonbank servicers provide benefits to the housing market through increased capacity to service delinquent loans and contribute to liquidity by broadening participation in the market for mortgage servicing rights. In particular, larger numbers of individual servicers also can reduce market concentration, suggesting that servicers may be more likely to behave competitively and can, for instance, increase innovation. Furthermore, large nonbanks are generally not as interconnected with the financial system as large banks, potentially limiting broader market effects in the event of the failure of a single large nonbank servicer. But the enterprises and Ginnie Mae likely would incur costs in the event of a failure of a large nonbank servicer whose portfolio cannot be easily absorbed by others. Mortgage servicers must continue making payments to investors when borrowers do not make payments. For mortgages backed by the enterprises, servicers can be reimbursed for principal and interest and certain other expenses, but they must finance them in the interim. Servicers of mortgage pools guaranteed by the enterprises must advance payments until the borrower is 120 days delinquent on the loan. Servicers of Ginnie Mae-guaranteed pools are not limited in how long they must advance principal and interest on delinquent loans, and they additionally may be required to absorb losses not covered by FHA insurance or VA guarantees. In the event of a failure of a large nonbank servicer with a not readily absorbable portfolio, Ginnie Mae and the enterprises likely would bear most of the associated costs, and consumers also likely would see some effects, such as service interruptions. In 2015, FHFA and Ginnie Mae raised their minimum financial eligibility requirements for sellers and servicers (including for net worth, capital ratio, and liquidity criteria for counterparties), but these requirements may not fully account for the high interest rate and default risks that nonbanks face. <2.2.3. Affordable Housing> Challenges related to affordable housing and access to homeownership also remain. Fannie Mae and Freddie Mac are subject to affordable housing goals for their purchases of single-family and multifamily mortgages that benefit families with lower incomes. However, a number of factors affect the development of affordable housing and access to homeownership. For example, according to a 2018 study on the state of the nation s housing, competition for the historically low supply of existing homes on the market has pushed up home prices in most metropolitan areas, raising concerns about affordability. The study also noted that although better housing quality accounts for some of the increase in housing prices, sharply higher costs for building materials and labor, among other factors, have made housing construction considerably more expensive. Land prices also increased as population growth in metropolitan areas increased demand for well-located sites. Along with rising housing costs, the study also reported that weak income growth among low- and moderate-income households contributed to affordability pressures. As homeownership becomes less affordable with house price increases, the enterprises affordable housing goals become more difficult to achieve. For example, for calendar year 2016, Freddie Mac met all of its affordable housing goals, and Fannie Mae met most of its affordable housing goals, but failed to meet its goal for the single-family home purchase, very-low income category. For calendar year 2017, based on FHFA s preliminary determinations, Fannie Mae met all of its affordable housing goals, but Freddie Mac missed its single-family home purchase goals for both the very low-income and low-income categories. Experts and stakeholders we interviewed identified other contributing challenges. For example, a few experts and stakeholders cited lower levels of lending in minority communities and to low- and moderate- income borrowers, which are typically most in need of affordable housing, as contributing challenges. A few other experts and stakeholders stated that borrowers increasingly have been holding other types of debt, such as student loan debt, which makes it more difficult for them to obtain an affordable mortgage. Lastly, the qualified mortgage rule exception, which may have helped some borrowers with a debt-to-income ratio above 43 percent to obtain a mortgage, expires in 2021 or earlier if conservatorship of the enterprises ends before then. When this happens, this could also hinder the ability of certain borrowers with a debt-to-income ratio higher than 43 percent to obtain mortgages. <2.3. Enterprises Have Expanded or Plan to Expand Activities That Could Present Challenges for Other Market Participants> Fannie Mae and Freddie Mac have taken actions in recent years that could further increase the scope of their activities and present challenges or barriers to entry for other market participants. <2.3.1. Mortgage Insurance> Both enterprises have recently introduced pilot programs that affect mortgage insurance decisions and terms typically made by lenders. In 2018, Fannie Mae introduced a pilot program to offer an enterprise-paid mortgage insurance option an alternative to the borrower-paid and lender-paid options currently available. Under the program s structure, Fannie Mae is the entity responsible for purchasing mortgage insurance on loans with high loan-to-value ratios. To do so, Fannie Mae secures an insurance arrangement from a qualified insurer, which in turn transfers the risk to a panel of approved reinsurers. Fannie Mae pays the mortgage insurance premiums, while the lender is responsible for paying an additional, loan-level price adjustment. Freddie Mac launched a similar pilot program earlier in 2018 known as the Integrated Mortgage Insurance program. Under this program, simultaneous with purchasing single-family mortgages, Freddie Mac purchases mortgage insurance from a panel of pre-approved reinsurance companies that it has allocated risk among. In addition, the reinsurers post collateral to provide further assurance that claims will be paid, and they cannot deny or rescind coverage. According to Fannie Mae and Freddie Mac documents, these pilot programs allow the enterprises to better manage their counterparty risk and streamline the operational requirements of participating lenders. For example, each participating reinsurer undergoes a thorough counterparty review in order to be approved for participation in the programs. Additionally, under the programs, lenders are not required to purchase mortgage insurance for loans with loan-to-value ratios above 80 percent, which would simplify the process of selling loans to the enterprises. However, according to several experts and stakeholders with whom we spoke, by allowing the enterprises to play a role in selecting the mortgage insurer, these pilot programs widen the scope of activities of the enterprises. They also allow them to become more dominant by potentially growing their role beyond the secondary market and into the primary market. They explained that these programs promote greater vertical integration of private-sector activities into the enterprises, and create challenges for market participants. For example, they stated that they promote an uneven playing field in the private market by allowing for different terms and standards for enterprise-paid mortgage insurance versus other sources of private capital. <2.3.2. Other Activities> Experts and stakeholders also identified other enterprise pilot programs or activities, such as Freddie Mac s financing of nonbank mortgage servicers and the enterprises standardization efforts, as potential challenges. Freddie Mac s Mortgage Servicing Rights pilot program provides financing to nonbank servicers, with some limitations, secured by the servicers mortgage servicing rights. The program is intended to address impediments nonbank mortgage servicers face in obtaining financing and extends credit to nonbank mortgage servicers when they need access to cash. However several experts and stakeholders with whom we spoke stated that this could lead to certain servicers having a competitive advantage. For example, they stated that under this program, Freddie Mac may target its financing at the biggest servicers and charge comparatively low interest rates, putting small lenders and servicers at a disadvantage. The enterprises also have efforts to standardize appraisal data, loan applications, and closing disclosures. While these efforts are intended to streamline and standardize aspects of the mortgage process, several experts and stakeholders explained that the results of these activities can be costly to smaller lenders and servicers who have to bear the costs of adapting their systems to enterprise requirements. They also indicated that participants in the primary market have become reliant on the enterprises for standards and innovation. Several experts and stakeholders also stated that the cost for market participants to adopt new programs or standards set by the enterprises can be high and could inhibit other participants from entering the housing finance market. In addition, the enterprises are currently developing a common securitization platform to support the issuance of a common single mortgage-backed security by both enterprises. The platform will support the enterprises single-family mortgage securitization activities, including issuance by both enterprises of a common mortgage-backed security to be known as the uniform mortgage-backed security. FHFA expects the issuance of the uniform mortgage-backed security to improve the overall liquidity of the enterprises securities and promote liquidity of the nation s housing finance markets. The common securitization platform also would integrate the various securitization infrastructure systems within each enterprise, which is expected to lower costs and increase efficiency. However, several stakeholders we interviewed explained that the platform presents concerns. For example, mortgage securitizers and investor stakeholders who participated on our panels expressed concern about the platform and its availability to other market participants. Specifically, they stated that the goal of the project has, at times, been unclear and that it has been difficult to tell to what extent or when the platform will be accessible to other secondary market participants. They also stated that if the platform would not be accessible to other secondary market participants, it would take away opportunities from participants willing and able to pool eligible securities. FHFA officials told us the platform currently is intended for use only by Fannie Mae and Freddie Mac, but that the agency is aware that potential reforms to the housing finance system may bring about the inclusion of other guarantors. As such, the platform is being designed to be adaptable for use by other participants in the secondary market in the future. (We discuss recent proposals to reform the housing finance system in detail later in this report.) <3. FHFA Has Taken Actions to Reduce the Enterprises Exposure, but Risks, Uncertainty, and Challenges Remain FHFA Has Taken Actions to Reduce the Enterprises Risk Exposure> FHFA-directed actions (including retained mortgage portfolio reductions, credit risk transfer, and foreclosure prevention) have improved the condition of the enterprises by mitigating some of the enterprises exposures to potential losses. <3.1. Continued Treasury Support Presents an Ongoing Federal Fiscal Exposure> Treasury s remaining funding commitment through the senior preferred stock purchase agreements leaves taxpayers exposed to risk, especially in the event of adverse market or other external conditions and considering the recent growth in the enterprises guarantee business. Total MBS outstanding guaranteed by the enterprises and held by external investors has increased each year since 2012. As of the end of 2017, the enterprises combined MBS outstanding held by external investors peaked at $4.8 trillion (see fig. 12). Under the terms of the senior preferred stock purchase agreements with Treasury, Fannie Mae and Freddie Mac do not maintain a capital cushion as a private financial institution would to guard against the risk of unexpected losses such as those that might occur during a recession or downturn in the housing market. Instead, Treasury, through taxpayer funds, committed $445.6 billion of financial support to the enterprises. As of August 2018, Treasury had provided the enterprises with $191.4 billion of the total amount since they were placed under conservatorship in 2008, leaving $254.1 billion in potential taxpayer exposure should Treasury need to provide additional support. In return, the enterprises must pay to Treasury as dividends all of their quarterly positive net worth amount (if any) over $3 billion. Thus, any losses on this amount not recovered through loss-mitigation efforts or covered by private investors or insurers would be borne by taxpayers through additional financial support from Treasury. While private institutions could absorb a share of losses on mortgages covered by credit risk transfer and private mortgage insurance (discussed earlier in this section), any additional losses would come from Treasury s remaining funding commitment through the senior preferred stock purchase agreements. Because of this arrangement, credit rating agencies have linked the enterprises strong long-term credit ratings directly to that of the U.S. government and their equity to Treasury s remaining funding commitment. Since the second quarter of 2012, Fannie Mae and Freddie Mac have not required additional support from Treasury, with the exception of the first quarter of 2018, when both enterprises required Treasury support due to devaluation of their deferred tax assets as a result of changes to the tax code. As of the end of September 2018, the enterprises had cumulatively returned $285.8 billion to Treasury through senior preferred stock agreement dividend payments. However, in addition to economic circumstances, changes in market conditions or other external factors such as changes in interest rates, house prices, accounting standards, or events such as natural disasters could lead to volatility in the enterprises quarterly financial results, potentially requiring additional taxpayer support. <3.2. Duration of Conservatorships Leaves Future Role of Enterprises Uncertain and Presents Challenges> The extended duration of the conservatorships continues to create uncertainty about the goals and future role of the enterprises. We previously reported that FHFA s priorities can shift, sometimes due to changes in leadership. For example, FHFA initially outlined its understanding of its conservatorship obligations and how it planned to fulfill those obligations in a 2010 letter to Congress. In February 2012, FHFA sent Congress a strategic plan that set three strategic goals for conservatorship and elaborated on how FHFA planned to meet its conservatorship obligations. However, under a new Director in 2014, FHFA issued an updated strategic plan that reformulated its three strategic goals. This same Director s term expired in early January 2019, and the process is underway for a new, permanent Director to be confirmed. The upcoming change in leadership could shift priorities for the conservatorships again and change enterprise goals. Continuing conservatorship also presents challenges to FHFA, as it has to balance its role as conservator with its role as regulator. FHFA must follow the mandates assigned to it by statute and the missions assigned to the enterprises by their charter. This entails consistently balancing governing of the enterprises, ensuring they employ sound risk-management practices, and ensuring they continue to serve as a reliable source of liquidity and funding for housing finance. In our interviews with experts and stakeholders, at least one expert or stakeholder from each of the groups (mortgage originators, mortgage securitizers and investors, academics and researchers, and consumer advocates) also identified the duration of the conservatorships as a challenge. For example, they said that the duration of the conservatorship has led to a more substantial role for the enterprises than envisioned when they were placed under conservatorship, which could make potential changes to their structure more difficult to implement. The duration of the conservatorships also has led to uncertainties in the housing finance market. As we previously reported, under conservatorship, the enterprises are subject to agency policy decisions and are insulated from competition and other market forces. As a result, according to several mortgage originators and securitizers, and consumer groups with which we spoke, uncertainty about the future of the enterprises also makes it challenging for them to develop their own strategic plans and goals. They explained that they hesitate to make longer-term strategic plans and goals due to potential housing finance reform changes, particularly to the enterprises, that could markedly affect their industries. Additionally, the dominant role of the federal government in guaranteeing MBS since the crisis has continued, and private capital generally has not been positioned to absorb losses in the secondary mortgage market during a potential economic downturn. The current structure of the secondary mortgage market will continue to leave taxpayers at risk to potential losses. The significant federal role in the housing market likely will continue if the enterprises remain under conservatorship and without a defined future role. <4. Reform Proposals We Reviewed Aim to Manage Fiscal Exposure, but Some Do Not Have Clear Goals or a System- Wide Approach> We assessed 14 proposals for housing finance reform against our framework to assess potential changes to the housing finance system. The framework consists of nine elements we determined to be critically important, such as recognition and control of federal fiscal exposure, protections for investors and borrowers, and clear goals (see the Background for more information). We found that the proposals generally aim to manage fiscal exposure the risk the housing finance system poses to the federal government and taxpayers but only six have clear goals and only seven consider other federal housing finance entities, such as FHA or Ginnie Mae, in addition to the enterprises. <4.1. Each Type of Reform Proposal Has Strengths and Limitations> Reform proposals we reviewed generally fit into four different models: (1) reconstituted enterprises, (2) multiple guarantor, (3) government corporation, or (4) privatization (termination of the enterprises). Based on our review of the proposals, relevant literature, and expert interviews, each model has potential strengths and limitations. <4.1.1. Reconstituted Enterprises> Four proposals we reviewed call for the enterprises to be recapitalized and then released from conservatorship, retaining their federal charters. Under these proposals, the enterprises would be regulated by an independent regulator that would oversee their safety and soundness. These proposals also recommend a federal guarantee on MBS under the senior preferred stock purchase agreement or by legislation. To mitigate fiscal exposure from the enterprises, the proposals include the continuation of credit risk transfer programs, and also require the enterprises to have risk-based capital reserves. In its report analyzing alternative housing finance market structures, CBO reported that under this model, taxpayers would have a higher exposure to risk compared with the multiple-guarantor and privatization models. According to industry stakeholders, potential strengths of this model include feasibility, minimal market disruption, and the continuation of policies familiar to key stakeholders. For example, one proposal argues that its reforms could be completed under existing legal authority, with no new legislation required. Five primary market stakeholders in our panels also stated that they would prefer a system similar to the current model with minor reforms because larger changes might disrupt the market and have unforeseen consequences. Industry stakeholders that rely on specific policies of the enterprises also generally support a recapitalization and release model. For example, four associations of small lenders have released statements in support of reconstituting the enterprises to ensure the continuation of the cash window. In addition, groups that advocate for financial inclusion and civil rights also have expressed support for reconstituting the enterprises to ensure the continuation of the affordable housing goals and other policies to help low-income borrowers. However, this model may not include sufficient safeguards to mitigate the risk that the enterprises even in a reconstituted form could pose to the stability of the mortgage market. As previously discussed, as of 2017, the enterprises issue more than half of new MBS and, in our panels, two participants from industry groups criticized the enterprises for their expansion into other areas of the housing market. In 2018, a former FHFA director stated in Congressional testimony that the enterprises were more entrenched in the market than ever before, the market depended entirely on them, and any weaknesses in their risk management could disrupt the entire housing market. If the enterprises were recapitalized without sufficient safeguards, shareholders again might have incentive to take on excessive risk. To mitigate these concerns, two of the four proposals recommend that the reconstituted enterprises operate as utilities. Utilities have a regulated rate of return, which supporters say would limit profit-maximizing motivations and encourage more prudential behavior and underwriting standards. The utility model is traditionally used in industries that tend to operate as monopolies or near monopolies, such as the electric power industry. Some industry experts believe that the securitization market operates similarly to a monopoly. Three industry stakeholders, two researchers, and one participant from a consumer protection group we interviewed also supported restructuring the enterprises as utilities. Additionally, three industry groups representing small lenders endorsed turning the enterprises into utilities. <4.1.2. Multiple-Guarantor Model> Six of the proposals we reviewed recommend transitioning to a system with multiple guarantors operating in the secondary market. Under this model, multiple private-sector firms would purchase eligible mortgages and aggregate them into MBS. The MBS would be eligible for an explicit federal guarantee if the guarantor arranged for private credit enhancements to absorb a certain amount of loss and if it met certain regulatory criteria, such as securitizing mortgages that comply with all qualified mortgage standards. A federal agency FHFA or a successor would charge and collect guarantee fees from the guarantors and set capital requirements. The six proposals use the guarantee fees to fund a mortgage insurance fund that would provide the federal guarantee. According to CBO s analysis, under this model, taxpayers would have less exposure to risk compared with models for reconstituted enterprises or a government corporation, but more than under a fully private market. Proposals within this model vary in a few key ways: Enterprises: Four of the six proposals call for the enterprises to become guarantors in the new system, while two call for them to be put into receivership and replaced with successor entities. One of the proposals that would keep the enterprises recommends that they and other guarantors operate as utilities and another suggests the enterprises remain in the new system but transition to be mutually owned by lenders instead of shareholders. Securitization: Three of the six proposals would retain the common securitization platform, while one proposal would rely on Ginnie Mae- approved issuers, allowing them to issue securities including mortgages that obtained credit enhancement from a private guarantor (instead of just federal programs). One proposal that retains the common securitization platform would convert the platform into a government corporation that issues securities from any regulator- approved entity. The fifth proposal would rely on both Ginnie Mae issuers and the common securitization platform to issue securities. The sixth proposal does not specify an entity to issue securities. Number of guarantors: Proposals vary in the number of guarantors needed in the new system. For example, the Mortgage Bankers Association s proposal suggests having more than two guarantors, while Moody s Chief Economist said in a congressional testimony that from five to seven would be feasible (using the private mortgage insurance industry as a guide). The potential strengths of this model include the benefits arising from competition and replacing reliance on two large firms with multiple smaller guarantors. The Mortgage Bankers Association s proposal stated that, while subject to strong regulations, guarantors can compete on price, products, and service. Multiple guarantors could provide lenders with a variety of options to sell their loans, instead of just the enterprises. More competition also could encourage innovation in the secondary market. The secondary mortgage market also might reduce its reliance on two too-big-to-fail entities with multiple guarantors. Because credit risk would be more dispersed across a number of entities, the failure of one firm would be less likely to disrupt the broader system, thus reducing the likelihood the government would have to rescue a struggling firm. According to four representatives of investor groups and a former HUD official we interviewed, a potential limitation of the multiple-guarantor model is that it could be difficult for new firms to enter the market and compete with the enterprises. One proposal addresses this concern by terminating the enterprises. However, if there are only a few guarantors, the failure of any one firm could pose a systemic risk and might require federal assistance. In addition, two researchers we interviewed said that because the guarantors would operate in the same market and thus would face the same market trends, having multiple guarantors might not diversify risk. For example, in a financial crisis, it is possible that all the guarantors would struggle and in such a scenario, the government would have to assist many firms. Some industry experts expressed concern that competition could have negative consequences. We previously reported that leading up to the financial crisis, the enterprises faced new competition from private-label securitizers and, in the absence of strong federal oversight, they relaxed their underwriting standards to regain market share. Thus, two researchers, four primary market stakeholders, and a former HUD official we interviewed warned that a system dependent on competing entities could face similar risks, particularly if oversight and regulation were not strong. Five of the proposals we reviewed would require all guaranteed securitized mortgages to meet qualified mortgage standards, limiting potential reductions in underwriting standards, and one of the five also would address this concern by regulating the guarantors as utilities. <4.1.3. Government Corporation> Two proposals would replace Fannie Mae and Freddie Mac with a single government corporation that would issue MBS. For example, in one proposal we reviewed, lenders would sell loans meeting certain requirements (such as qualified mortgages) to the corporation, which would operate the common securitization platform to issue MBS with a federal guarantee. The government corporation would manage fiscal exposure by transferring credit risk to the private sector and through capital requirements set by an independent regulator. The two proposals also would use guarantee fees to fund a mortgage insurance fund that would add an additional level of taxpayer protection. Based on its analysis, CBO reported that under this model, taxpayers would have more exposure to financial risk than under the multiple guarantor or privatization models. The potential benefits of a government corporation include stable lending during financial crises, equitable lender access, and better targeting of underserved groups. According to CBO, a government agency is more likely than private actors to promote stable mortgage lending during financial crises due to federal support. Additionally, according to a proposal by a think tank, a government corporation could provide lenders of all sizes with equal access to securitization, potentially reducing barriers to entry for new firms in the primary market. We previously reported that compared with other models, a government corporation would be well-positioned to facilitate lending to targeted groups because it does not have potentially conflicting priorities, such as maximizing shareholder value. Finally, a key benefit of creating a government corporation would be to mitigate the potential challenges posed by relying on private-sector entities (reconstituted enterprises, multiple guarantors, or a fully private market). For example, we previously reported that as for-profit corporations with government sponsorship, the enterprises had an incentive to engage in potentially profitable but risky business practices, in part because of the perception of an implied federal guarantee. In contrast, a government corporation would not be motivated by profit and thus should have less incentive to engage in potentially risky actions. The government corporation also could end reliance on a few large private firms by transferring securitization to a single entity in the public sector. There are potential limitations to relying on a government agency to support the secondary market. According to CBO, under this model, the government would still retain most credit risk and thus originators might not have a strong incentive to thoroughly vet borrowers credit risk, which could lead to potential losses. We also reported in 2009 that because of the limitations on government entities relative to private firms, a government corporation might have more difficulty in attracting and retaining capable staff, responding to market developments, or promoting innovation. If unaddressed, these issues could pose safety and soundness concerns because the agency might not have the skills and capabilities to assess risks and manage a complex industry. <4.1.4. Privatization> Two proposals we reviewed would terminate the enterprises and completely privatize the housing finance industry, with no federal guarantee on MBS. Under these proposals, the enterprises charters would be revoked and the enterprises would be wound down over a multiyear transition period during which their guarantee fees would increase and their loan limits decrease until they no longer guaranteed new mortgages. One proposal would keep the common securitization platform and make it available to all market participants, but it would operate as a nongovernmental entity and would be prohibited from guaranteeing MBS. The main benefit of this model would be to minimize fiscal exposure by having private firms form the secondary market for mortgages that are not federally insured, similar to the private-label MBS sector before the crisis. CBO noted that private actors should have a stronger incentive to control lending risk without a government backstop. Additionally, if a number of firms replaced the enterprises, then a largely private market likely would reduce the systemic risk of relying on a few large firms. However, a fully privatized market has some potential limitations related to an implied federal guarantee, and credit availability. CBO reported that although taxpayers would have less explicit exposure to risk compared to the other models, risk exposure could be very high even without an explicit guarantee. That is, the government likely would assist or prevent the failure of private firms in an economic downturn to ensure financial stability (also known as an implicit federal guarantee). We previously reported that private-sector actors may benefit from an implicit guarantee and this may incentivize firms to engage in potentially risky actions and expose the government to potential losses. Additionally, privatizing the market could increase fiscal exposure through FHA. The CBO report noted that a privatized model could reduce the availability of credit to marginal borrowers, and predicted it would lead to a large increase in FHA-insured loans. A largely private market also might not sustain mortgage lending during periods of economic stress. For example, the private-label market largely disappeared after the 2007 2009 financial crisis and has yet to recover, as previously discussed. Finally, CBO reported that during a financial crisis, there could be large increases in mortgage interest rates, large declines in house prices, and limited availability of 30-year fixed-rate mortgages. <4.2. Proposals Generally Meet Some Key Reform Elements> The 14 proposals we reviewed generally meet the following elements of our housing finance reform framework: recognizing and controlling federal fiscal exposure, protecting mortgage investors, adhering to an appropriate regulatory framework with government entities that have the capacity to manage risks, emphasizing the implications of the transition to a new housing finance system, protecting mortgage borrowers and addressing market barriers, and considering market cyclicality and impacts on financial stability. Legislative proposals and those from other sources generally address these elements in similar ways. <4.2.1. Fiscal Exposure and Government Guarantee> Every reform proposal we reviewed attempts to recognize and control federal fiscal exposure the risk that the federal government and taxpayers will have to provide financial support to the housing finance system. Twelve of the 14 proposals we reviewed support an explicit government guarantee on MBS. Some supporters of a federal guarantee maintain that if the government were to support the mortgage industry in a crisis, then such support should be explicit, which will allow it to be priced and reflected in the federal budget. In addition, every expert with whom we spoke including industry stakeholders, consumer advocates, researchers, and former agency officials supported an explicit government guarantee on MBS. In 11 proposals, the federal guarantee would be administered through a mortgage insurance fund managed by a federal regulator and funded through guarantee fees. To manage and limit fiscal exposure, the 12 proposals structure the federal guarantee so that it would only be accessed after a certain amount of private-sector loss. Private capital would be introduced through increased, risk-based capital requirements for the enterprises, successor entities, or new market entrants (such as guarantors). The proposals also would continue to transfer credit risk to the private sector. These proposals vary in how much private capital would be required ahead of the government guarantee. For example, one proposal would require 10 percent but another proposal would require 5 percent. In its proposed rule for enterprise capital requirements, FHFA reported that capital reserves of about 5.5 percent would have covered the enterprises losses during the financial crisis. However, according to CBO, the initial increases in capital requirements could increase mortgage interest rates. The two proposals without an explicit federal guarantee aim to address fiscal exposure by eliminating the enterprises and relying entirely on the private sector. However, some industry experts have asserted that there likely will always be an implied federal guarantee for the housing finance market (even without the enterprises) as the federal government will not allow the market to fail. These experts stated that they believe that this guarantee should be explicitly recognized and accounted for in the federal budget. <4.2.2. Protections for Mortgage Securities Investors> Thirteen of 14 proposals fully meet the element of providing protections for mortgage securities investors. We previously reported that investors need to receive consistent, useful information to assess risks. We also reported that prior to the crisis, MBS investors may have lacked reliable information to accurately assess the credit risk of their investments. Twelve reform proposals we reviewed attempt to remedy these weaknesses by first providing an explicit federal guarantee on MBS. In a 2017 testimony, a former FHFA Director said that a federal guarantee signaled to MBS investors that they were protected from credit risk and a meaningful segment of investors would not continue to invest in this market without the guarantee. In addition to the federal guarantee, proposals would aim to protect investors in the following ways: Increased transparency: Proposals recommend providing investors with more information on the mortgages underlying MBS. If investors had more information about asset quality, it would help them to more accurately price risk. For example, one proposal would require market participants to make available to investors all documents (including servicing reports) related to the mortgage loans collateralizing the security. Standard securitization platform: Currently, the enterprises each have their own platforms to issue MBS and different rules governing their MBS. To improve investor protections, FHFA and others recommend a standard platform for issuing securities. As previously discussed, FHFA has been developing such a platform, which will result in a both enterprises issuing a uniform security. <4.2.3. Federal Regulators and Regulatory Framework> Twelve of 14 proposals emphasize an appropriate regulatory framework with federal regulators that have the capacity to manage risk. Proposals generally recommend that an independent federal agency, such as FHFA or a successor, regulate housing finance market participants. The regulator also may oversee the securitization platform. Three proposals that would expand Ginnie Mae recommend that Ginnie Mae become an independent agency to strengthen its counterparty oversight capabilities. The proposals also generally recommend that the regulator have risk- management capabilities to determine market participants capital requirements. The regulator also would be able to adjust these and other requirements, such as credit risk transfer targets, based on market circumstances. In 11 proposals, the regulator would set and collect guarantee fees and use these fees to create a fund for mortgage insurance that would act as the federal guarantee on MBS. However, we previously noted that federal agencies sometimes have faced challenges in accurately pricing risk in other insurance programs, such as deposit or flood insurance. <4.2.4. Emphasis on the Implications of the Transition> Eleven of the 14 proposals we reviewed fully consider the implications of transitioning to a new system and mitigating potential disruptions. Because transitioning to a new system could disrupt market operations and consumers access to mortgage credit, we previously noted the importance of a deliberate, well-defined transition. In our expert panels, participants from investor groups noted that unless there is a clear transition plan (particularly one that addresses any changes to the enterprises), it would be difficult for new market entrants and investors to plan accordingly. The 11 proposals that meet this element include multiyear transitions to help minimize disruption. For example, one proposal that would eliminate the enterprises would allow for a 10-year transition to a new fully privatized system and create a temporary federal entity to oversee the transition. Five primary market stakeholders and a representative from a consumer advocacy group we interviewed emphasized the importance of minimizing market disruption and maintaining market liquidity. These industry experts noted that some parts of the system currently work well, and these aspects should be maintained and transitioned in reform. The 11 proposals would transition the enterprises to the new market structure or transition their personnel and facilities to successor entities. One proposal that does not meet this element does not discuss transition plans. Two other proposals do not fully meet this element because they do not address what would happen to the enterprises current assets, human capital, and intellectual property. <4.2.5. Protecting Mortgage Borrowers and Addressing Barriers to the Mortgage Market> Nine of 14 reform proposals explicitly address protections for mortgage borrowers. The relevant policy mechanisms to protect mortgage borrowers include maintaining CFPB s qualified mortgage and ability-to- repay rules, as well as additional services to support borrowers. For example, one proposal would increase support for programs that help prepare renters to become homeowners. Another proposal recommends modifying servicing guidelines for nonperforming loans to ensure consumers are treated fairly and would establish consistent procedures for servicers. The five proposals that do not fully meet this element do not address it at all or do not describe specific programs or policies. Eleven of 14 proposals explicitly address barriers to accessing the mortgage market. For example, eight proposals aim to maintain access to 30-year fixed-rate mortgages, a key instrument for promoting access to homeownership. Eleven proposals would support funds dedicated to affordable housing, such as the Housing Trust Fund and Capital Magnet Fund, through fees on securitized loans. Five proposals also would collect fees for a new Market Access Fund dedicated to increasing the number of families able to achieve homeownership and access credit. However, two proposals would eliminate the Housing Trust Fund. Proposals vary in their support of the enterprises affordable housing goals. Eight proposals call for the affordable housing goals to be eliminated and eight industry stakeholders we interviewed doubted the effectiveness of such goals, stating that homeownership should not be addressed through the secondary market. In 2009, we reported that there was limited evidence to support the effectiveness of the enterprises affordable housing goals in supporting homeownership for the targeted groups. However, affordable housing and consumer advocates we interviewed stated that they want to maintain the goals because they believe that the goals improved access to credit for minority and low- to moderate-income borrowers. Regardless of their position on the affordable housing goals, we found that proposals with a federal guarantee generally would require market participants to serve all eligible borrowers in all markets to receive the guarantee. Thirteen proposals also recommend policies that would promote small lender access to the market, such as maintaining the enterprises cash windows or creating a similar structure in their successors. Through the cash windows, lenders can sell individual loans directly to the enterprises and retain servicing rights. According to the Center for Responsible Lending, keeping loan servicing within community-based financial institutions often results in better loan performance and customer service outcomes. One former HUD official we interviewed stated that minority communities are often served by smaller lenders and these lenders need the cash window as a way to continue making affordable loans. Ten experts in our panels including housing advocates, primary and secondary market participants, and researchers said that reform plans should give fair treatment to all lenders, regardless of size. <4.2.6. Market Cyclicality and Financial Stability> Nine of 14 reform proposals fully meet the element relating to consideration of the cyclical nature of the housing finance market and its impact on financial stability. We previously reported that the housing finance market is characterized by cyclical fluctuations and its market cycles may pose risks to overall financial and economic stability because housing is a significant part of the economy. The five proposals that do not fully meet this element do not address how the reformed system would attempt to mitigate market cycles. We previously reported that financial regulatory action or inaction can exacerbate housing finance cycles, and thus reform proposals should consider the potential impact of new regulations on market cyclicality. To mitigate market cycles, the nine proposals that meet this element generally include policies that would allow the regulator to adjust regulations based on market cycles. In one proposal, the regulator would establish risk-based capital requirements for the enterprises or successor entities and could adjust the requirements temporarily based on market cycles. One proposal that would create a government corporation also would allow the corporation to maintain a small portfolio to manage distressed loans. <4.3. Some Proposals Do Not Have Clearly Defined Goals or a System-Wide Focus> Eight of the proposals we reviewed do not have clearly defined goals and seven do not fully consider other entities in the housing finance system two key elements in our housing finance reform framework. <4.3.1. Clearly Defined Goals> Eight of 14 proposals we reviewed do not have clearly defined goals for the housing finance system, including four legislative proposals. Additionally, none of the proposals prioritize their goals. Among the six proposals with clearly defined goals, we identified some common goals, such as minimizing the risk of taxpayer-funded bailouts, supporting market liquidity, and maintaining a level playing field for lenders of all sizes. We also identified different goals among the proposals, reflecting differences in reform models. For example, proposals similar to the multiple-guarantor model explicitly include market competition as a goal, while a proposal for reconstituting the enterprises includes stable transition as a goal. As we reported in 2015, clearly defined and prioritized goals are a key element to consider when assessing changes to the housing finance system. Clear goals help guide agencies activities and establish accountability. Experts with whom we spoke also emphasized the importance of clearly defined goals in housing finance reform proposals. For example, one researcher said it would be difficult to discuss any necessary policy changes until the government clearly articulated goals for its role in the housing finance system. Furthermore, prioritizing goals can help guide agencies actions and provide clarity to market participants, particularly if there are conflicting goals. For example, three proposals we reviewed include the goals of both minimizing risks to taxpayers and promoting affordable homeownership, but there is a trade-off between these goals promoting homeownership may mean encouraging lending to riskier borrowers. As of early January 2019, Congress had not enacted legislation that establishes clear and prioritized objectives for the future federal role in housing finance. The lack of such goals in many of the proposals we reviewed raises questions as to whether the proposals that Congress may consider in the future will give adequate attention to these critical elements of housing finance reform. Without clearly defined and prioritized goals, agencies housing finance activities may lack focus and consistency. We previously reported that because Congress did not provide clearly defined and prioritized goals to FHFA for conservatorship, each FHFA director has been able to shift agency priorities within statutory requirements. For instance, the first FHFA director raised guarantee fees to encourage the return of private capital to the MBS market, while the next director stopped the increase out of concern for its effect on credit availability. Additionally, we reported that FHFA s shifting priorities for conservatorship contributed to uncertainty among market participants. Therefore, by identifying a primary objective for housing finance reform, Congress would be better positioned to determine appropriate steps and policies and provide clarity to market participants. <4.3.2. System-Wide Focus> Seven of 14 proposals we reviewed including proposed legislation do not consider if and how they would affect other federal entities in the housing finance system, such as FHA and Ginnie Mae. The proposals that consider other federal entities include policies to help them manage the effects of reform and ensure agencies policies are consistent with overarching goals. For example, proposals that would expand Ginnie Mae s guarantee to include the enterprises market also recommend that Ginnie Mae become an independent agency to better manage its expanded role. Another proposal with the broad goal of reducing the federal role in the mortgage market by terminating the enterprises also aims to manage fiscal exposure through FHA by increasing its capital reserve ratio from 2 to 4 percent. Finally, one proposal with a goal of promoting market liquidity recommends that FHA should become an independent agency to buttress its countercyclical role (that is, its ability to provide credit availability across market cycles). We previously reported that aligning policies and mechanisms with goals is a key element of housing finance reform, and that reform should have a comprehensive approach that considers all relevant entities. A comprehensive approach would help to promote consistency, transparency, and reduce unnecessary overlap and duplication between the enterprises and other federal entities. As of early January 2019, Congress had not enacted legislation with a system-wide approach to housing finance reform that considers the enterprises and other federal entities. The lack of a comprehensive approach in half of the proposals we reviewed highlights the need for policymakers to consider these key elements when reforming the housing finance system. Housing finance reform that does not consider all federal entities or participants may not account for how changes in the enterprises activities could affect risk exposure of other federal entities. For example, CBO reported that transitioning to a fully private market likely would lead to large increases in the volumes of loans insured by FHA. Industry experts with whom we spoke including stakeholders from the primary and secondary markets, researchers, and former agency officials also stated that any reforms to the enterprises must consider FHA too. Thus, considering the impacts of potential reforms on other federal entities would help ensure consistency and avoid unintended consequences. <5. Conclusions> The enterprises have remained in conservatorship since 2008 (over 10 years), perpetuating uncertainty about their future and the federal role in the housing finance market. Determining those future roles and the enterprises structures has become both more urgent and more challenging as federal fiscal exposures have grown and new risks emerged in the housing finance markets (such as the growing role of nonbank lenders and servicers). Congress and industry stakeholders have introduced a number of proposals to reform the housing finance system, including addressing the prolonged conservatorship of the enterprises, but several proposals lack clearly defined and prioritized goals or do not consider all relevant federal entities in the housing finance system. By incorporating these key elements in future reform efforts, Congress could facilitate a more focused and comprehensive transition to a new housing finance system. Moreover, reform efforts that are both focused and comprehensive could allow market participants to confidently engage in long-term planning and help increase private-sector participation in the markets. <6. Matter for Congressional Consideration> Congress should consider legislation for the future federal role in housing finance that addresses the structure of the enterprises, establishes clear, specific, and prioritized goals and considers all relevant federal entities, such as FHA and Ginnie Mae. (Matter for Consideration 1) <7. Agency Comments> We provided a draft of this report to FHFA, Treasury, and HUD for review and comment. FHFA provided a technical comment that we incorporated. We also received technical comments from HUD and Treasury on sections of the draft report, which we incorporated as appropriate. Further comments on the full draft report from HUD and Treasury were not available due to the partial government shutdown. We are sending copies of this report to the appropriate congressional committees and FHFA, Treasury, and HUD. This report will also be available at no charge on our website at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology Our objectives in this report were to examine (1) recent developments in the housing and financial markets that could affect the safety and soundness of Fannie Mae and Freddie Mac, two government-sponsored enterprises (enterprises); (2) risks and challenges that the ongoing conservatorships pose to the status and operations of the enterprises and other aspects of the housing finance system, and (3) housing finance reform options that have been proposed and their relative strengths and limitations. To examine trends in the housing market and assess related risks, we reviewed and analyzed data that we considered relevant to various aspects of risk and developments in the housing market. Specifically, we reviewed and analyzed: house prices from the Federal Housing Finance Agency (FHFA) and Standard and Poor s (a financial services company); mortgage delinquency rates from FHFA; the Board of Governors of the Federal Reserve System (Federal Reserve); the Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau (CFPB); and Inside Mortgage Finance (a housing market data provider); mortgage origination and securitization data from Inside Mortgage Finance, FHFA, the Mortgage Bankers Association, and the Securities Industry and Financial Markets Association; and measures of underwriting standards from Fannie Mae, Freddie Mac, the Department of Housing and Urban Development (HUD), and the Senior Loan Officer Opinion Survey on Bank Lending Practices (conducted by the Federal Reserve). We adjusted house prices for inflation using the Bureau of Labor Statistics Consumer Price Index and mortgage origination and securitization volume using the Bureau of Economic Analysis s Implicit Price Deflator for gross domestic product to make dollar amounts reflective of real 2017 dollars. To further inform our assessment of these developments and risks, we reviewed prior GAO work on these issues. Specifically, we reviewed prior GAO work that identified and analyzed key national housing market indicators, including house prices and loan performance, since the 2007 2009 financial crisis. To examine risks and challenges that conservatorship poses to the status of the enterprises and other aspects of the housing finance system, we reviewed FHFA reports and Fannie Mae and Freddie Mac financial statements. Specifically, we reviewed progress reports and program updates from FHFA regarding its credit risk transfer and foreclosure prevention actions, and reviewed FHFA s scorecard progress and other FHFA reports (such as the 2017 Report to Congress), strategic plans, and FHFA Office of Inspector General reports. For financial information on Fannie Mae and Freddie Mac, we reviewed filings with the Securities and Exchange Commission, quarterly financial supplements, and reports from credit rating agencies. We also reviewed selected academic literature that reported on risks and challenges identified in these sources and the potential effectiveness of risk-mitigation efforts. We also reviewed our prior work on the enterprises instability during the financial crisis. We took a number of steps to assess the reliability of the data, including interviewing agency officials; corroborating trends across data from multiple sources that we analyzed for these two objectives; reviewing related documentation; and reviewing relevant, prior GAO work. We used data that had been collected for prior GAO reports and reviewed the data reliability assessments that had been completed for those reports to determine if the data were reliable for our purposes. Based on these actions, we determined the data were sufficiently reliable to report on recent trends in the housing market and developments under the conservatorships of the enterprises. To address our third objective, we reviewed 14 proposals proposed by Congress, federal agencies, industry groups, or think tanks for reforming the single-family housing finance system. We selected proposals for review based on the following criteria: Time frame: We selected proposals that were released from 2014 through 2018. Source of proposal: We selected proposals from the following sources: (1) Congress (either proposed legislation or discussion drafts by members), (2) federal agencies, and (3) industry groups or think tanks (limited to those that were discussed in congressional hearings). We excluded some proposed legislation that only would modify certain aspects of the conservatorships of the enterprises and did not contain broader reforms. For example, three proposed legislative acts would have amended the terms of the senior preferred stock purchase agreements but did not address other aspects of housing finance and thus we excluded them from our review. We also excluded documents that outlined principles and objectives for reform but did not include specific policies, such as reform principles documents that some industry and advocacy groups released. We used elements of GAO s framework for assessing potential changes to the housing finance system to analyze the content and assess the potential strengths and limitations of the reform proposals. For each element, we defined a series of responses to determine if the proposal fully, partially, or did not meet the element and provided examples of relevant policies for each element. Generally, a proposal fully met an element if it described specific policies and programs relevant to that element, partially met an element if it the element was addressed but the proposal did not describe specific policies or programs relevant to it, or did not meet an element if it did not address it at all. We also gathered descriptive information on the policies and programs on which the proposals relied. We used the information we collected from the proposals to determine the potential strengths and limitations of the proposals. We generally considered a proposal s strengths to be the elements it fully met and its limitations to be elements that were partially met or not met. We did not make an individual, overall determination about each proposal, but instead examined whether each proposal fully considered key elements of housing finance reform. For example, a proposal could have useful ideas for reform but had yet to consider some key elements. Using this information, we used the number of proposals that fully met each element to determine which elements were most frequently met. We noted which elements were met least often to determine the gaps in the reform proposals as a whole. We also grouped the individual proposals into the different reform models. We determined the main reform models and their potential strengths and weaknesses based on our review of the proposals, prior GAO reports, Congressional Budget Office reports, industry stakeholder reports, and information we obtained during panels and interviews we conducted. To address all three objectives, we convened four, 2-hour panels of experts and stakeholders representing (1) mortgage originators and insurers, (2) securitizers and investors, (3) consumer and affordable housing advocates, and (4) researchers. We selected the experts and stakeholders based on the extent to which they developed reform proposals, testified before Congress on housing finance reform, or had participated in prior GAO studies of housing finance issues. Each panel had from three to five participants. In cases in which key experts or stakeholders could not attend our discussion panels, we interviewed them separately. We also interviewed officials at FHFA, HUD, and the Department of the Treasury. We conducted this performance audit from March 2018 to January 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Housing Finance Reform Proposals Reviewed For this report, we reviewed the following housing finance reform proposals released between 2014 and September 2018 (see appendix I for more information about how we selected the proposals): Bipartisan Housing Finance Reform Act of 2018 (discussion draft). Released by House Financial Services Chairman Jeb Hensarling, Representative John Delaney, and Representative Jim Hines on September 6, 2018. Housing Finance Reform and Taxpayer Protection Act of 2014 (S. 1217). Released by Senate Banking Committee Chairman Tim Johnson and Ranking Member Michael Crapo on March 16, 2014. Housing Opportunities Move the Economy (HOME) Forward Act of 2014 (discussion draft). Released by House Financial Services Committee Ranking Member Maxine Waters on March 27, 2014. Mortgage Finance Act of 2015 (S. 495). Introduced by Sen. Johnny Isakson on February 12, 2015. Partnership to Strengthen Homeownership Act of 2014 (H.R. 5055). Introduced by Representative John Delaney on July 10, 2014. Protecting American Taxpayers and Homeowners Act of 2018 (H.R. 6746). Introduced by House Financial Services Chairman Jeb Hensarling on September 7, 2018 (originally introduced on July 22, 2013). Bright, Michael, and Ed DeMarco. Toward a New Secondary Mortgage Market. Washington, D.C.: Milken Institute, September 2016. Federal Housing Finance Agency. Perspectives on Housing Finance Reform. Washington, D.C.: January 2018. Independent Community Bankers of America. ICBA Principles for GSE Reform and a Way Forward. Washington, D.C.: 2017. Moelis & Company LLC. Blueprint for Restoring Safety and Soundness to the GSEs. June 2017. Mortgage Bankers Association. GSE Reform: Creating a Sustainable, More Vibrant Secondary Market. Washington, D.C.: April 2017. National Association of Home Builders. Why Housing Matters: A Comprehensive Framework for Reforming the Housing Finance System. Washington, D.C.: September 2015. Office of Management and Budget. Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations. Washington, D.C.: June 2018. Parrott, Jim, Lewis Ranieri, Gene Spalding, Mark Zandi, and Barry Zigas. A More Promising Road to GSE Reform. Washington, D.C.: Urban Institute, March 2016. Appendix III: GAO Contact and Staff Acknowledgements <8. GAO Contact> <9. Staff Acknowledgements> In addition to the contact named above, Karen Tremba (Assistant Director), Tarek Mahmassani (Analyst in Charge), Miranda Berry, M Baye Diagne, Michael Hoffman, Risto Laboski, Melanie Magnotto, Marc Molino, Matthew Rabe, Barbara Roesmann, Jessica Sandler, and Andrew Stavisky made significant contributions to this report.

Why GAO Did This Study Since 2008, the federal government has greatly increased its role in financially supporting housing markets. In September 2008, FHFA placed Fannie Mae and Freddie Mac under conservatorship, which created an explicit fiscal exposure for the federal government. As of October 2018, the dollar amounts of their outstanding MBS have grown by more than $800 billion since the end of 2008. Since 2013, GAO has designated the federal role in housing finance as a high-risk area. GAO examines (1) recent housing market developments, (2) risks and challenges posed by the current federal role, including ongoing conservatorship, and (3) housing finance reform proposals and their strengths and limitations. To address these issues, GAO reviewed housing finance data; FHFA and enterprise reports; and 14 housing finance reform proposals introduced in Congress or proposed by industry stakeholders since 2014. GAO also convened panels with housing finance experts and stakeholders (including consumer advocates, mortgage originators, insurers, and investors), who developed reform proposals, testified before Congress, or participated in prior GAO studies. What GAO Found Federal support of the housing finance market remains significant even though the market has largely recovered since the 2007–2009 financial crisis. While down from the peak in 2009, in 2017, the federal government directly or indirectly guaranteed about 70 percent of single-family mortgage originations. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—two government-sponsored enterprises (enterprises) that purchase and securitize mortgages into mortgage-backed securities (MBS)—securitized and guaranteed about 46 percent of mortgage originations in 2017. In 2017, federal programs, such as those offered by the Federal Housing Administration (FHA), insured about 25 percent of mortgage originations. Together, the enterprises and the Government National Mortgage Association (Ginnie Mae)—a federally owned corporation that guarantees MBS backed by federally insured mortgages—have issued or guaranteed 95 percent or more of all MBS issued annually since 2008 (see figure). However, recent market trends pose risks to these entities and the housing finance system. For example, mortgage lending standards have loosened slightly in recent years, which could increase the risk of borrower default—especially in a recession or downturn in the housing market—and losses to federal entities. Nonbanks have increased their presence in mortgage lending and servicing, which involves collecting monthly mortgage payments, among other duties. For instance, the share of nonbank originations of FHA-insured mortgages increased from 56 percent in fiscal year 2010 to 86 percent in 2017. The share of nonbank servicers of mortgages in enterprise MBS also grew from 25 percent in 2014 to 38 percent as of the third quarter of 2018. While nonbank lenders and servicers have helped provide access to mortgage credit, they are not subject to federal safety and soundness regulations. The Federal Housing Finance Agency (FHFA) has taken actions to lessen some of Fannie Mae and Freddie Mac's risk exposure. For example, under FHFA's direction, the enterprises have reduced the size of their riskier retained mortgage portfolios which hold assets that expose them to considerable interest rate and other risks from a combined $1.6 trillion in 2008 to $484 billion in 2017. Since 2013, the enterprises also have transferred increasing amounts of risk on their guaranteed MBS to private investors and insurers through credit risk transfer programs. However, federal fiscal exposure remains significant. The Department of the Treasury's remaining funding commitment through the senior preferred stock purchase agreements—which provide financial support to the enterprises—leaves taxpayers exposed to risk, especially in the event of adverse market or other conditions and given the recent growth in the enterprises' guarantee business. The value of outstanding MBS on which the enterprises guarantee principal and interest payments to investors grew from about $2.1 trillion in 2003 to about $4.8 trillion in 2017. The long duration of the conservatorships also raises uncertainty among market participants. Several experts and stakeholders GAO interviewed said that they have hesitated to make longer-term strategic plans and goals due to potential housing finance reforms that could markedly affect their industries. The figure below shows 2003–2017 trends in the enterprises' guarantee business and retained mortgage portfolios. GAO reviewed 14 housing finance reform proposals from Congress, agencies, industry groups, and think tanks. The proposals generally fit into four different models: reconstituted enterprises, a multiple guarantor system with an explicit federal guarantee, a government corporation, and a completely privatized market without an explicit federal guarantee. The 14 proposals generally meet key elements of GAO's framework for assessing potential changes to the housing finance system, such as addressing fiscal exposure, protecting investors, and considering the implications of the transition to a new system. However, many proposals lack clearly defined and prioritized goals or do not address the role of other federal entities in the housing finance system, such as FHA and Ginnie Mae—two key elements in GAO's framework. By incorporating these elements, policymakers could facilitate a more focused and comprehensive transition to a new housing finance system and provide greater certainty to market participants. What GAO Recommends Congress should consider legislation for the future federal role in housing finance that addresses the structure of the enterprises, establishes clear and prioritized goals, and considers all relevant federal entities, such as FHA and Ginnie Mae.

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<1. Background> <1.1. Internet Service Types and Technologies> Consumers receive broadband service from telephone, cable, mobile, satellite, and utility companies that own and operate the telecommunications infrastructure. Fixed technologies, like cable or fiber, can provide broadband to single locations like customers homes or businesses. Mobile technologies provide internet access wherever a customer has access to a signal. Customers connect to a mobile wireless network through a mobile device, such as a smartphone. Internet service that is high speed and provides an always-on connection, so users do not have to reestablish a connection each time they access the internet, is commonly referred to as broadband. FCC s benchmark speed for what constitutes advanced telecommunications capability, a subset of broadband, has increased over time as consumers use the internet for an expanding range of purposes that requires faster speeds. In 2015, FCC set a benchmark speed for fixed advanced telecommunications capability to 25 megabits per second when downloading and 3 megabits per second when uploading (25 Mbps/3 Mbps). Internet service at various speeds allows for a variety of online activities, such as those shown in figure 1. In addition to fixed providers, satellite providers have begun meeting this benchmark, and FCC has recognized them as a viable source of advanced telecommunications capability. FCC has not set a similar benchmark for mobile services. <2. The Federal Role in Rural Broadband Access> The federal government has emphasized the importance of ensuring Americans have access to broadband, and a number of agencies provide funding to subsidize broadband deployment in areas, such as rural areas, in which the return on investment has not attracted private investment. As we have previously reported, rural areas may have features that increase costs of deploying and maintaining broadband networks. For instance, low population density, low broadband adoption rates, or mountainous or rugged terrain can make it especially costly for fixed and mobile providers to deploy infrastructure to rural areas with an expectation of getting a return on their investment. The Communications Act of 1934, as amended by the Telecommunications Act of 1996, specifies that consumers in rural, insular, and high-cost areas should have access to telecommunications and information services at rates that are reasonably comparable to rates charged for similar services in urban areas. Consequently, federal programs exist to support investment in broadband deployment for high-cost areas through federal grants, loans, and other subsidies. The largest share of federal support comes from FCC s Universal Service Fund, which includes four component programs designed to ensure access to affordable communications for schools, libraries, rural health care providers, low-income consumers, and those in rural and high-cost areas. The largest component of the Universal Service Fund is the high- cost program which includes the Connect America Fund and the Rural Digital Opportunity Fund that targets financial support to rural high-cost areas for the deployment and maintenance of voice and broadband- capable networks. Table 1 shows selected federal programs funding the deployment of broadband infrastructure. FCC has other roles and responsibilities in regulating nationwide communications activities in addition to those identified above. FCC collects deployment data twice a year from broadband providers in order to better identify areas where broadband service is available. FCC, RUS, and NTIA have used and continue to use these data to inform their broadband programs. Furthermore, FCC and NTIA jointly determine the amount of spectrum a finite natural resource that makes a variety of wireless communications possible allocated for federal, nonfederal, and shared use. FCC also regulates the use of licensed and unlicensed spectrum through its regulatory process. <2.1. GAO Reports on Broadband Programs> This report s broad view of a decade of federal efforts to advance broadband access builds on our prior work. FCC Universal Service Fund. In 2014, we examined FCC efforts to increase broadband deployment in unserved areas and identified legal, policy, and economic concerns for example, low returns on investment in deploying broadband in unserved and underserved areas. We also examined varying approaches for financing broadband deployment in high-cost areas, including local funding sources and a variety of ownership structures over the infrastructure. FCC deployment data. In 2014, we examined FCC s efforts to reform its high-cost program and the extent to which FCC was collecting data to determine the effectiveness of these reforms, among other objectives. We identified gaps in FCC s data analysis and reporting, including a lack of transparency and accountability of spending. We recommended that FCC analyze how it uses its high-cost program funding and make that analysis publicly available at least annually. FCC has taken action to implement our recommendation to address the lack of transparency and accountability of spending. In 2018, we reviewed data that FCC collected from providers to describe the locations of existing broadband infrastructure and help federal programs identify unserved and underserved areas to target for federal funding. We found that these data overstated broadband access, especially in tribal lands, and recommended that FCC take actions to improve these data. FCC concurred with the recommendations and has begun taking action, but the agency has not yet fully implemented any of the report s three recommendations. Broadband adoption. In 2015, we stated that adopting broadband at home can provide a number of benefits, including access to employment opportunities (searching for and applying to jobs); education (research, web-based learning, and homework); and services for economic and social gain (such as telemedicine and entertainment). We reviewed federal efforts to address broadband adoption barriers that consumers face and recommended that FCC revise its strategic plan to more clearly state if broadband adoption is a priority, and if so, what outcomes FCC intends to achieve, action that the agency took the following year. We also recommended that NTIA include performance metrics for the agency s broadband adoption efforts in its annual performance plan. Both FCC and NTIA implemented these recommendations. RUS grant and loan programs. In 2017, we assessed whether RUS s procedures and activities related to its broadband grant and loan programs are consistent with leading management practices. We found that its activities and procedures were consistent with four leading practices and partially consistent with six leading practices. We made five recommendations to RUS to improve management practices for specific programs, like the Community Connect Program. In response, RUS implemented two of the recommendations to develop and document clear goals and performance measures for its broadband loan and grant programs and to establish and implement procedures to conduct a risk assessment of each program. RUS agreed with, but has not yet implemented, the report s other three recommendations to: (1) conduct periodic evaluations of completed grant projects to determine the outcomes associated with these projects; (2) establish a timeline for implementing a centralized internal data system for staff to use in managing and monitoring loans and grant awards; and (3) develop, update, and maintain complete written policies and procedures for RUS s programs as a way to retain and communicate organizational knowledge internally among agency staff. Broadband competition. In 2017, we found that infrastructure costs and other factors can affect competition among broadband providers. Such costs can limit competition in urban areas but more significantly limit competition in non-urban and less populated areas. We made two recommendations to FCC to solicit and report on the views of stakeholders regarding: (1) how well FCC s programs promote broadband competition and (2) how varying levels of broadband deployment affect broadband prices and service quality. In response, FCC implemented these recommendations by soliciting public comments in July 2018 to seek feedback on the effectiveness of its actions addressing competition among broadband providers and on how varying levels of broadband deployment affect prices and service quality. In December 2018, FCC reported comments that it had received from this solicitation in the first version of a biennial report on the broadband market. In May 2019, FCC also reported stakeholder comments related to the agency s broadband deployment data, including service quality data. Tribal broadband access. In 2018, we examined challenges that tribes face in accessing broadband services, focusing on two particular areas: (1) tribes ability to obtain and access spectrum for providing broadband and (2) tribes partnerships with private sector companies and others, and the ability to obtain funding to deploy broadband infrastructure on tribal lands. We found that tribes cited a number of barriers to obtaining licenses for spectrum. We also found that although tribes said partnerships with the private sector improved access to broadband, there are few such partnerships, and that tribes face regulatory barriers in applying for funding from RUS grant programs. We made three recommendations to FCC to collect data on tribal access to spectrum, analyze unused spectrum over tribal areas, and make information about available spectrum more accessible. We also made one recommendation to RUS to identify and address any regulatory barriers that may impede efforts by tribes to obtain RUS funding. FCC agreed with the recommendations, and RUS neither agreed nor disagreed with its recommendation. The agencies have not yet implemented these recommendations. <3. Industry and Federal Investments Have Reduced Broadband Deployment Gaps and Improved How Progress Is Measured, Although Some Challenges Persist> <3.1. Industry Invested Billions of Dollars in Broadband> According to the U.S. Census Bureau s Annual Capital Expenditures Survey data, the telecommunications industry that provides various types of broadband services fixed, mobile, or satellite (and other) spent an estimated $795 billion (2018 dollars) in total capital expenditures from 2009 through 2017. Selected broadband providers that we contacted stated that they used the majority of their capital expenditures to improve the capability and reliability of their existing broadband infrastructure or expand infrastructure into new areas. For instance, one provider said it expanded wireless broadband service in Iowa and another provider constructed new towers to transmit fixed-wireless broadband signals across parts of Oklahoma. Some providers we contacted said that their capital expenditures may include funds from federal broadband programs or other items not related to broadband, such as the purchase of real or personal property or the acquisition of other broadband companies. Providers that we contacted offered few, if any, details about their investments. Instead, they said that their detailed expenditures were proprietary or they referred us to their annual reports, which contain limited information on capital expenditures. Census data showed that annual total capital expenditures increased from about $78 billion in 2009 to about $97 billion in 2017 (an increase of about 24 percent), with an average annual growth rate of about 2.8 percent. See figure 2. Industry capital expenditures for specific telecommunications sectors varied. For example, estimated expenditures for fixed services consistently exceeded estimated expenditures for mobile services, although mobile services experienced a greater increase 55 percent compared to an 8 percent increase in estimated expenditures for fixed services from 2009 through 2017. <3.2. Federal Agencies Targeted Investment for Rural Deployment and Improved Their Ability to Measure Impact> In comparison to industry spending, federal investment is much smaller, representing about 6 percent of total industry capital expenditures. However, this investment is critical to supporting deployment of broadband in rural areas where industry might not otherwise invest, due to potentially higher costs and lower investment returns. According to FCC, RUS, and NTIA data, federal program investments totaled about $47.3 billion (2018 dollars) to target broadband infrastructure in unserved or underserved areas from 2009 through 2017. Of these three federal agencies, FCC provided the largest share of support through the Universal Service Fund s high-cost program which is an ongoing program. A second agency, RUS, offered loans and grants. And NTIA primarily funded broadband deployment through the Recovery Act, which provided one-time funding for projects that are largely complete and are no longer active. To illustrate: FCC s high-cost program. The high-cost program disbursed about $41.7 billion (2018 dollars) in support of both deployment and maintenance of voice and broadband-capable networks from 2009 through 2017. RUS s programs. RUS provided grants or loans, or a combination of both, through a variety of funding programs. The Broadband Initiatives Program a Recovery Act program awarded about $2.2 billion (2018 dollars) in grants to industry for infrastructure projects in fiscal year 2010. RUS s Community Connect Grant Program a grant program designed to fund broadband deployment in rural areas where such service did not exist awarded $95 million (2018 dollars) in grants from fiscal year 2009 through fiscal year 2017. In addition to these grants, RUS provided infrastructure loans that recipients must repay to the government with interest. Specifically, RUS provided about $4.0 billion (2018 dollars) in loans to private providers through the Broadband Initiatives Program, the Telecommunications Infrastructure Loan Program, and the Broadband Loan Program. NTIA s Broadband Technology Opportunities Program, Comprehensive Community Infrastructure projects. This Recovery Act program awarded a one-time $3.3 billion in competitive grants to states, municipalities, and non-profit and commercial organizations in fiscal year 2010. Nearly all of the 116 broadband infrastructure projects have been completed. All three programs have used metrics to show progress in closing deployment gaps. Specifically, FCC has a metric for locations served, whereas RUS and NTIA measure miles of fiber-optic cable deployed, in addition to having metrics that count particular types of locations served or reported number of new subscribers. FCC collects data from providers about new locations to which they deployed broadband using high-cost program support. Deployment data submitted by providers that receive support from FCC s high-cost program showed that they used those funds to make broadband available to about 2.3-million new residential and small business locations, mostly from 2015 through 2017. In commenting on a draft of this report, FCC stated that this figure has increased to about 4.2- million new locations. This updated figure is based on data through 2019 that are not yet publicly available; they are expected to be released later in 2020. Providers report these data to FCC, which are subject to verification by the Universal Service Administrative Company the not-for-profit corporation designated by the FCC as the administrator of the Universal Service Fund, including the high- cost program. As of May 2020, FCC officials said that FCC has authorized Connect America Fund Phase II support to deploy broadband at 25 Mbps/3 Mbps or higher to more than 631,000 locations by 2025 or sooner. In December 2016, RUS released the final Broadband Initiatives Program progress report, which noted that the program deployed 66,521 miles of fiber-optic cable, added 5,468 wireless access points, and resulted in 334,830 subscribers receiving new or improved broadband. In December 2016, NTIA reported that the Broadband Technology Opportunities Program resulted in the deployment of 117,072 miles of new or upgraded broadband infrastructure. NTIA also reported that awardees connected nearly 26,000 community anchor institutions such as schools, libraries, and hospitals to broadband and provided access to nearly 14,149 homes and businesses. Although the agencies used metrics to show progress, the metrics used were not always the same, making it difficult to draw comparisons among programs. The impact of these federal programs goes beyond the number of miles of fiber or the number of subscribers. Although these programs promoted the availability and use of broadband throughout the country, our prior work found that they also stimulated economic development and created new jobs. For example, we reported in 2012 that NTIA s and RUS s Recovery Act programs had created about 9,000 full-time jobs. Recovery Act grantees we interviewed for our prior work gave examples of the types of economic development broadband enabled, such as tourism-oriented businesses being better able to provide web sites and online reservation systems. They also reported that broadband infrastructure improved broadband speed for schools, community colleges, and health care providers. Several studies have attempted to measure the economic benefits of broadband. A 2006 study prepared for the Department of Commerce claimed to be the first attempt to quantify the impact of broadband on economic growth. The study found that, between 1998 and 2002, communities in which broadband was available experienced more rapid growth in employment, the number of businesses, and businesses in information technology sectors, relative to comparable communities without broadband. Subsequently, other studies have attempted to assess the economic impact of broadband. For example, a 2016 study from the Hudson Institute found that rural broadband providers directly and indirectly added $24.1 billion to the U.S. economy and the rural broadband industry supported about 70,000 jobs in 2015, both through its own employment and the employment that its purchases of goods and services generated. About the same time, a 2016 broadband forum sponsored by the National Science Foundation and NTIA concluded that during the past decade, research has deepened the understanding of the potential impacts of broadband on the economy and society. The study made clear the need for more research on the impact of broadband. On December 11, 2018, FCC opened the new Office of Economics and Analytics, consisting of economists, attorneys, and data professionals to, among other things, provide economic analysis, including cost-benefit analysis, for FCC proceedings. <3.3. Broadband Availability Has Increased, but Measuring Deployment Has Limitations> FCC s annual Broadband Deployment Report, which reports on broadband deployment generally and not just deployments made with FCC funding, states that broadband availability has increased both nationally and for specific segments of the population, as shown in figure 3. National: About 94.4 percent of the U.S. population had fixed broadband service available at customer premises, such as residences, with minimum speed of 25 Mbps/3 Mbps in 2018, up from 81.2 percent of the population in 2012. Rural: About 77.7 percent of the rural population had fixed broadband service available with minimum speed of 25 Mbps/3 Mbps in 2018, up from 45.7 percent of the rural population in 2012. Tribal: About 72.3 percent of tribal lands had fixed broadband service available at the same speeds in 2018, up from 32.2 percent of the tribal population in 2012. Although these data show broadband availability increasing in a variety of ways, the data also demonstrate that fixed broadband is still much more readily available to urban consumers than it is available to consumers in rural areas. FCC s Broadband Deployment Report shows that as of 2018, about 22.3 percent of the rural population and 27.7 percent of tribal population did not have fixed broadband service available with minimum speed of 25 Mbps/3 Mbps; whereas, only about 1.5 percent of the urban population did not have fixed broadband service available at the same speed. As we will discuss later in this report, limitations with how FCC collects and uses deployment data from providers to measure broadband access overstate the extent to which broadband is available, a weakness we have pointed out and that FCC has taken steps to address. As the availability of broadband service has increased over time, some segments of the population continue to lag behind others in adopting broadband, even if it is available, and therefore are unable to benefit from it. Our prior work has shown that several factors have been, and continue to be, barriers to broadband adoption specifically, affordability, lack of perceived relevance, and lack of computer skills. FCC identified these barriers in its National Broadband Plan of 2010, and our more recent work in 2015 showed that these three barriers persist. We found that: the cost of a subscription for internet service and the purchase of computer equipment was the most frequently identified barrier; the perception that broadband does not provide enough utility relative to its cost acted as another barrier; and the lack of exposure to or knowledge about computers, such as by those aged 65 or older and those with low levels of income and education, was another barrier. Compounding the effect of these adoption barriers is the lack of competition. FCC has reported that competition could result in lower prices and higher quality services from broadband providers. However, our prior work from 2017 found that 51 percent of the U.S. population had only one fixed broadband provider offering minimum speed of 25 Mbps/3 Mbps. According to the FCC s 2018 Communications Marketplace Report, that percentage has decreased to about 27 percent of the U.S. population who had only one fixed terrestrial broadband provider offering minimum speed of 25 Mbps/3 Mbps. In addition, FCC s report stated that 68 percent of the population had at least two providers and approximately 95 percent had at least one provider. Competition in rural areas can be particularly challenging as rural areas generally do not have enough demand to support multiple carriers. <4. Federal Agencies Have Taken Action to Help Close Broadband Gaps by Modifying Funding Programs and Reforming Deployment Data> <4.1. Federal Agencies Have Modified Programs to Increase Broadband Support> Over time, the types of technologies that provide access to broadband have evolved. Federal agencies have responded by making changes to their programs that support broadband. Specifically, FCC and RUS have expanded which types of broadband providers are eligible to receive support from their programs, allowing increased participation by satellite and wireless broadband providers. Satellite and mobile broadband may be able to overcome some impediments to access faced by other services, such as high deployment costs and geographical barriers that pose challenges for deploying broadband over fixed networks using fiber or cable. In turn, this expansion of eligibility corresponds with the shrinking gap in broadband deployment discussed previously. In the case of FCC, the agency has taken action since the 1990s to address technological changes related to broadband deployment. For example, changes in communications technology and competition in the communications marketplace led FCC to reform the high-cost program for purposes beyond maintaining telephone service, including supporting broadband deployment. In 2011, FCC adopted new rules that fundamentally changed the high-cost program and expanded the program to support broadband capable networks. Under these rules, FCC established new funding streams within the high-cost program, such as the Connect America Fund, which addresses fixed broadband availability gaps in underserved and unserved areas, and the Mobility Fund, which supports deployment of wireless networks to provide mobile broadband. FCC also updated its regulatory framework to recognize changes in existing technology and potential technologies in delivery of broadband. For example, in 2016, FCC deemed geostationary satellites eligible to participate in the second phase of the Connect America Fund. Additionally, since 2017, FCC also recognized low and medium earth orbiting satellites as broadband-capable technologies that may be eligible to participate in programs after deployment. According to FCC officials, prior to these changes, they did not consider satellite as broadband- capable due to its high signal latency and internet speeds that were below the FCC benchmark speed, issues that recent technological advances have improved. Similar to FCC, RUS funding programs used to focus funding on telephone service but over time, RUS has reformed them to provide funding for broadband infrastructure and deployment. For example, according to RUS officials, since 1995 the RUS Telecommunications program has only funded systems that were capable of providing high-speed internet and now supports broadband services. In addition to past program transformation efforts, both FCC and RUS have proposed actions to further reform or expand their programs that provide funding for broadband deployment. For example, in August 2019, FCC started the rulemaking process for the new Rural Digital Opportunity Fund. In January 2020, FCC adopted a Report and Order establishing a framework for the fund, providing up to $20.4 billion through two funding rounds, each providing support over overlapping 10-year periods. This fund is the next iteration of the high-cost program, and it continues the overarching goals of prior high-cost programs to expand service into rural areas. The Rural Digital Opportunity Fund will focus its first round of funding on census blocks that FCC deployment data have marked as completely unserved, and per the FCC order will incentivize parties participating in the program to serve tribal census blocks. Similarly, in April 2020, FCC initiated a rulemaking to establish the 5G Fund which would replace the Universal Service Mobility Fund Phase II and make up to $9 billion available to carriers to aid in deployment of advanced 5G mobile wireless services in rural America. In addition to FCC s actions, RUS officials said they are planning for future funding rounds for the ReConnect Program after they have awarded the initial phase of funding. As of April 15, 2020, RUS had closed the application phase for a second round of funding under the program. Despite federal efforts to address broadband gaps, there are still limits on participation in some programs. For example, RUS s ReConnect Program offers a mix of grants and loans to incentivize broadband infrastructure in areas not currently served by existing service providers. However, the ReConnect Program limits eligibility to fixed and satellite broadband providers, with mobile wireless networks ineligible for funding. In order to participate in FCC s high-cost program, a provider must meet FCC s definition of an eligible telecommunication carrier (ETC). However, our prior work and stakeholders we interviewed for this review identified barriers to attaining ETC status. As we previously reported, tribal entities cited the statutory requirements applicable to ETC designation as a primary barrier to accessing federal funds. Additionally, cable providers we spoke with for this review also said they viewed the ETC designation as a potential barrier to entry into the high-cost program. At present, FCC and states have complementary authority to make ETC designation decisions. During our 2018 review of barriers that tribes face in supporting broadband investment, FCC officials said that most of the carriers that were eligible for ETC designation at that time were the telephone companies that were in existence when the 1996 Act was enacted into law. Further, FCC officials said they determined that the statute is clear that only ETCs may receive program support, and therefore the agency does not have the authority to allow non-ETCs to receive high-cost support payments. More recently, greater numbers of companies that are not traditional telephone companies have received ETC designation, particularly in connection with the Connect America Fund Phase II. In addition to the ETC designation matter described above, industry stakeholders highlighted several other issues that can affect access to federal support, noting that these issues may require further action by relevant federal agencies or possible legislative action. The issues cited included: Technology Neutral Federal Programs: Most federal broadband programs focused on fixed technology over other technologies, but as described above, there have been reforms to broaden eligibility to other providers. Even with those reforms, industry stakeholders representing satellite and mobile service providers noted that there are program requirements that affect one technology more than another technology. For example, satellite providers that sought funding through FCC s Connect America Fund said that, after they sought funding in 2018, FCC changed how it planned to measure latency, a change affecting only satellite providers. Spectrum Availability: Availability of adequate spectrum was cited by a range of stakeholder groups we spoke with as an issue that could affect providers ability to deploy services. Spectrum availability affects many broadband services. For example, in addition to satellite and mobile providers, fixed-wireless a point-to-point or point-to- multipoint broadband service delivery option is a type of fixed broadband service often utilized in rural areas that needs spectrum to deliver service. In its comments, FCC noted that the changes it made to the exact testing conditions were in response to requests by satellite providers and that the agency balanced changing expectations with the benefits of minimizing unnecessary burdens on carriers and their customers imposed by the testing regime. Federal Funding Mechanisms: Some industry stakeholders we spoke with noted that the programs funding requirements and the type of federal funding mechanism utilized such as grants, loans, or hybrids of grants and loans could affect a provider s ability to access federal funds. For example, RUS awards its Reconnect Program funding through grants, loans, or both. Providers we spoke with noted that for all of the funding options, the Reconnect Program requires a lien on the funded assets. For some providers, allowing a lien against an asset would violate stockholder agreements or other aspects of their business. Additionally, representatives from an association representing state public service commissions we spoke with also stated that the FCC high-cost fund and its various funding programs should be reviewed periodically to ensure that both the contributions and funding outcomes are in the best interests of consumers and providers. Although agencies have modified their broadband funding programs to keep up with changes in broadband services, other changes that could be beneficial to the public would require statutory changes. The last major overhaul to telecommunications law occurred under the 1996 Act, which established many of the telecommunications programs that now fund broadband deployment and established statutory constructs like ETCs, which, as discussed above, can affect provider eligibility. Given the significant and ongoing changes in how Americans use the internet and the technologies that provide access to it, members of Congress have proposed legislative actions in recent years to sustain progress in closing the broadband deployment gap. Among the proposals were a range of federal funding and incentives aimed at improving funding to rural areas and addressing issues related to deployment. <4.2. FCC Has Proposed Mapping Data Reforms Aimed at Improving Federal Broadband Program Administration> As we previously reported, FCC s definition of broadband availability can lead to overstatements of fixed broadband availability. For instance, in 2013 FCC began collecting broadband availability data by census blocks. The agency counts an entire census block as served if a provider reports that it does offer or could offer without an extraordinary commitment of resources service some, but not necessarily all, of the locations in the census block. FCC has recognized that by measuring availability at the census block level, not every person may have access to broadband in a block that the data show as served. FCC has noted that census blocks in rural areas tend to cover larger geographic areas than in urban areas and providers may only deploy service to a portion of the census block. Deployment reporting in this manner does not allow FCC to answer with certainty questions like how many Americans have broadband available to their homes or where it needs to target its resources. Several selected providers and industry associations we contacted also expressed concerns about how deployment is measured, and said the measurement approach could make it difficult for them to make informed investment and deployment decisions. In 2013, FCC declined to gather fixed broadband data at a level more granular than the census block such as address-level data because the agency concluded that the complexity and filing burden on the industry would outweigh the benefit. In 2018, we recommended, among other things, that FCC develop and implement methods such as a targeted data collection for collecting and reporting accurate and complete data on broadband access specific to tribal lands. Subsequently in 2019, FCC began to address this recommendation by establishing the Digital Opportunity Data Collection a more granular, nationwide data broadband deployment collection effort. FCC issued a Report and Order, and Second Further Notice of Proposed Rulemaking, on this new initiative to improve the accuracy of broadband deployment mapping data in August 2019. This new initiative requires fixed broadband providers to identify their service areas using free-form geographic shapes called polygons. The polygons would identify the presence of service with more geographic precision than the current census-block method affords. Officials from FCC and USTelecom stated this new mapping effort was informed in part by a 2019 USTelecom mapping and data-collection pilot project. According to USTelecom officials, this pilot project combined several data sources to determine serviceable locations, which refers to specific locations or structures that could need broadband. With these serviceable locations, USTelecom s pilot project sought to distinguish between buildings not typically needing broadband service such as a barn or storage shed from a primary residence or small business. According to USTelecom representatives, a combination of polygons and serviceable locations data would yield a better picture of where to target new investments in deployment to achieve the greatest increase in access to broadband. FCC officials noted that the impact of the polygon approach may vary depending on the service features of each census block. Figure 4 below shows an example of how the new polygon approach may result in improved data compared to the census block approach currently used by FCC. As part of the rulemaking, FCC has requested comments on several issues, including how providers should define their polygons, and the procedures that fixed providers should follow if their polygons are disputed. At the time it issued the report and order, FCC had ongoing investigations into the coverage maps of some wireless providers, and therefore limited the new data collection obligations to fixed broadband providers while seeking comment on how best to incorporate mobile wireless coverage data into the effort in the future. FCC also proposed the use of public input to help verify the accuracy of the polygons and sought comment on whether it should discontinue the collection of census block data if the polygon-based deployment data prove to be gathering better deployment data once it is established. Additionally, on March 23, 2020, the Broadband Deployment Accuracy and Technological Availability Act was enacted. The act directs FCC to issue final rules on data collection for both fixed and wireless deployment within 180 days. In commenting on a draft of this report, FCC noted that it is in the process of implementing the statute, and that the statute largely affirms rules that FCC adopted in August 2019 but differs in some respects. FCC also noted that, while it is working to implement the requirements of the act, it is unable to comply with all of the requirements without a further appropriation. This change has the potential to improve how both FCC and RUS target deployment gaps by providing more accurate and granular information that could better identify truly unserved areas and results in better targeting of federal funds to those areas. As we discussed above, our prior work has found that FCC s current deployment data lack accuracy in a manner that overstates where consumers have access to broadband, which, in turn, limits federal agencies efforts to effectively target their broadband funds. Specifically, our 2018 report noted that overstating access increases the risk that unserved areas remain unserved, since areas that deployment data show as served are not eligible for funding. Although that report specifically looked at this risk for tribal areas, it is potentially a concern for other unserved areas. FCC officials noted that improved data would help inform future funding under the high-cost program by more accurately targeting unserved areas. RUS officials told us that they use FCC deployment data as a source for RUS mapping and program eligibility requirements for the ReConnect Program. RUS officials also believe that their program would benefit from more accurate deployment data. <4.3. FCC and RUS Continue to Provide Funding while Coordinating to Avoid Overlap> While efforts are under way to improve deployment data and mapping efforts, both FCC and RUS are continuing to move forward with their programs for funding broadband infrastructure in underserved and unserved areas. The lack of accurate data regarding locations that are not served by broadband may affect the ability of these agencies programs to target federal funds. In particular, providers and industry associations noted there was a risk of federal programs subsidizing deployment into areas that already have service, at the expense of an unserved area that does not have any service. Given this risk, FCC and RUS each have eligible area validation processes that they use to determine if areas are already being served and therefore ineligible for federal support. Additionally, FCC and RUS have engaged in interagency coordination efforts to keep each agency s program staff apprised of key dates and issues in an effort to avoid overlap between the programs. Officials from both FCC and RUS have stated that their programs are complementary and noted that their eligibility validation processes reduced the likelihood of service overlaps. The agencies use different processes to determine which geographic areas are eligible for funding, and they share information about the results of these processes as they are able. According to FCC officials, the agency has used a process for validating unserved areas in connection with its support of the Universal Service high-cost program. This validation process primarily relies on providers verifying the Form 477 data they self-report, and then using that data to create and publish a list of unserved census blocks prior to awarding funding. Results from this process have informed how FCC establishes eligible areas, such as those eligible to receive funds in the Connect America Fund s second phase of awards. A similar process is under way in connection with the Rural Digital Opportunity Fund. In an additional step to address concerns regarding program overlap, FCC officials noted that the Rural Digital Opportunity Fund would exclude census blocks that have been awarded funding through the RUS ReConnect Program. RUS s process to verify eligible areas includes provider participation in the verification, as well as onsite testing and research by field staff, to independently verify eligibility of the geographic areas in each ReConnect grant or loan application. RUS officials said they use the publicly available FCC data on unserved areas as a key factor in eligibility decisions. Specifically, RUS officials said that they focus ReConnect eligibility on areas FCC reported as unserved as of 2015 when the first round of FCC s Connect America Fund program was started. They also noted that throughout the application and funding process, they seek input from providers through public notices and emails to solicit feedback on whether areas selected for proposed funding are already served. After receiving provider feedback on eligible areas, RUS then deploys field staff to conduct on-location tests and other reviews as necessary to determine if the area was unserved prior to funding. In addition to their eligibility validation steps, FCC and RUS officials told us they share information about where their broadband deployment programs are funding new deployments, as well as other relevant information related to program activity, such as the timing of program applications and awards. FCC and RUS officials told us that they share program information through participation in interagency meetings and working groups that focus on broadband deployment issues and through posting relevant program information such as funding decisions online. For example, the Chief of the FCC s Wireline Competition Bureau and the RUS Administrator, along with other FCC and RUS staff, met in July 2019, January 2020, and February 2020 to discuss issues related to their respective broadband funding programs, including the roll out of the Rural Digital Opportunity Fund and second round of the ReConnect Program. FCC officials told us that at these meetings agency representatives discussed the anticipated timing of elements of their respective programs and ways in which to maximize coordination and avoid overlap. Officials from both agencies also noted there has been ongoing communication between FCC and RUS at the staff level concerning program status and developments through phone calls and meetings. In addition to this ongoing coordination between RUS and FCC, representatives of FCC and RUS also said they participate in relevant working groups through the American Broadband Initiative, such as the Initiative s Federal Funding Workstream, which meets bi-weekly to discuss broadband funding and deployment. The range of collaboration activities undertaken by RUS and FCC staff is especially important because both agencies have similar goals but different timelines for moving forward with their programs. For example, as of March 2020, FCC had the eligible area validation process under way for the Rural Digital Opportunity Fund. Although some timelines are still to be determined, FCC plans to start bidding on the program s auction phase in October 2020. At the same time, RUS was in the midst of announcing approved projects for the first funding round of the ReConnect Program, and it had applications open for the second round with applications due by April 15, 2020. FCC officials noted that they plan to maintain close coordination with RUS to reduce the likelihood of overlap with any areas that may be deemed eligible to receive ReConnect funding in the program s second round. Through prior reforms of their respective broadband programs, FCC and RUS have taken steps to try and effectively target federal dollars to support broadband deployment while avoiding the potential to duplicate funding in an area. Continuing to improve collaboration and information sharing regarding eligibility and program timelines will be critical for both agencies to achieve greater efficiency in their program s ability to target funds to unserved areas and thus make progress toward closing the deployment gap. <5. Agency Comments> We provided a draft of this report to the Federal Communications Commission, the Department of Agriculture s Rural Utilities Service, and the Department of Commerce s National Telecommunications and Information Administration for comment. FCC and RUS provided technical comments, which we incorporated as appropriate. NTIA had no comments. We are sending copies of this report to the appropriate congressional committees, the Chairman of the Federal Communications Commission, the Secretary of the Department of Agriculture, the Secretary of the Department of Commerce, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: U.S. Broadband Providers Capital Expenditures Another estimate of capital expenditures by USTelecom a broadband industry association uses a different scope and methodology than the U.S. Census Bureau s Annual Capital Expenditures Survey. The association reports total capital expenditures for U.S. broadband providers, as shown in table 2. USTelecom s data include expenditures from fixed (wireline), mobile (wireless), and cable companies. Its primary source of data are publicly traded companies financial statements filed with the Securities and Exchange Commission. USTelecom also makes estimates for companies that do not report financial information publicly. Its data exclude some companies, such as satellite providers, telecommunication resellers, and electric utilities. USTelecom publishes estimates annually for advocacy or research purposes. Its capital expenditures data differ from the Census Bureau s Annual Capital Expenditures Survey estimates for telecommunications industry in scope, methodology, and timing, among other things. For instance, the Census Bureau s survey is broader in scope. Specifically, in addition to the types of companies USTelecom includes in its data, the Census Bureau s survey data include satellite providers, resellers, and other telecommunications providers. In addition, the Census Bureau collects data through a survey instrument from both publicly traded and privately held companies across the United States. It makes statistical inferences about the capital expenditures for the entire telecommunications industry, whereas USTelecom collects data mainly from financial reports for a defined set of providers and makes estimates for companies that do not report financial information publicly. Moreover, USTelecom typically releases its capital expenditure data within a year after companies release their financial data while preliminary survey results from the Census Bureau are made public about 2 years after companies report and data reliability assessments occur and the final revised results are made public about 3 years after companies report. In addition to the USTelecom and Census Bureau estimates, investment firms, such as Goldman Sachs and UBS, also estimate or may report industry capital expenditures for selected publicly traded companies providing broadband service. Appendix II: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Andrew Huddleston (Assistant Director); Steve Martinez (Analyst in Charge); Oluwaseun Ajayi; Michelle Bacon; Carl Barden; Melissa Bodeau; Hannah Laufe; Dan Luo; Malika Rice; Sandra Sokol; and Betsey Ward-Jenks made key contributions to this report.

Why GAO Did This Study Broadband is critical for economic, educational, and personal uses. Industry and federal investments have made broadband available to the vast majority of Americans. For example, FCC's high-cost program provides funding to broadband providers to deploy broadband in rural, insular, and high-cost areas. However, some rural areas continue to lack access due, in part, to challenges with providing service to areas where deployment costs are high and returns on investment are low. GAO was asked to examine the current state of broadband investment and deployment. This report examines (1) industry and federal investments to deploy broadband in the United States since 2009, and (2) efforts federal agencies are making to address deployment challenges. GAO analyzed industry and federal government data from 2009 through 2017 or 2018 (the most recent year of available data) on broadband investments and deployment; reviewed statutes and regulations, rulemaking proceedings, and FCC, RUS, and NTIA program information; interviewed federal officials; and obtained information about deployment challenges from interviews with 32 industry, academic, and consumer stakeholders, including 16 broadband providers selected to represent a range of provider sizes and types of technologies. What GAO Found Telecommunications industry and federal government investments have expanded access to broadband in the United States. From 2009 through 2017, the industry made capital investments of about $795 billion, including investments in broadband infrastructure, according to U.S. Census Bureau survey data. Federal investments totaled about $47.3 billion to target broadband infrastructure for rural areas over the same time, according to data from the Federal Communications Commission (FCC), the Rural Utilities Service (RUS), and the National Telecommunications and Information Administration (NTIA). FCC's Universal Service Fund high-cost program expanded service to about 2.3 million residential and small business locations, mostly from 2015 through 2017, according to data FCC collects from providers. FCC reported that fixed broadband service was available to 94.4 percent of the U.S. population in 2018, up from 81.2 percent in 2012, although affordability and digital literacy remain barriers to adoption and use. While service availability for people in rural areas increased from 45.7 percent in 2012 to 77.7 percent in 2018, service in rural areas continues to lag behind urban areas, according to FCC's broadband availability report (see figure). FCC and RUS have taken actions to address deployment challenges, such as taking steps to improve their ability to pinpoint where gaps in broadband deployment still exist. In August 2019, FCC proposed an initiative to change how it collects broadband deployment data, with the goal of using a new methodology to improve data accuracy and FCC's ability to target funds to locations that lack access. FCC and RUS have also coordinated on broadband deployment issues. For example, to avoid funding areas where broadband service is already deployed, agency officials regularly communicate on information about where their broadband deployment programs are funding new deployments. Continued communication and coordination on topics such as collecting and using improved data will be especially important in assuring that federal dollars are effectively targeted as agencies' efforts to improve mapping and target resources progress. What GAO Recommends In prior work, GAO recommended that FCC improve its mapping data and RUS better manage its broadband programs. The agencies have addressed some, but not all, of the recommendations. FCC and RUS reviewed a draft of this report and provided technical comments.

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<1. Background> <1.1. Education s Oversight of Accreditation> The primary purpose of accreditation is to help ensure that schools provide a quality education to students. Accrediting agencies, also known as accreditors, are generally nongovernmental, nonprofit entities that work with Education and states as part of the triad that oversees postsecondary schools participating in federal student aid programs. The Higher Education Act and Education s regulations require accreditors to meet certain criteria and have certain operating procedures in place to be recognized by Education as reliable authorities on assessing academic quality (see fig. 1). Accreditors must have their recognition renewed by Education at least every 5 years. To recognize an accrediting agency, Education officials and the National Advisory Committee on Institutional Quality and Integrity (NACIQI), which advises the Secretary of Education on accreditation issues, review among other things whether the accreditor applies its own standards, policies, and procedures when they accredit schools. While Education is required to determine whether accrediting agencies have standards for schools in certain areas, such as student achievement and curricula, before recognizing them, the accrediting agencies are responsible for evaluating member schools to determine if they meet the accreditors standards. The specific standards that accreditors develop in these areas can differ, and accreditors may also establish additional standards in areas not required by law. When schools do not meet accreditor standards, accrediting agencies may impose sanctions, such as placing a school on probation or terminating the school s accreditation. <1.2. Education s Oversight of College Finances> Education conducts annual reviews of the financial condition of all schools participating in federal student aid programs to determine if they are financially responsible, based on criteria and processes established in federal law and regulations. The specific financial responsibility standards that apply to each school depend on the school s ownership type, and the bulk of Education s financial oversight efforts focus on private nonprofit and for-profit schools. One key financial responsibility standard that Education uses to assess nonprofit and for-profit schools is a financial composite score that is calculated for each school based on items drawn from the school s audited financial statements. The composite score a metric for evaluating a school s financial condition uses a formula based on three financial ratios. A passing score is 1.5 to 3.0; a zone score is from 1.0 to 1.4, and a failing score is from -1.0 to 0.9. (See fig. 2) Schools that receive a zone or failing composite score, or do not meet one or more of the other financial responsibility standards, may continue to participate in federal student aid programs if they agree to additional oversight. Education may place these schools under heightened cash monitoring (increasing schools reporting requirements and postponing the timing for receiving federal student aid payments), or require schools to post a letter of credit (a financial commitment from a bank to protect Education against potential liabilities should the school close), or a combination of the two. <1.3. Education s Oversight of School Default Rates> Education may rescind a school s ability to participate in federal student aid programs if a significant percentage of its borrowers generally, 30 percent or more of borrowers for 3 consecutive years or more than 40 percent in 1 year default on their federal student loans within the first 3 years of repayment. This calculation is called the cohort default rate. To compute a school s cohort default rate, Education divides the number of student loan borrowers in a cohort those entering repayment in the same fiscal year who have defaulted on their loans in the initial 3 years of repayment by the total number of a school s student loan borrowers in that cohort (see fig. 3). The cohort default rate does not hold schools accountable for borrowers who default after the initial 3 years. Borrowers in deferment and forbearance options that allow borrowers to temporarily postpone monthly payments are considered to be in repayment and current on their loans for the purpose of calculating a school s cohort default rate, even though borrowers in these loan statuses are not expected to make any monthly payments. <2. Education Does Not Use Available Data to Identify Weaknesses in Accreditor Oversight of Schools Academic Quality> We have previously reported on a number of challenges with the accreditation system s oversight of academic quality. Although Education is prohibited from specifying the specific content of accreditor standards, the agency is responsible for assessing whether accreditors are effectively overseeing schools academic quality as part of their criteria for recognizing accreditors. Our 2014 analysis found that schools with weaker student outcomes were, on average, no more likely to be sanctioned by accreditors than schools with stronger student outcomes, and that the proportion of their member schools that accreditors sanctioned varied. For example, our analysis of Education s sanction data from October 2009 through March 2014 found that two accreditors sanctioned less than 2 percent of their member schools during this time frame, compared to 41 percent sanctioned by another accreditor. Our 2017 report also discussed challenges with the accreditation system s oversight of academic quality. For example, some experts and literature stated that accreditors may be hesitant to terminate schools accreditation when they identify issues because such action would adversely affect schools eligibility for federal student aid programs. Despite inconsistencies in accreditors use of sanctions, our 2014 report found that Education did not systematically examine data on accreditor sanctions that could have helped it identify insufficient accreditor oversight and thereby reduce potential risk to students and federal funds. Accreditors provide Education with records of terminations and probations. However, Education officials told us that they had not used this sanction information for oversight of accreditors because Education s regulations did not have specific criteria that require them to do so. While Education is not required to use sanction data or analyze accreditor sanctions as part of the accreditor recognition process, we found that it could be useful for Education to consider these data when evaluating whether accreditors meet prescribed criteria, such as whether they consistently apply and enforce standards. Federal internal control standards call for federal agencies to track data to help them make decisions, as well as conduct ongoing, consistent monitoring to identify weaknesses. Since accreditors are gatekeepers for tens of billions of dollars in federal student aid from Education, as well as the key oversight bodies for ensuring academic quality at schools, we found that failure on the part of Education to spot weaknesses in accreditors processes could result in poor quality schools gaining access to federal funds. To strengthen Education s oversight of accreditors, we recommended in 2014 that Education draw upon accreditor data to determine whether accreditors are consistently applying and enforcing their standards to ensure that the education offered by schools is of sufficient quality. For example, Education could systematically use available information related to the frequency of accreditor sanctions or could do additional analyses, such as comparing accreditor sanction data with Education s information on student outcomes, to inform its recognition reviews. Education agreed with this recommendation and initially started to track the number of accreditor sanctions issued by each accrediting agency. However, Education has since questioned the usefulness of this information and has not yet used this sanction data to inform its discussions of accreditor recognition and oversight. We continue to believe that implementing the recommendation could help inform Education s reviews of accreditors and ultimately reduce potential risk to students and federal funds. For example, analyses of accreditor sanction data could help reveal patterns in individual accreditor behavior and the extent to which they are consistently enforcing standards. This recommendation remains open and we will continue to monitor Education s efforts in this area. <3. Limitations in Education s Financial Oversight Metric Hinder Its Ability to Identify At-Risk Schools> Holding schools accountable for their financial condition can help protect taxpayers and students against the risk of school closure, but the limitations of Education s financial composite score hamper its effectiveness at identifying at-risk schools. Although a relatively small number of schools close each year, these closures can affect tens of thousands of students and result in hundreds of millions of dollars in financial losses for the federal government and taxpayers from unrepaid student loans. However, we reported in 2017 that Education s composite score has been an imprecise predictor of school closures. Half the colleges that closed in school years 2010-11 through 2015-16 received passing financial composite scores on their last assessment before they closed. For example, 58 of the 96 schools that closed in school year 2015-16 had recently received passing scores. Closures can be difficult to predict in part because each school faces its own unique challenges, both financial and nonfinancial, that can eventually push it into financial trouble. Education s composite score is not designed to account for nonfinancial risks; however, it is a primary means of securing financial protections in the form of a letter of credit from schools at risk of closure. The composite score s inconsistent performance in identifying at-risk schools is due in part to limitations of the underlying formula and the fact that it has remained unchanged for more than 20 years. The composite score is based on common financial ratios that Education selected in 1997 after consulting with an accounting firm, school officials, and other experts. However, the composite score formula has not been updated since then and several experts and school officials we interviewed identified three key weaknesses: Accounting changes: The composite score has not kept pace with changes since 1997 in accounting practices and standards, creating ambiguity and making it more difficult to apply the formula in a uniform manner. Accounting practices and standards are periodically updated, for example, to improve the comparability and usefulness of financial reporting. When these updates diverge from the components and definitions in Education s composite score, certain components of the composite score are no longer directly linked to items on schools audited financial statements. These accounting changes can also cause large shifts in schools composite scores. For example, administrators at one school we talked to said changes to state laws have affected how some schools categorize their endowment holdings in financial audits, and that this had the effect of reducing the school s composite score from passing to not passing. However, Education has not updated the composite score formula to ensure the score is a reliable measure of financial health. Outdated financial measures: The composite score does not incorporate new financial metrics that would provide a broader indication of schools financial health. For more than 20 years, the composite score formula has remained unchanged as the field of financial analysis has continued to evolve with new measures becoming important as economic conditions change. For example, liquidity (i.e., access to cash) has become an important financial measure since the 2007-09 economic downturn, when some schools had trouble meeting payroll and fulfilling contractual obligations. More sophisticated methodologies used by credit rating agencies have sometimes resulted in assessments of a school s financial condition that are strikingly different from the school s composite score. For example, in 2016, two credit rating agencies assigned non-investment grade (i.e., junk bond) ratings to 30 schools that received passing composite scores from Education. Vulnerability to manipulation: We previously reported that the composite score can be manipulated by some schools that take on long-term debt (e.g., loans with terms in excess of 12 months) because these debts can increase a school s composite score and help it avoid requirements to post a letter of credit. Long-term debt usually represents a long-term investment in a school s campus and buildings, and the composite score formula treats this type of debt in a positive manner. An accountant for multiple schools told us that some schools have taken advantage of this provision and taken on a million dollars in debt in order to obtain a passing composite score. Corinthian Colleges, which closed in 2015, also exploited this vulnerability to boost its composite score and avoid having to post a letter of credit that could have been used by Education to cover some of the hundreds of millions in student loan discharges resulting from the school s closure, according to company documents and Education documents and officials. These three weaknesses with the financial composite score hamper Education s ability to effectively fulfill its statutory responsibility to determine whether schools participating in federal student aid programs are financially responsible. Identifying and responding to risks is a key component of federal internal control standards, but Education s financial composite score formula has remained unchanged for over 20 years despite significant changes in the financial landscape of higher education. To address these limitations, we recommended in our 2017 report that Education update the composite score formula to better measure schools financial conditions and capture financial risks. Education generally disagreed with this recommendation and stated that the issues identified in our report did not necessarily mean that the composite score was an unreliable measure of schools financial strength. Since our report was issued, new regulations have gone into effect specifying that certain financially risky events, such as those related to litigation and certain accreditor actions, will generally trigger a recalculation of a school s composite score. In addition, Education has also published proposed regulations that would update some of the definitions of terms used to calculate a school s composite score to conform with changes in accounting standards and also make an adjustment to how the formula treats long-term debt, which according to Education would be intended to make the formula less susceptible to manipulation. However, Education has not finalized these regulations and has not released a timeline for when it plans to do so, nor has it indicated that it has any broader plans to update the composite score, as we recommended. Since the existing composite score calculation remains unchanged, we are leaving this recommendation open and will continue to monitor Education s efforts in this area. <4. Education s Ability to Hold Schools Accountable for Loan Default is Limited by Schools Ability to Distort Their Cohort Default Rates> The cohort default rate, which is specified in federal law, is a key measure for holding schools accountable for borrower outcomes and for protecting borrowers and the federal government from the costs associated with default. However, in 2018 we reported that this rate has limitations as an accountability tool. Some schools managed their 3- year cohort default rate by hiring consultants that encouraged borrowers with past-due payments to put their loans in forbearance, an option that allows borrowers to temporarily postpone payments and bring past-due loans current. At five of the nine default management consultants we selected (that served about 800 schools), we identified examples when forbearance was encouraged over other potentially more beneficial options for helping borrowers avoid default, such as repayment plans that base monthly payment amounts on income. Four of these consultants also provided inaccurate or incomplete information to borrowers about their repayment options in some instances. Although Education officials and student loan experts said that forbearance is intended to be a short-term option, our analysis of Education data found that 20 percent of borrowers who began repaying their loans in 2013 had loans in forbearance for 18 months or more during the 3-year cohort default rate period. Spending this much time in forbearance reduces the potential for borrowers to default within the 3- year period, thus helping improve a school s cohort default rate. However, postponing loan payments through forbearance can increase borrowers loan costs in the long term. For example, a typical borrower with $30,000 in loans who spends the first 3 years of repayment in forbearance would pay an additional $6,742 in interest, a 17 percent increase, over the life of the loan. In addition, borrowers in forbearance for 18 months or longer defaulted more often in the fourth year of repayment, when schools are not accountable for defaults, than they did during the 3-year period. While forbearance can help borrowers avoid default in the short term, this finding suggests that forbearance may have delayed not prevented default, potentially resulting in increased costs to the federal government. Reducing the number of borrowers in long-term forbearance and directing them toward other options for avoiding default, such as repayment plans that base monthly payment amounts on income, could help reduce the number of borrowers that later default and may eventually save the federal government money. Specifically, for William D. Ford Federal Direct Loans issued in fiscal year 2018, Education estimates that it will not recover over 20 percent of defaulted loans. These unrecovered defaulted loan amounts total an estimated $4 billion, according to our analysis of Education s budget data. Schools are seldom held accountable for their students defaults, in part because of the high rate of borrowers in long-term forbearance. To examine the impact of long-term forbearance on schools 3-year default rates, we recalculated schools cohort default rates by excluding borrowers who were in forbearance for 18 months or more and who did not default during the 3-year period. We found that over 260 additional schools receiving a combined $2.7 billion in Direct Loans and Pell Grants in academic year 2016-2017 would potentially have had a default rate high enough to put them at risk of losing access to federal student aid programs. The reduced effectiveness of cohort default rates as a tool for holding schools accountable creates risks to the federal government and taxpayers, who are responsible for the costs associated with high rates of default. Since the way the cohort default rate is calculated is specified in federal law, any changes to its calculation would require legislation to be enacted amending the law. Our 2018 report suggested that Congress consider strengthening schools accountability for student loan defaults, for example, by revising the cohort default rate calculation or using other accountability measures to complement or replace the cohort default rate. In the 115th Congress, proposals were introduced to revise, supplement, or replace the cohort default rate, though none of the legislation was enacted. This matter for congressional consideration remains open. We continue to believe that strengthening the accountability measure for loan defaults could further protect borrowers and the billions of dollars of federal student aid the government distributes each year. In conclusion, the large federal investment in higher education makes it essential that the federal government maintain a robust system of accountability to protect students and taxpayers. My statement has highlighted three actions Education and Congress could take to strengthen the existing accountability tools for educational quality, financial sustainability, and student loan defaults. Students deserve to go to schools that provide a quality education and are financially stable. Taxpayers deserve an accountability system that protects federal student aid funds from going to schools that are financially irresponsible or push borrowers into forbearance for long periods in order to reduce the school s cohort default rate. We believe that fully implementing the two recommendations and matter for congressional consideration discussed in this testimony would improve federal accountability, help students, and potentially lead to financial savings for taxpayers. Chairwoman Davis, Ranking Member Smucker, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <5. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Melissa Emrey-Arras, Director of Education, Workforce, and Income Security, at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Debra Prescott (Assistant Director), Will Colvin (Analyst-in-Charge), and Brian Schwartz. In addition, key support was provided by Susan Aschoff, James Bennett, Deborah Bland, Marcia Carlsen, Alex Galuten, Sheila McCoy, Jessica Rider, and Walter Vance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study In fiscal year 2018, nearly 13 million students and their families received over $122 billion in federal assistance to help them pursue higher education through programs authorized under Title IV of the Higher Education Act of 1965, as amended. Education administers these programs, and is responsible, along with accreditors and states, for maintaining accountability and protecting the federal investment in student aid for higher education. This testimony summarizes the findings and recommendations from GAO's prior reports, issued between 2014 and 2018, examining Education's role in: (1) recognizing accrediting agencies, (2) overseeing the financial condition of schools, and (3) overseeing schools' student loan default rates. This statement also updates the status of selected recommendations and a matter for congressional consideration. What GAO Found GAO has identified opportunities to strengthen federal higher education accountability in three areas: educational quality, financial stability, and federal student loan defaults. Educational quality. Accreditors—independent agencies responsible for ensuring that schools provide a quality education—must be recognized by the Department of Education (Education) as reliable authorities on educational quality. The accreditors can issue sanctions, including terminations and probations, to schools that do not meet accreditor standards. However, GAO previously found that schools with weaker student outcomes were, on average, no more likely to be sanctioned by accreditors than schools with stronger student outcomes, and Education does not make consistent use of sanction data that could help it identify insufficient accreditor oversight. In 2014, GAO recommended that Education use accreditor data in its recognition review process to determine whether accreditors are consistently applying and enforcing their standards to ensure schools provide a quality education. Education agreed with the recommendation, but has yet to use this data in this manner. Financial stability. Education uses a financial composite score to measure the financial health of schools participating in federal student aid programs, and increases its oversight of schools when it identifies concerns to protect against the risk of school closures. School closures, although rare, can result in hundreds of millions of dollars in unrepaid federal student loans and displacement of thousands of students. However, the composite score has been an imprecise risk measure, predicting only half of closures from school years 2010-11 through 2015-16. This is due in part to the fact that the composite score does not reflect changes in accounting practices and standards, relies on outdated financial measures, and is vulnerable to manipulation. Despite these limitations, Education has not updated the composite score since it was first established more than 20 years ago. In 2017, GAO recommended that Education update its financial composite score. Education has proposed some revisions, but changes have not yet been implemented to protect students and taxpayers against financial risks. Student loan defaults. According to federal law, schools may lose their ability to participate in federal student aid programs if a significant percentage of their borrowers default on their student loans within the first 3 years of repayment. However, GAO previously found that some schools managed these default rates by hiring consultants that encouraged borrowers with past-due payments to put their loans in forbearance, an option that allows borrowers to temporarily postpone payments and bring past due loans current. Although Education officials and student loan experts said forbearance is intended to be a short-term option, GAO's analysis of Education data found that 20 percent of borrowers who began repaying their loans in 2013 had loans in forbearance for 18 months or more. These borrowers defaulted more often in the fourth year of repayment, when schools are not accountable for defaults, suggesting long term forbearance may have delayed—not prevented—default. In 2018, GAO suggested that Congress consider statutory changes to strengthen schools' accountability for student loan defaults. Legislation has not yet been enacted.

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<1. Background> <1.1. DOD s Depots> Depots are government-owned, government-operated industrial installations that maintain, overhaul, and repair a multitude of complex military weapon systems and equipment for the Department of Defense. Depots are essential to maintaining readiness for DOD and play a key role in sustaining weapon systems and equipment in meeting operational, contingency, and training requirements. There are 17 depots operated by the military services that perform depot-level maintenance on a wide range of vehicles and other military assets, including aircraft, engines, helicopters, combat vehicles, ships, and software. Five are Army depots, four are Naval shipyards, three are Navy fleet readiness centers, two are Marine Corps production plants, and three are Air Force air logistics complexes. Figure 1 below shows the location of these 17 depots across the United States. <1.2. Roles and Responsibilities> The depots are part of a larger, DOD-wide logistics enterprise that involves a number of different organizations (See fig. 2.). Office of the Under Secretary of Defense for Acquisition and Sustainment. This office is responsible for, among other things, ensuring the defense industrial base, including depots, is robust, secure, resilient and innovative. Office of the Assistant Secretary of Defense for Sustainment. This office serves as the principal assistant and advisor to the Under Secretary of Defense for Acquisition and Sustainment on material readiness. Among other responsibilities, the Assistant Secretary of Defense for Sustainment prescribes policies and procedures on maintenance, materiel readiness, and sustainment support. Office of the Deputy Assistant Secretary of Defense for Materiel Readiness. This office establishes and maintains maintenance policies and programs to maintain the desired levels of weapon systems and military equipment readiness to accomplish the Department's missions. Further, according to DOD officials as well as DOD s March 2018 report to Congress on sharing best practices, the Office of the Deputy Assistant Secretary of Defense for Materiel Readiness has established a governance framework for materiel maintenance at DOD depots. There are a number of stakeholders involved in this framework, including the Maintenance Executive Steering Committee (Committee) and the Joint Group-Depot Maintenance. Maintenance Executive Steering Committee. This Committee consists of senior maintenance and logistics representatives from the Office of the Secretary of Defense, the Joint Staff, the Defense Logistics Agency, and the military services. According to DOD, this Committee advises the Deputy Assistant Secretary of Defense for Materiel Readiness on initiatives affecting efficiency, effectiveness, and affordability of maintenance management and operations. The Committee also serves as a forum for a coordinated review of maintenance policies, systems, programs and activities and helps optimize and steer DOD enterprise maintenance practices and strategy. Joint Group Depot Maintenance. As a standing committee of the Maintenance Executive Steering Committee, the mission of the Joint Group Depot Maintenance is to promote and review depot maintenance functions at the enterprise level to achieve effective and affordable depot maintenance support for weapon systems and to execute responsibilities assigned in DOD maintenance of military materiel policy. Military service organizations. Each military service has its own logistics or materiel command component, which provides day-to-day management and oversight of the military services depots. <1.3. DOD Guidance for Sharing Best Practices and Lessons Learned> The Chairman of the Joint Chiefs of Staff is responsible for formulating policies for gathering, developing, and disseminating joint lessons learned for the armed forces. Chairman of the Joint Chiefs of Staff (CJCS) Instruction 3150.25G, Joint Lessons Learned Program, defines: best practice as a validated method or procedure which has consistently shown results superior to those achieved with other means, and appears to be worthy of replication, and lesson learned as a resolved issue or best practice that improves operations or activities and results in an internalized change to capability, process, or procedure. The Joint Staff s Joint Lessons Learned Program collects, validates, and disseminates lessons learned to support sustainment and improvement of joint force readiness and effectiveness via refinements in doctrine, organization, training, materiel, leadership and education, personnel, facilities, and policy. Specific military service guidance on their respective lessons learned programs share the same purpose. Best practices and lessons learned are captured in the Joint Lessons Learned Information System DOD s system of record for lessons learned and are generally focused on sharing operational information from after-action reports and joint training exercises, rather than maintenance-related lessons learned. The DOD maintenance community, including the military service logistics or materiel command component and depots, do not typically coordinate with the military services lessons learned centers or enter lessons learned into the Joint Lessons Learned Information System. <1.4. GAO s Prior Work on Depot Maintenance> Our prior work has identified multiple challenges that can affect depot performance, including having the right facilities and having personnel with the right skills, among other challenges (See fig. 3.). Specifically, in April 2019 we reported on the condition of facilities at DOD depots, such as the condition of these depots are poor and the age of equipment is generally past its useful life, and the military services do not consistently track the effect that these conditions have on depot performance. To address these challenges, we recommended that DOD improve its data collection on the effect of facilities and equipment condition on depot performance, among other things. DOD concurred, and stated, in general, that the Service Chiefs for the Army, Navy, Air Force, and Marine Corps will ensure that their respective material commands take actions to implement the recommendations for their respective service. Also, in December 2018 we reported on depot workforce challenges, such as hiring personnel in a timely manner and providing inexperienced personnel with the training necessary to become proficient in skilled operations. According to DOD officials, these workforce challenges contributed to delays in the maintenance of some weapon systems. To address these workforce challenges, we recommended that the military services assess the effectiveness of the actions they have taken to maintain critical skills in the depot workforce. DOD concurred, and stated that each of the four services will take action to assess the effectiveness of the hiring, training, and retention programs at their respective depots, shipyards, fleet readiness centers, and air logistics complexes. The Related GAO Products page at the end of this report provides a list of our depot-related reports and testimonies. <2. DOD Experiences Benefits from Sharing Best Practices and Lessons Learned among the Depots, but Communication and Organization Challenges Exist> <2.1. DOD Experiences Benefits from Sharing Best Practices and Lessons Learned among the Depots through a Variety of Venues> DOD shares best practices and lessons learned among the depots through a variety of venues, including networking, working groups, and benchmarking. Networking. DOD shares best practices and lessons learned through informal networking, such as personal contacts and conferences. All 17 depots reported engaging in networking to share best practices and lessons learned and coordinating with their materiel commands, program managers and/or program offices, and academia. The majority of the depots also coordinated with industry, other depots, and/or a point of contact or group within the Office of the Secretary of Defense (see table 1 below). All 17 depots reported that the DOD Maintenance Symposium (Symposium), an annual department-wide conference addressing the maintenance of weapon systems and equipment, is the most regularly attended and most beneficial venue for networking. All 17 depots reported attending the Symposium regularly or occasionally, with depot officials stating in the survey and interviews that the Symposium provides opportunities to build relationships and network with peers in DOD and external contacts in industry. Depots reported in our survey that the Symposium was valuable because it offered opportunities to make contacts with equipment vendors and other services, as well as break-out sessions and informal discussions to exchange ideas. During the Symposium, a number of maintenance awards, including the Robert T. Mason Award for Depot Maintenance Excellence, are awarded to recognize maintenance excellence (see sidebar). Three depots reported that the recognition of the award-winning depots gives other depots the opportunity to reach out to the award-winning depots for relevant information. This success has been shared with Fleet Readiness Centers East and Southeast, which are both implementing similar systems. Successfully training new artisans is particularly important for depot performance, as our prior work has shown that this workforce is aging and the Department of Defense faces challenges in hiring and retaining workers with key skills. Officials cited examples of maintenance taking months or years longer than expected, in part due to shortages in skilled personnel. Working Groups. DOD depots leadership and staff use working groups and communities of practice as venues for the DOD maintenance community to collaborate and to share expertise on specific topics. When surveyed, 13 of 17 depots reported they share best practices and lessons learned in working groups, and they identified more than 60 such working groups. Our analysis of survey responses shows that depots value working groups because they improve depot support to the warfighter by allowing the depot to evaluate best practices, review new technology, exchange data, initiate relationships, and gain stakeholder support. In our interviews, depot officials affirmed the value of working groups to promote collaboration and open discussions among peers focused on specific topics of common interest. We found that the working groups fall into three topic areas: new technologies, specific weapon systems, and depot management. For example: New technologies. The Joint Technology Exchange Group was chartered to improve coordination in the introduction of new or improved technology, new processes, or new equipment into DOD depot maintenance activities. To do this, the Joint Technology Exchange Group facilitates a number of forums and working groups centered on specific technologies, which allow representatives from the depots to learn from other services, academia, and industry (See fig. 4.). One example of this is cold spray, a new technology that sprays high velocity metal particles to repair worn surfaces and damaged parts that are unrepairable by traditional processes. Working groups facilitated by the Joint Technology Exchange Group have shared the usefulness of cold spray technology, and 12 depots from all service branches reported that they have begun adopting the technology. One depot estimates that its annual savings from using cold spray will be $202,000 annually, as well as additional time savings. Weapon systems. According to Navy officials, depot officials and maintainers for the CH-53E/MH-53E heavy lift helicopter participate in the H-53 Fleet Support Team working group. Fleet Readiness Center East reported that its production team was able to implement lessons learned from this group for repairing misalignment in a piece of the helicopter s tail. As a result, the safety of the helicopter was increased. See figure 5 for details on this heavy lift helicopter. Depot management. Depot commanders participate in the Industrial Base Commanders monthly teleconference to share best practices and lessons learned related, in part, to management of depot operations. Twelve of the 17 depots indicated that the Industrial Base Commanders monthly teleconference is beneficial. The depots reported that the Industrial Base Commanders monthly teleconference allows base commanders time to share and to work on specific depot maintenance problems and is particularly productive in the areas of personnel and policy. Benchmarking. To benchmark, depot officials visit another depot to compare performance and find improvement ideas, particularly best practices and lessons learned related to weapon systems and depot management. Our analysis of site visit and survey data shows 10 of the 17 depots reported benchmarking trips. For example, in 2018 the Marine Corps Albany Production Plant sent a team of managers and technicians from their electronics and fabrications branches on a benchmarking trip to learn best practices from the team at Tobyhanna Army Depot. They visited six areas, where they observed processes and ideas that they could take back to their plant. In its trip report, the Marine Corps Albany Production Plant team highlighted a number of processes that increased efficiency in the electronics shop at Tobyhanna Army Depot, such as steps to eliminate unnecessary travel in sheet metal processes and updated electronics workstations. According to our prior work, benchmarking is useful for reducing internal resistance to change a barrier to sharing best practices and lessons learned cited by the depots because knowing what others actually are accomplishing changes perceptions of what can be done and what should be attempted. One depot told us that it intentionally brings maintainers and depot officials together on benchmarking trips so that the maintainers can benefit firsthand from seeing the best practices and lessons learned. <2.2. DOD Has Communication Challenges That May Hinder Ability of the Depots to Share Best Practices and Lessons Learned> DOD has communication challenges, such as the lack of awareness of venues, that may hinder the ability of the 17 depots to share best practices and lessons learned. While many sharing venues exist, such as working groups, the depots knowledge of them has gaps. According to our survey, 12 of the 17 depots reported being unaware of the existence of some venues where best practices and lessons learned can be shared. Additionally, 7 of the 17 depots reported not knowing who to contact to participate in some venues for sharing best practices and lessons learned. Moreover, in our interviews officials explained that staff turnover is also a challenge. Specifically, officials from one depot said that when the depot representative to a venue leaves, the institutional knowledge of the venue and its point of contact can be lost. They recounted having to resort to cold-calling other depots for information. Depots also reported that their staff did not attend best practices and lessons learned venues because they believed that those venues were for higher command levels. For example, one depot expressed confusion about the Industrial Base Commanders meeting and reported that while the depot officials were aware of the meeting, they believed that it was for officials at a higher level, such as their Materiel Command. Department of Defense Instruction 4151.18 states that DOD materiel maintenance programs should adopt business practices and quality management processes to continuously improve maintenance operations and maintenance production, achieve cost savings and avoidance, and realize process cycle time reduction. Further, GAO s Standards for Internal Control in the Federal Government states that management should communicate quality information down and across reporting lines to enable personnel to perform key roles in achieving objectives. However, the Office of the Secretary of Defense has not created, shared, or maintained a comprehensive and updated list of all depot-specific DOD sharing venues (i.e., working groups) that includes points of contact. Officials from the Office of the Secretary of Defense stated that the Joint Technology Exchange Group maintains a list on its website. However, the list is incomplete, only containing three of the over 60 working groups we identified in our analysis of our interview and survey data. Moreover, we found that not all depot officials were aware of the Joint Technology Exchange Group and so would not be familiar with the Joint Technology Exchange Group s website. Without a centralized list of venues and points of contact, it is unclear what groups exist and who to contact to participate, which may impede sharing of best practices and lessons learned. <2.3. The Army Has Not Maintained Lessons Learned Organizations, Potentially Hindering the Ability of the Depots to Share Best Practices and Lessons Learned> Each military service has initiatives or organizations to encourage the sharing of best practice and lessons learned; however, the Army has not maintained its lessons learned organizations. The depots from the Navy, Marine Corps, and Air Force reported, in our survey and interviews, that their military services have initiatives and organizations that encourage knowledge sharing regarding best practices and lessons learned among the depots. For example: Navy s Fleet Readiness Center s Naval Sustainment System. The Naval Sustainment System is an initiative to increase maintenance capacity and readiness among the Navy s fleet readiness centers by process reviews and benchmarking. The depots reported in our survey that it improves production by encouraging them to identify constraints and to share lessons learned. The Naval Sustainment System is also in the process of being adopted by the shipyards. Navy s One Shipyard Concept. The One Shipyard concept is a Navy workforce initiative in which maintainers are exchanged among the shipyards to ensure that the shipyards will have the required number of workers and skill sets to meet current and planned maintenance requirements. A Navy depot stated that as a result of the communication required by this concept, they are better able to share best practices. Marine Corps Marine Depot Maintenance Command. Based on responses to our survey, Marine Corps officials stated that the Marine Corps depots have a single command structure. With this structure, all process improvement meetings are held with both depots in attendance, resulting in the sharing of best practices and lessons learned between the two depots. Air Force s Art of the Possible. The Air Force Sustainment Center created this management program to focus attention on restrictions in workflow in the depots. Depots report that it creates a culture of collaboration and sharing of best practices and lessons learned because it focuses on process improvement and creates a culture in which it is acceptable to discuss problems with other depots. Competition for Workload To determine which depot will receive new workload, the Department of Defense (DOD) Instruction 4151.24, Depot Source of Repair Determination Process (Oct.13, 2017) outlines a process under which workloads necessary to sustain core logistics capabilities are assigned to DOD depots that have the requisite competencies. Two Army depots reported that this process created competition for workload that hinders sharing for them. Depot officials stated that they fear that other depots will take workload from them if they share weapons system maintenance best practices. In one such instance, Marine Corps depot officials stated they visited an Army depot and observed a best practice for repairing 50-caliber machine gun receivers. However, when the Marine Corps depot reached out for technical details, the Army depot was not inclined to share, for a variety of reasons including competition for the same workload. Then, the Marine Corps depot asked Marine Corps Logistics Command to facilitate, and they resolved the issue by finding a Navy depot that had similar technology and was willing to share. In contrast, the Army does not have similar initiatives or organizations. Army regulations direct the establishment and maintenance of two organizations for sharing depot best practices and lessons learned. First, Army Regulation 750-1 directs the Army Materiel Command to establish and maintain the Army Materiel Lessons Learned Analysis Program to identify potential systemic materiel sustainment issues and examine root and contributing causes. Second, Army Regulation 11-33 directs Army Materiel Command to establish and maintain the Center for Army Acquisition and Materiel Lessons Learned to provide support in the collection, analysis, dissemination, and archiving capability of materiel lessons learned, with the objective of creating a knowledge sharing culture within the Army. Moreover, the Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity s objectives. Senior Army officials concurred that competition between depots for jobs can be a barrier for sharing, particularly when it involves the preservation of specific depot workloads. However, depots in other services did not report competition for workload to be a barrier to sharing. The Army stated it established these organizations for sharing materiel best practices and lessons learned; however, Army Headquarters, Army Materiel Command, and Army depot officials stated that they were not aware of analysis or knowledge sharing of depot best practices and lessons learned that were performed by these organizations. Further, the Army did not maintain these organizations for sharing materiel best practices and lessons learned. First, officials from Army Futures Command confirmed that the Army Materiel Lessons Learned Analysis Program was transferred from Army Materiel Command to Army Futures Command in July 2018 and no longer focuses specifically on materiel lessons learned. Second, the officials confirmed that the Army ceased to maintain the Center for Army Acquisition and Materiel Lessons Learned in early 2017 due to direct funding limitations. In addition, some Army depots reported being unable to identify peers in other depots to share with, and they reported that competition hinders sharing (see sidebar). Senior Army officials concurred that there are cultural challenges, which result in the depots being less open to sharing and implementing best practices and lessons learned. Establishing and maintaining effective organizations dedicated to sharing materiel best practices and lessons learned would encourage knowledge sharing among the Army depots. <3. DOD Is Experiencing Benefits and Taking Steps to Mitigate Challenges with Implementing Best Practices and Lessons Learned among the 17 Depots> <3.1. DOD Is Implementing Some Best Practices and Lessons Learned That Has Led to Benefits> DOD is implementing some best practices and lessons learned among the 17 depots that have led to benefits, including cost and time savings. In response to our survey, 16 of the 17 depots reported benefits from successfully implementing best practices and lessons learned, such as sharing technology to reduce costs and improving maintenance processes to repair parts and systems. These implemented best practices and lessons learned can be defined as intra-service (within a military service), inter-service (between two or more military services), or DOD and external entities (between a military service and private industry). Intra-service collaboration. Depots within each military service are collaborating to implement best practices and lessons learned to improve depot management processes and repairs related to weapon systems. For example, Red River Army Depot implemented a best practice learned from Anniston Army Depot to improve its depot management process in meeting its production schedule. The production schedule is a plan that identifies, among other things, working hours for maintainers, available storage, and parts supply. To facilitate the implementation of this best practice, Army Tank-Automotive and Armaments Command, which oversees these two depots, hosted a joint event for the purpose of Anniston s sharing how a small group of individuals at its depot is responsible for maintaining visibility of all end-item (i.e., components and parts ready for their intended use) production schedules. According to Army officials, Red River did not have an organization that performed a similar function, and during the joint event, depot officials from Red River saw this as a lesson learned that they could take back to their depot and implement. Additionally, Anniston shared how it conducts its risk assessments, or program reviews, and weekly execution meetings, among other processes, in meeting its production schedules. As a result, Army officials told us that Red River implemented the best practices they thought would be beneficial in helping them make progress in meeting their production schedules. In another example, two Air Force depots that maintain the Navy s C-130 aircraft are working together to implement a best practice, which, according to program documentation, has led to cost and time savings (See fig. 6.). Specifically, the Navy s C-130 aircraft, which, according to Ogden officials, is maintained at Ogden Air Logistics Complex and Warner Robins Air Logistics Complex, contains a shelf bracket, which holds the pieces of the aircraft together. The aircraft becomes structurally vulnerable and unfit for operations and training if the shelf bracket is removed. The process of blasting, inspecting, plating, and reinstalling the shelf bracket takes an average of 63 days. During this time, some maintenance activities cannot occur until the shelf bracket is reinstalled. To address this issue, engineers at Ogden told us they created a series of specially-sized pins to lock the Navy s C-130 aircraft in place to help maintain the structural integrity of the airframe while other areas of the aircraft are being repaired. As a result of this best practice, maintainers have eliminated 16 days in the maintenance process for the C-130. Also, depot officials told us for a one-time cost of $13,000 for one set of specially-sized pins, eliminating 16 days in the maintenance process in turn generates a cost avoidance of $32,000 per day (the cost to dock the aircraft) or more than $500,000 per aircraft. In implementing this best practice, the total annual benefit to the C-130 fleet at Ogden amounts to 288 days of aircraft availability and about $9 million in cost avoidance. Officials at Ogden told us they have implemented this new process and are discussing this best practice with maintainers at Warner Robins for implementation at their depot as well. Further, Air Force depots are partnering to further implement another best practice, cold spray technology, which allows depots to repair damaged parts instead of replacing them. Replacing these damaged parts can be expensive or difficult if they are low in supply. Also, limited parts and long lead times can cause delays in the supply system, and existing repair processes have a long turnaround time. Cold spray technology has not been fully implemented; however, even with its limited implementation, cold spray technology has yielded cost and time benefits (See fig. 7.). According to Air Force officials, Ogden has been collaborating with the Oklahoma City Air Logistics Complex to cold spray its F-16 gearboxes until Ogden can obtain adequate workload to sustain the cold spray technology. According to Ogden officials and program documentation, cold spraying each gearbox costs about $1,300 whereas replacing each gearbox costs about $38,000; at 13 units per year, this amounts to almost $500,000 in annual cost avoidances. Additionally, it would take 95 weeks to build and receive a new gearbox unit; however, with the cold spray repair the unit is back in service in 4 weeks. Ogden officials are currently working to include cold spraying gearboxes for the F-15, C-5 and E-3 weapon systems to its workload. Inter-service collaboration. Depots from two or more military services are collaborating to implement best practices and lessons learned which has led to benefits. For example, the Navy s Fleet Readiness Center Southwest implemented a best practice learned from Ogden Air Logistic Complex to improve testing of electrical circuits. Specifically, according to depot officials, a maintainer at Ogden created a method Intermittent Fault Detection and Isolation System which tests systems and software to detect, isolate, and repair intermittent problems due to open circuits, short circuits, and poor wiring by replicating the environment of the aircraft in flight (See fig. 8.). According to Ogden officials and program documentation, by implementing this best practice, they have recovered out-of-service assets and generated about $62 million in cost savings. For example, after testing its F-16 chassis, Ogden officials recovered 138 out- of-service assets amounting to $42 million of flight hardware returning to service. Moreover, officials at Fleet Readiness Center Southwest visited Ogden during a benchmarking trip to discuss the process of implementing the Intermittent Fault Detection and Isolation System to test their systems. According to officials from the Office of the Secretary of Defense, the intermittent faults due to aircraft electrical systems amounted to more than $300 million in operating and support costs in fiscal year 2014. The Fleet Readiness Center Southwest used the Intermittent Fault Detection and Isolation System to test its F/A-18 aircraft generators, which provide electrical power to the aircraft. As a result of testing these generators using the Intermittent Fault Detection and Isolation System, the mean time between failures for the generators has increased, according to officials, from 104 flight hours to over 400 flight hours, and the Navy anticipates a reduction of about 30 to 90 days of repair time. DOD and external entities. Depots are also partnering with private industry to implement best practices and lessons learned, which has led to time-savings benefits (See fig. 9.). For example, according to program officials, the Air Force, Navy, original equipment manufacturer, and contractor collaborated to implement a best practice for the U-2 aircraft. Specifically, in 2018, generators for the Air Force s U-2 aircraft had decreased their mean time between failures from 1,000 hours to 400 hours. To sustain the fleet, the Air Force was cannibalizing removing parts from one aircraft to another generators from aircraft in depot maintenance to those preparing for deployment. The U-2 program office identified the Navy s F/A-18 A/B generator as similar to the U-2 generator and learned valuable information on the repair and overhaul process, root cause analysis of failure of critical parts, and the Navy s recommendation for procuring and building overhaul generator kits. In order to implement the Navy s processes, the Air Force program office, working with the original equipment manufacturer and contactor, incorporated the Navy s best practices in overhauling its generator kit concept. As a result, the Air Force is no longer cannibalizing these generators and the mean time between failures has returned to about 1,000 hours of flight time. <3.2. DOD Has Not Been Able to Implement Some Best Practices and Lessons Learned among the 17 Depots, but Is Taking Steps to Mitigate Challenges> DOD has not been able to implement some best practices and lessons learned among the 17 depots, but DOD is taking steps to mitigate challenges to implementation. In its March 2018 Report to Congress on Sharing of Best Practices for Depot-Level Maintenance Among the Military Services, DOD noted some of the challenges in implementing best practices such as differing military service priorities, strategies, and resourcing of technologies and infrastructure. In responding to our survey, 15 of the 17 depots reported challenges in implementing best practices and lessons learned, including insufficient resources, restrictions related to information technology, approval process, and acquisition and contracting policies, among others (See table 2.). Insufficient resources. Ten of the 17 depots reported insufficient resources as a challenge to implementation for various reasons. First, depots reported not having adequate time, staff, or funding to attend knowledge sharing activities or to analyze data from best practices and lessons learned. According to depot officials, not being able to attend knowledge sharing activities has made networking more difficult because these activities allowed them to discuss best practices and lessons learned with colleagues from other depots and industry. Second, in addition to not having adequate funding, depots also reported identifying sources of funding as a challenge to implementing best practices and lessons learned for specific weapon systems. For example, according to officials from one depot, they have been unable to identify a funding source to implement the laser de-painting system for the F-16, which would allow the aircraft to stay in service longer and would produce less hazardous materials than the current blasting process to remove paint from the aircraft. Third, depots reported insufficient equipment to implement a best practice. For example, one depot reported not having enough hand-held tablets, which contain electronic technical data and best practices from private industry to assist maintainers working on a weapon system. Another depot reported that it has not implemented the tablets and are relying on paper documentation to maintain its weapon systems. According to depot officials, the lack of tablets has had direct effects at the depot, such as delays in standing-up new capability and maintainers waiting on available tablets to perform their work. To mitigate challenges with insufficient resources, DOD, military service, and depot officials have taken a variety of steps. For example, officials from the Office of the Secretary of Defense held an event through the Joint Technology Exchange Group to discuss available funding sources for new and emerging technologies, such as the funding sources for the cold spray technology. According to officials at a Navy depot, depots can petition the Office of Naval Research for federal laboratory designation. With this designation, depots can partner with private industry to evaluate technology in any area that is consistent with the federal laboratory s mission and may receive funds from private industry for technology research and development. Specific to the tablets, depot officials told us that the materiel command has taken responsibility for managing the funding of these assets and the depots will receive a technical upgrade every 4 years. Moreover, in February 2019 the Office of the Secretary of Defense launched the Enterprise Sustainment Dashboard (Dashboard), a web-based tool that will provide access to an online central repository of sustainment data for the military services and will allow senior leaders to steer resources to needed programs. The Dashboard will allow users to analyze metrics such as materiel availability (condition of a weapon system to perform an assigned mission), operational availability (availability of active inventory to conduct military service operations), and cost per day availability (maintenance cost per day for a population of weapon systems by type, model, and series). The Dashboard will also consolidate inventory, availability, and cost data systems from each of the military services. This Dashboard is in its early phase and the implementation plan includes milestones extending into fiscal year 2020. Restrictions related to information technology. Ten of the 17 depots reported restrictions related to information technology as a challenge to implementation of best practices. Specifically, depots reported having outdated and incompatible software systems and a lack of a consolidated database for departments and product lines, which may hinder their ability to connect computer systems to automate a repair process. Additionally, depots stated that it may take years to obtain authority and approval to operate information technology systems, making data collection, sharing, and implementation of best practices difficult. For example, one depot reported a technology tool was not user friendly and had a rigid infrastructure, making it difficult for maintainers to use to analyze metrics to improve depot maintenance. Specifically, depot officials told us that this technology tool performs its functions as designed but is limited in its scope of meeting depot requirements, such as identifying bottlenecks in the maintenance process. In another example, one depot reported cybersecurity concerns with commercial off-the-shelf products, which may not be compatible with the depot s information technology system. To mitigate challenges related to information technology, depots reported using information systems, such as SharePoint, as a primary source for collecting, storing, organizing, sharing, and accessing information via a web browser. For example, Navy officials told us that there are SharePoint sites for different departments within their organization, including portals dedicated to training, aircraft, and business processes and procedures, which capture best practices and lessons learned from subject matter experts. In another example, an Air Force depot reported that its SharePoint portal includes a section focused on practical problem solving methods for some of its continuous process improvement projects, such as balancing weight on an aircraft and issues related to the wings of the C-130T. Further, depot officials told us they conducted an analysis to mitigate concerns about a technology tool, mentioned above, that was not user friendly and had a rigid infrastructure. Based on this analysis, depot officials found a modeling and simulation tool that would help resolve challenges in several key areas, including projecting workload and personnel required to perform depot maintenance and determining the depot s capability for the volume of work that can be inducted into the depot, among other areas. The modeling and simulation tool has not been implemented yet because it was recently funded in September 2019. Moreover, in 2018, we reported on steps that DOD is taking to improve its information technology systems. Specifically, the Secretary of Defense asked the Defense Business Board to provide actionable recommendations that DOD could adopt to transform its six core business processes, including acquisition and procurement, logistics and supply, and real property management, and their supporting information technology systems. We recommended, in part, that DOD identify timeframes and deliverables for identifying and adopting optimal information technology solutions. DOD concurred with this recommendation and is taking steps to improve its information technology systems, such as issuing its initial plan for business operations reform in April 2019, collecting federal and private industry benchmarks, and reviewing information technology costs. Approval process. Eight of the 17 depots reported that the approval process and guidance for implementing best practices is challenging. Specifically, depots reported that the layers of leadership approval prevent timely implementation of best practices and, at times, can cause enthusiasm for a project s implementation to wane. Depot officials also told us that implementing new ideas for maintaining or repairing weapon systems is challenging because they have to get multiple approvals from their chain of command as well as the program manager for a specific weapon system, thus making implementation more difficult and less timely. For example, depot officials told us that implementing best practices at the depot from one weapon system to another requires retesting of the practice and approval from each program manager. Additionally, in response to the survey, a depot reported that many of the essential, time-sensitive engineering decisions for one of its new weapon system reside at another location, which has caused delays in making timely decisions. In another example, depot officials told us that they had to get approval from individual program managers to implement the cold spray technology and the Intermittent Fault Detection Isolation System. To mitigate challenges in the approval process, such as these, depot officials told us it is beneficial when technological development that affect the DOD-wide logistics enterprise or an entire military service occurred at a higher organizational level, making it easier for new ideas to be implemented at the lower levels. For example, one depot reported on the Navy s approach of implementing a best practice across its platforms to eliminate corrosive plating on its weapon systems. Navy officials told us that these decisions are made at the headquarters level and implemented across the depots. Moreover, one depot reported allowing decision authority for specific weapon systems to reside within the depot, rather than at another location, to help the depot make timely decisions on implementing new ideas. Finally, the Office of the Assistant Secretary of Defense is providing specific guidance in implementing best practices and lessons learned, such as the memorandum issued in April 2019 on the Intermittent Fault Detection and Isolation System directing the military services to adopt this best practice. Acquisition and contracting policies. Five of the 17 depots reported acquisition and contracting policies as a challenge to implementation. Specifically, depots reported that current acquisition and contracting policies are complex and time consuming, which causes government to lag behind industry in implementing best practices. For example, officials from one depot told us that even when two depots need the same item to repair a weapon system, each depot was encouraged to pursue a separate contract. Depot officials described this as an inefficient and burdensome process, which sometimes resulted in an inferior item. Similarly, officials from another depot told us that they started an initiative to make equipment and software more similar across their service s depots; however, they were unable to implement this initiative for similar reasons. Further, officials from one depot told us that the procurement of a weapon system does not always include access to all data necessary to maintain the system. According to depot officials, this limits their ability to implement a best practice or lesson learned from a similar weapon system because the contractor retains ownership of the intellectual property needed to repair or optimize the system. To mitigate challenges related to acquisition and contracting policies, depot officials told us that military services are purchasing enough new technology for all their depots rather than have each depot purchase technology individually. For example, according to Navy officials, they purchased the equipment to implement cold spray technology across all four shipyards, which makes implementing the best practice or lesson learned more timely. Additionally, officials from one depot told us that they use public-private partnerships to bridge gaps for systems that lack access to the necessary data rights to conduct maintenance on the systems. Our February 2019 report identified additional steps DOD is taking to mitigate challenges related to intellectual property, especially software sustainment. First, our prior work found that DOD is in the early stages of addressing a statutory provision for DOD to (1) develop policy on the acquisition or licensing of intellectual property; and (2) establish a cadre of intellectual property experts to help support the acquisition workforce on intellectual property matters. Second, in our prior work, we reported that DOD officials we spoke with emphasized that there are situations in which the data rights needed may not be known until years into sustainment and that it would be useful if data rights could have a pre-negotiated price and be an option as part of the initial contract. Such an option would give the government the right, but not the obligation, to purchase the data rights at the pre-negotiated price if needed in the future. <4. Conclusions> The sharing and implementation of best practices and lessons among the 17 depots is crucial to sustaining military readiness by ensuring that the military services can regularly maintain critical weapon systems and return them to the warfighter for use in training and operations. Successful collaboration of maintenance best practices and lessons learned across military services, private industry, and academia is increasingly essential as DOD operates, and thus needs to maintain, weapon systems. DOD shares best practices and lessons learned among the depots through a variety of venues, including networking, working groups, and benchmarking. However, DOD has communication challenges, including a lack of awareness of many sharing venues, which may hinder the ability of the depots to share best practices and lessons learned. The Office of the Secretary of Defense has not created, shared, or maintained a comprehensive and updated list of all depot-specific DOD sharing venues (i.e., working groups) that includes points of contact. Without a centralized list and points of contact, it is unclear what groups exist and who to contact to participate, which may impede sharing of best practices and lessons learned. Further, while the Army stated it established lessons learned organizations for sharing materiel best practices and lessons learned, it did not maintain them due to organizational restructuring and resource constraints. Establishing and maintaining effective organizations dedicated to sharing materiel best practices and lessons learned would encourage knowledge sharing among the Army depots. <5. Recommendations> We are making two recommendations, including one to the Under Secretary of Defense for Acquisition and Sustainment and one to the Secretary of the Army. Specifically, the Secretary of Defense should direct that: The Under Secretary of Defense for Acquisition and Sustainment should ensure that the Deputy Assistant Secretary of Defense for Materiel Readiness create, share, and maintain a comprehensive and up-to-date list of all DOD sharing venues (i.e., working groups), including points of contact, related to depot maintenance. (Recommendation 1) The Secretary of the Army should ensure that Army Materiel Command reestablish and maintain organizations dedicated to sharing materiel best practices and lessons learned, as required by Army regulations. (Recommendation 2) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In written comments on a draft of this report, DOD concurred with the recommendations. DOD s comments are reprinted in their entirety in appendix III. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretaries of the Army, Navy, and Air Force, and the Commandant of the Marine Corps. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact Diana Maurer at (202) 512-9627 or maurerd@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology To conduct the work for our reporting objectives, we reviewed relevant laws and the Department of Defense (DOD) and military service guidance that govern depot maintenance and the sharing of best practices and lessons learned. We included in our scope DOD depots performing major depot-level maintenance. We conducted a survey of DOD s 17 depots performing depot-level maintenance to gain an understanding of how each depot shares with each other and implements best practices and lessons learned. The response rate for the survey was 100 percent. These depots included: Anniston Army Depot, Anniston, Alabama Corpus Christi Army Depot, Corpus Christi, Texas Letterkenny Army Depot, Letterkenny, Pennsylvania Red River Army Depot, Texarkana, Texas Tobyhanna Army Depot, Tobyhanna, Pennsylvania Norfolk Naval Shipyard, Portsmouth, Virginia Pearl Harbor Naval Shipyard, Honolulu, Hawaii Portsmouth Naval Shipyard, Kittery, Maine Puget Sound Naval Shipyard, Bremerton, Washington Fleet Readiness Center East, Cherry Point, North Carolina Fleet Readiness Center Southeast, Jacksonville, Florida Fleet Readiness Center Southwest, San Diego, California Albany Production Plant, Albany, Georgia Barstow Production Plant, Barstow, California Ogden Air Logistics Complex, Ogden, Utah Oklahoma City Air Logistics Complex, Oklahoma City, Oklahoma Warner Robins Air Logistics Complex, Warner Robins, Georgia We analyzed survey responses to gain an understanding, for example, of which depot officials are coordinating with others to share best practices and lessons learned, which sharing venues are attended, and the extent to which this information sharing is beneficial. To ensure that the survey questions were clear, comprehensible, and technically correct, we conducted expert reviews of our draft survey with four subject matter experts with knowledge and experience in auditing DOD depots. We also conducted two pre-tests of our draft survey with the depot commanders of Anniston Army Depot and Warner Robins Air Logistics Complex, respectively.During each pre-test, conducted by teleconference, we read the instructions and each survey question aloud and asked the depot commanders to tell us how they interpreted the question. We then discussed the instructions and questions with each depot commander to identify any problems and potential solutions by determining whether (1) the instructions and questions were clear and unambiguous, (2) the terms we used were accurate, (3) the survey was unbiased, and (4) the survey did not place an undue burden on the depot officials completing it. We noted any potential problems and modified the survey based on feedback from the subject matter experts and depot commanders, as appropriate. We sent a fillable survey and a cover email to 17 depots on May 29, 2019, and asked them to complete the survey and email it back to us by June 14, 2019. We closed the survey on July 3, 2019. Data were auto- extracted from the Adobe PDF form into an Excel spreadsheet. Our examination of the survey results included both a quantitative data analyses on closed-ended questions and a review of open-ended responses to identify common themes. Additionally, to gather detailed examples of DOD s efforts to share best practices and lessons learned, we visited a non-generalizable sample of 5 depots (Anniston Army Depot, Anniston, Alabama; Norfolk Naval Shipyard, Portsmouth, Virginia; Fleet Readiness Center Southwest, San Diego, California; Marine Corps Albany Production Plant, Albany, Georgia; and Ogden Air Logistics Complex, Ogden, Utah). To select our sample, we considered variation in geographic location, military service representation, and types of weapon systems maintained. At these sites, we conducted group discussions with individuals across the depot to gain insight into their roles in sharing best practices and lessons learned. Qualitative data analyses were conducted by our staff who have subject matter expertise to identify themes and select examples of best practices or lessons learned shared through collaboration with another depot. We then obtained and analyzed documentation of sharing, such as working group charters and trip reports documenting results from visiting another depot; as well as benefits experienced from implementing a best practice or lessons learned, including time and cost savings. We interviewed officials from the Office of the Under Secretary of Defense (Acquisition and Sustainment) (Deputy Assistant Secretary of Defense for Materiel Readiness), Joint Chiefs of Staff (Joint Lessons Learned Division), and the military service headquarters (Headquarters, Department of Army G4; Deputy Assistant Secretary of the Navy for Expeditionary Programs and Logistics Management; Headquarters Marine Corps, Installations & Logistics; and Air Force Acquisition, Logistics & Product Support. We also interviewed officials from the military service logistics or materiel components (Army Materiel Command; Naval Sea Systems Command; Naval Air Systems Command (Commander, Fleet Readiness Center); Marine Corps Logistics Command; and the Air Force Materiel Command) as well as the military lessons learned centers (Center for Army Lessons Learned, Naval Warfare Development Command, Marine Corps Center for Lessons Learned, and the Air Force LeMay Center for Lessons Learned). Finally, we reviewed our prior reports related to challenges experienced at DOD depots and DOD s report to Congress on the sharing of best practices for depot-level maintenance among the military services. We assessed the documentary and testimonial evidence we collected against DOD and military service guidance on lessons learned and materiel maintenance and GAO s Standards for Internal Control in the Federal Government. Specifically, the information and communication component of internal control the actions management uses to internally communicate the necessary quality information to achieve the entity s objectives was significant to this audit. We conducted this performance audit from January 2019 through January 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Depot Working Groups and Communities of Practice During the course of our work examining the extent to which the Department of Defense (DOD) experiences benefits and has challenges with (1) sharing and (2) implementing best practices and lessons learned among the depots, we collected information from the depots on the working groups and communities of practice in which they participate. The list below is compiled from analysis of our survey data, in which we surveyed all 17 of DOD s depots, as well as the interviews we conducted during our site visits to a non-generalizable sample of five depots. Note that this is not a list of all the possible working groups and communities of practice which exist among the depots, simply those which the depots shared with us. 1. 448th Supply Chain Management Wing 2. Air Force Metrology and Calibration Working Group 3. Air Force Sustainment Center Logistics Directorate s Strategic 4. Aircraft Cyber Threat Working Group 5. Aircraft Maintenance Group Summit 6. Aircraft Storage Strikeboard 8. Army Safety and Occupational Health Information Management 9. Army Safety and Occupational Health Management System Working 10. Carrier Team One 11. Cold Spray Action Team 12. Commander, Fleet Readiness Centers Advanced Technology & 13. Commercial Technologies for Maintenance Activities Working Group 14. Commodities, Electronics, Missiles, & Propulsion Maintenance 15. Coordinate Measuring Machine Community of Practice 16. Corporate Electrical Community of Practice 17. Corrosion Control Working Groups 18. Cyber Resiliency Office for Weapon Systems Working Groups 19. Depot Maintenance Activation Working Group 20. Depot Maintenance Enterprise Action Group 21. Diminishing Manufacturing Sources and Material Shortages 22. DOD Digital Manufacturing Users Group 23. DOD Unmanned Systems & Robotics Summit 24. DOD Voluntary Protection Programs 26. Enterprise IT Systems Strikeboard 27. F-35 Joint Risk Working Group 28. H-53 Fleet Support Team 29. Heavy Metal Working Group 30. Industrial Base Commander s Meetings 31. Integrated Quality Teams 32. Investment Working Group 33. Joint Additive Manufacturing Steering Group 34. Joint Additive Manufacturing Working Group and Community of 35. Joint Intermittence Team 36. Joint Requirements Working Group 37. Joint Robotics Working Group 38. Joint Technology Exchange Group 39. Metrics Community of Practice 40. Modernization Working Group 41. National Center for Defense Manufacturing and Machining 42. Naval Surface Warfare Center, Carderock Division Human 43. Naval Undersea Warfare Center Division, Keyport Human 44. Navy Forum for Small Business Innovation Research/Small Business Technology Transfer Transition 45. Non-Destructive Inspection Forum 46. Non-Destructive Testing Working Group 47. Norfolk Naval Shipyard Technology and Innovation Community of 48. Organic Industrial Base Commander s Summit 49. Project Management Executive Steering Committee 50. Public-Private Partnership Community of Practice 51. Quality Performance System Community of Practice 52. Quality Work Environment Working Group 53. Residential Economic Development Inc. 54. RepTech Working Group 55. Shipyard departmental level Communities of Practice: C200, C1200, C1200N, C600, C400, etc. 56. Shipyard-only Community of Practice 57. Software Engineering Institute Agile Collaboration Group 58. Software Maintenance Group Summit 59. Sub Team One 60. Tri-Air Logistics Complex Summits 61. Weapon-system Specific Enterprise Cross-talks: C-130 Enterprise Crosstalk, A-10 Enterprise Crosstalk, etc. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact listed above, Jodie Sandel (Assistant Director), Laura Czohara (Analyst-in-Charge), Clarine Allen, Felicia Lopez, Amie Lesser, Christina Murphy, Clarice Ransom, Andrew Stavisky, and Courtney Tepera made key contributions to this report. Related GAO Products Navy Maintenance: Persistent and Substantial Ship and Submarine Maintenance Delays Hinder Efforts to Rebuild Readiness. GAO-20-257T. Washington, D.C.: December 4, 2019. Naval Shipyards: Key Actions Remain to Improve Infrastructure to Better Support Navy Operations. GAO-20-64. Washington, D.C.: November 25, 2019. F-35 Aircraft Sustainment: DOD Faces Challenges in Sustaining a Growing Fleet. GAO-20-234T. Washington, D.C.: November 13, 2019. Depot Maintenance: DOD Should Adopt a Metric That Provides Quality Information on Funded Unfinished Work. GAO-19-452. Washington, D.C.: July 26, 2019. Military Depots: Actions Needed to Improve Poor Conditions of Facilities and Equipment That Affect Maintenance Timeliness and Efficiency. GAO-19-242. Washington, D.C.: April 29, 2019. Weapon System Sustainment: DOD Needs to Better Capture and Report Software Sustainment Costs. GAO-19-173. Washington, D.C.: February 25, 2019. Army Modernization: Steps Needed to Ensure Army Futures Command Fully Applies Leading Practices. GAO-19-132. Washington, D.C.: January 23, 2019. DOD Depot Workforce: Services Need to Assess the Effectiveness of Their Initiatives to Maintain Critical Skills. GAO-19-51. Washington, D.C.: December 14, 2018. Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation Readiness Will Require Time and Sustained Management Attention. GAO-19-225T. Washington, D.C.: December 12, 2018. Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.: November 19, 2018. Depot Maintenance: DOD Has Improved the Completeness of Its Biennial Core Report. GAO-19-89. Washington, D.C.: November 14, 2018. Air Force Readiness: Actions Needed to Rebuild Readiness and Prepare for the Future. GAO-19-120T. Washington, D.C.: October 10, 2018. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need to Be Clarified. GAO-18-678. Washington, D.C.: September 10, 2018. Military Readiness: Analysis of Maintenance Delays Needed to Improve Availability of Patriot Equipment for Training. GAO-18-447. Washington, D.C.: June 20, 2018. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. Depot Maintenance: Executed Workload and Maintenance Operations at DOD Depots. GAO-17-82R. Washington, D.C.: February 3, 2017. Depot Maintenance: Improvements to DOD s Biennial Core Report Could Better Inform Oversight and Funding Decisions. GAO-17-81. Washington, D.C.: November 28, 2016. Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations. GAO-17-548. Washington, D.C.: September 12, 2017. Army Working Capital Fund: Army Industrial Operations Could Improve Budgeting and Management of Carryover. GAO-16-543. Washington, D.C.: June 23, 2016. Military Readiness: Progress and Challenges in Implementing the Navy s Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May 2, 2016. Defense Inventory, Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Navy Working Capital Fund: Budgeting for Carryover at Fleet Readiness Centers Could Be Improved. GAO-15-462. Washington, D.C.: June 30, 2015. Sequestration: Documenting and Assessing Lessons Learned Would Assist DOD in Planning for Future Budget Uncertainty. GAO-15-470. Washington, D.C.: May 27, 2015. Operational Contract Support: Actions Needed to Enhance the Collection, Integration, and Sharing of Lessons Learned. GAO-15-243. Washington, D.C.: March 16, 2015.

Why GAO Did This Study DOD operates depots nationwide to maintain complex weapon systems and equipment through overhauls, upgrades, and rebuilding. These depots are crucial to sustaining military readiness by ensuring that the military services can regularly maintain critical weapon systems and return them to the warfighter for use in training and operations. For fiscal year 2018, DOD reported $19 billion in total maintenance expenditures and about 84,000 personnel performing depot-level maintenance. In June 2018, the Senate Armed Services Committee, in a report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019, included a provision for GAO to review DOD's sharing and implementation of best practices and lessons learned among the depots. GAO evaluated the extent to which DOD experiences benefits and has challenges with (1) sharing and (2) implementing best practices and lessons learned among the depots. GAO reviewed agency guidance; surveyed 17 depots; conducted site visits at five depots; and interviewed DOD, military service, and depot officials. What GAO Found The Department of Defense (DOD) experiences benefits from sharing best practices and lessons learned among its depots, but communication and organization challenges exist. Best practices and lessons learned are shared among the depots through a variety of venues, including networking, working groups, and benchmarking trips to other depots. However, DOD has communication challenges, such as the lack of awareness of venues for sharing information. While Office of the Secretary of Defense officials reported posting a list of working groups, the list only contains three of the more than 60 working groups GAO identified. Without a centralized list of sharing venues and points of contact, it is unclear what groups exist and who to contact to participate, which may impede sharing of best practices and lessons learned. Further, while the Army stated it established lessons learned organizations for sharing maintenance best practices and lessons learned, it did not maintain them due to organizational restructuring and resource constraints. Establishing and maintaining effective organizations dedicated to sharing materiel best practices and lessons learned would encourage knowledge sharing among the Army depots. DOD is experiencing benefits and taking steps to mitigate challenges with implementing best practices and lessons learned among the depots. Depots reported that implementing some best practices and lessons learned has led to benefits, including time and cost savings. For example, Navy Fleet Readiness Center Southwest, California, implemented an intermittent fault detection system from Ogden Air Logistics Complex, Utah, on its F/A-18 aircraft generators. According to officials, the depot reduced repair time from 90 days to 30 days and quadrupled the generators' time between failures. Depots reported a variety of challenges to implementing lessons learned and best practices, including a lack of resources, lengthy approval processes, and acquisition and technology restrictions. DOD is taking steps to mitigate challenges to implementation, such as creating a new technology tool for viewing metrics on weapon systems' cost and availability which will allow senior leaders to steer resources to needed programs. What GAO Recommends GAO is making two recommendations to improve the depots' ability to share best practices and lessons learned by creating a comprehensive list of sharing venues, including points of contact, and re-establishing and maintaining materiel lessons learned organizations. DOD concurred with the recommendations.

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<1. Background> Federal agencies have many programs that provide services and benefits to tribes and their members. For example, the Department of the Interior s (Interior) Bureau of Indian Affairs (BIA) within the Office of the Assistant Secretary-Indian Affairs (Indian Affairs) administers programs in natural resources management, Indian child welfare, and economic development among other responsibilities. One key BIA responsibility is to facilitate tribes development of energy resources on and beneath tribal lands by reviewing and approving leases, permits, and other documents required when the lands with Indian energy resources are held in trust or restricted status. The Bureau of Indian Education (BIE), also within Indian Affairs at Interior, administers education programs to approximately 41,000 students on or near Indian reservations at 185 schools around the country. The Indian Health Service (IHS) within the Department of Health and Human Services is charged with providing health care to approximately 2.6 million Indians through more than 600 IHS or tribally operated facilities as of 2019. When services are not available at these facilities, IHS may pay for services provided through external providers. In addition, as part of its disease prevention efforts, IHS provides technical and financial assistance to Indian tribes for the cooperative development and construction of drinking water and wastewater systems and support facilities. These and other federal programs may also be administered by tribal governments under a self-determination contract or self-governance compact under the Indian Self-Determination and Education Assistance Act of 1975, as amended. BIA and IHS are responsible for administering self-determination contracts that allow for tribal administration of specific government programs, including negotiating and approving each contract and its associated annual funding agreement and disbursing funds to the tribes. Each federally recognized tribe voluntarily decides whether, and to what extent, to pursue the administration of federal programs. According to a 2017 law journal article, by that year, nearly all tribes had used a self- determination contract or self-governance compact to take over the administration for one or more federal programs. In February 2017 we added federal management of programs that serve tribes and their members to our high-risk list of federal areas that are most vulnerable to fraud, waste, abuse, or mismanagement or that are in need of transformation to address economy, efficiency, or effectiveness challenges. In particular, we found numerous challenges facing BIE and BIA and IHS in administering education and health care services, that put the health and safety of American Indians served by these programs at risk. In addition, we reported that BIA mismanages Indian energy resources held in trust and thereby limits opportunities for tribes and their members to use those resources to create economic benefits and improve the well-being of their communities. Our recommendations identified in the high-risk area do not reflect the performance of programs administered by tribes nor are they directed at any tribally operated programs and activities. In our March 2019 high-risk update, we reported that the three agencies demonstrated progress to partially meet all five criteria for addressing high-risk issues: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. We continue to monitor and report on progress made by the agencies in addressing issues in these three program areas. <2. Federal Agency Capacity, Funding Constraints, and Budget Uncertainty Limit Effective Delivery of Some Federal Programs Serving Tribes> We have previously reported that constraints in federal agency capacity, funding and budget uncertainty limit effective delivery of some federal programs for tribes and their members managed by Indian Affairs, BIA, BIE, IHS, and in other agencies tribal consultation activities as shown in the following examples: High staff vacancies. In November 2016, we found BIA had high vacancy rates at some agency offices and that the agency had not conducted key workforce planning activities to ensure its workforce resources are appropriately deployed. We recommended that BIA establish a documented process for assessing its workforce composition at agency offices taking into account BIA s mission, goals, and tribal priorities. In response to our recommendation, BIA has taken initial steps to assess its workforce composition; however more work is needed from BIA to establish a process to regularly assess its workforce composition and ensure it meets BIA and tribes needs. In February 2017 when we added improving federal management of programs that serve tribes and their members to our high-risk list, we found that high vacancies or declining staff levels across all three designated high-risk areas education, health care, and Indian energy resources programs. For example, we reported that IHS had over 1,550 vacancies for various health care positions nationwide in 2016, and IHS officials said that the agency s insufficient workforce was the biggest impediment to providing timely primary care. IHS has made some progress in demonstrating it has the capacity necessary to address the program risks we identified in our reports. For example, among other actions, in January 2019, IHS established an Office of Quality which includes divisions for Enterprise Risk Management and Internal Controls, Quality Assurance, Innovation and Improvement, and Patient Safety and Clinical Risk Management. As of August 2019, the Office of Quality had filled 14 positions. However, there are still key positions in the agency not yet permanently filled, including the Director of the Office of Finance and Accounting and the Deputy Director for Management Operations. In our August 2018 report, we also found that IHS s overall vacancy rate for clinical care providers was 25 percent. Additionally, in our March 2019 high risk update and testimony, we reported that about 50 percent of all BIE positions had not been filled, according to recent BIE documentation, for a variety of reasons, including difficulty recruiting qualified individuals. Insufficient staff skills or knowledge. We have also identified concerns about existing staff having the right skills and expertise to adequately perform job duties for effective implementation of Indian energy development programs. For instance, in November 2016, we found that BIA had not completed key workforce planning activities, such as an assessment of work skills gaps, that contributed to BIA s inability to effectively support energy development. We recommended that BIA incorporate effective workforce planning standards by assessing critical skills and competencies needed to fulfill BIA s responsibilities related to energy development and by identifying potential gaps. Interior agreed with this recommendation and in fiscal year 2019, BIA began identifying the skills and competencies necessary for select Indian energy-related occupations. BIA officials told us that, once complete, agency officials will be able to use the catalog of necessary skills and competencies to identify training needs for existing staff. Additionally, in our March 2019 report on tribal consultation, 47 of 100 tribes that provided comments to federal agencies in 2016 identified insufficient agency officials knowledge or training on tribal consultation as a key factor that hinders effective consultation. Several tribal officials we interviewed shared similar concerns, and officials from 9 of 21 agencies we spoke with (43 percent) identified staff knowledge or training as a factor that hinders effective consultation. Inadequate funding. We have previously reported on agency and tribal perspectives on the adequacy of funding and how it impacts federal programs and also examined spending levels of some programs. In May 2018, we reported that federal agencies provided about $370 million to develop, construct, or repair tribal drinking water and wastewater infrastructure projects to address tribes needs in fiscal year 2016. This amount is about 11 percent of the more than $3 billion in total existing tribal drinking water and wastewater infrastructure needs that IHS had identified that same year. Further, in January 2019, we found that funding shortfalls estimated at 60 percent for one BIA program in a 2013 report to Congress may limit tribal options for administering federal programs using self- determination contracts or self-governance compacts. Many tribal stakeholders told us that they supplement federal funding when there are funding shortfalls. As we have previously reported, when tribes financially supplement the federal program they take over, it diverts funds away from other economic development opportunities and other government functions and services they provide to their communities and citizens. In our March 2019 report on tribal consultation, according to tribal comments we reviewed and interviews with tribal officials we found tribes ability to participate in consultations is limited by availability of funding from the tribe, federal agencies, or other sources. Tribes and agencies both identified insufficient resources, including funding to support tribes participation in consultation activities, as a key factor hindering effective consultation. Effects of budget uncertainty. Budget uncertainty arises during continuing resolutions temporary funding periods during which the federal government has not passed a budget and during government shutdowns. Failure to enact annual appropriations for federal tribal programs in a timely manner may exacerbate the problem of limited resources. For example, in our September 2018 report examining advance appropriations authority for IHS, IHS officials and tribal representatives described several effects of budget uncertainty on their health care programs and operations. Among other things, we reported that effects of budget uncertainty include (1) exacerbated challenges related to recruitment and retention of staff, and (2) additional administrative burden and costs for both IHS and tribes involved in calculating revised allocations and modification of hundreds of tribal contracts each time a new continuing resolution is enacted. IHS officials and tribal representatives said that advance appropriation authority could mitigate the effects of this uncertainty because IHS could use this authority to ensure continuity of health care services during lapses in annual appropriations. <3. Management Weaknesses at Federal Agencies Hinder Effective Delivery of Some Federal Programs Serving Tribes> In our prior work, we have found a range of management weaknesses related to internal controls at Indian Affairs, BIA, BIE, and IHS that hinder effective delivery of some federal programs for tribes as shown in the following examples: Oversight weaknesses. In March 2016, we found that weaknesses in Indian Affairs oversight led to safety and health deficiencies at BIE school facilities that endangered students. We recommended that Indian Affairs ensure that all BIE schools are annually inspected for safety and health, as required by its policy, and that inspection information is complete and accurate. Indian Affairs has taken steps toward implementing our recommendations. For example, in April 2019 Indian Affairs provided documentation that it had assessed the quality of two fiscal year 2018 BIE safety inspection reports. However, Indian Affairs has not provided us with documentation that it has assessed the quality of BIE safety inspection reports for fiscal year 2019 the first year BIE was responsible for inspecting all of its schools. We believe it is important that the agency demonstrate that BIE is capable of inspecting all schools for safety in fiscal year 2019 and that they produce inspection reports for schools that are complete and accurate. As of November 2019, we have not received further updates from the agency on this recommendation s status. Additionally, in March 2016, we reported on weaknesses in IHS s oversight of the timeliness of patient care that led to long wait times at IHS facilities. We found that IHS had not set any agency-wide standards for patient wait times at IHS federally-operated facilities. We recommended that IHS (1) develop and communicate specific agency-wide standards for patient wait times in federally- operated facilities, and (2) monitor patient wait times and ensure corrective actions are taken when standards are not met. IHS agreed with our recommendations and implemented the first recommendation by publishing patient wait time standards as part of its Indian Health Manual website in August 2017. As of March 2019, IHS officials said that the agency was working to implement the second recommendation by developing system-wide monitoring capacity. We will continue to review IHS s progress. Management weaknesses. In June 2015, we found shortcomings in BIA s management of permits, and other approvals for energy development have led to lengthy review times and negatively impacted energy development on tribal lands. These lengthy review times have increased energy development costs for tribes, delayed projects, and led to lost revenue, among other impacts. For example, according to a tribal official, BIA took as long as 8 years to review some of its energy-related documents. In the meantime, the tribe estimates it lost $95 million in revenue that it could have earned from tribal permitting fees, oil and gas severance taxes, and royalties. We recommended that BIA develop a documented process to track its review and response times and enhance its data collection efforts. As of November 2019, the agency had taken initial steps toward implementing the recommendation by developing system enhancements to capture key dates during the review and approval process for energy-related documents. However, BIA needs to collect data from its system, develop time frames, and monitor agency performance to fully address these recommendations. In our January 2019 work on tribal self-governance, we reported that Interior s process does not ensure that funds associated with self-determination contracts and self-governance compacts are disbursed in a timely manner, according to tribal stakeholders. These funding delays can therefore be a factor that hinders tribal use of these agreements. When funds are not disbursed in a timely manner, a tribal stakeholder told us that tribes may have to use funds from their general revenue accounts or seek other sources to cover federal program expenses. According to several tribal stakeholders, when a tribe has to use its own funds for the administration of federal programs even temporarily it can adversely affect the tribe in various ways. To help ensure that funds are disbursed in a timely manner, we recommended that Interior establish a process to track and monitor the disbursement of funds associated with self-determination contracts and self-governance compacts. Interior agreed with this recommendation, and as of November 2019, we are following up on its status. Weaknesses in planning. In May 2017, we found that Indian Affairs did not have a comprehensive capital asset plan to guide funding for construction projects to maintain, repair, or replace infrastructure at its 185 BIE schools. Specifically, although Indian Affairs had determined which 10 schools it planned to replace next, it did not have a long-term capital asset plan for the remaining 175 BIE schools. Many of the 175 schools were in poor condition and had safety hazards. We recommended Indian Affairs develop a comprehensive long-term capital asset plan that includes a prioritized list of projects with the greatest need of funding. Indian Affairs agreed with the recommendation. As of October 2018, Indian Affairs provided a list of deferred maintenance projects for 2018 and documentation of processes for prioritizing such projects, among other things, but as of November 2019 had not yet provided documentation that it had completed a comprehensive long-term capital asset plan. In conclusion, the resource constraints and management weaknesses in federal programs that serve tribes limit federal agencies effective delivery of programs to Native Americans. In many cases, we have made recommendations to agencies to take steps to address identified issues. While agencies have made some progress addressing recommendations to improve tribal programs identified in our high-risk and other areas, continued work to address these and other issues is needed. Sustained congressional attention to these issues and the relevant factors contributing to the disparities identified in the U.S. Civil Rights Commission s report will help the federal government makes progress in addressing the needs of Native Americans. Chairman Gallego, Ranking Member Cook and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. GAO Contacts and Staff Acknowledgments> For further information regarding this testimony, please contact Anna Maria Ortiz at (202) 512-3841 or ortiza@gao.gov. If you or your staff have any questions about health care issues in this testimony or the related reports, please contact Jessica Farb at (202) 512-7114 or farbj@gao.gov. For questions about education, please contact Melissa Emrey-Arras at (617) 788-0534 or emreyarrasm@gao.gov. For questions about energy resource development, please contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement include Lisa Van Arsdale (Assistant Director), Swati Thomas (Analyst-in-Charge), Edward Bodine, Kelly DeMots, Summer Lingard-Smith, Elizabeth Sirois, Jeanette Soares, Kiki Theodoropoulos and Leigh White. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study As Congress affirmed in the Indian Trust Asset Reform Act, the United States has undertaken a unique trust responsibility to protect and support Indian tribes and Indians. Thus, federal agencies have many programs that provide services to tribes. However, in 2018, the U.S. Commission on Civil Rights found that, due to a variety of reasons—including historical discriminatory policies, insufficient resources, and inefficient federal program delivery—Native Americans continue to rank near the bottom of all Americans in terms of health, education, and employment. In February 2017 GAO designated federal management of programs that serve tribes in education, health care and energy as high risk. This designation is neither reflective of the performance of programs administered by tribes nor directed at tribal activities. This testimony, which is based on reports GAO issued from June 2015 through March 2019 primarily related to education, health care, and energy development, provides examples of (1) capacity and funding constraints and budget uncertainty and (2) management weaknesses that limit the effective delivery of federal programs for tribes and their members. What GAO Found GAO previously reported that constraints in federal agency capacity and funding and budget uncertainty limit effective delivery of some federal programs and activities serving tribes. Key federal agencies serving tribes include the Department of the Interior's Bureau of Indian Affairs (BIA) and Bureau of Indian Education (BIE), and the Department of Health and Human Services' Indian Health Service (IHS). For example: High staff vacancies and insufficient staff capacity. In February 2017, GAO reported that IHS had over 1,550 vacancies for health care positions in 2016, and IHS officials said that the agency's insufficient workforce was the biggest impediment to providing timely primary care. In addition, GAO's March 2019 high-risk update reported that about 50 percent of all BIE positions had not been filled, according to recent BIE documentation. Inadequate funding. In January 2019, GAO reported on agency and tribal perspectives on the adequacy of funding and how it impacts federal programs. GAO found that inadequate program funding to meet tribal needs (e.g., BIA estimated a funding shortfall at 60 percent for one program in a 2013 report to Congress) may limit tribal options for administering federal programs using self-determination contracts or self-governance compacts. Many tribal stakeholders told GAO that they supplement federal funding when there are shortfalls, which diverts funding from economic development and services provided to their communities. Effects of budget uncertainty. Budget uncertainty arises during continuing resolutions—temporary funding periods during which the federal government has not passed a budget—and during government shutdowns. In a September 2018 GAO report, IHS officials and tribal representatives described the effects of budget uncertainty on their health care programs and operations. GAO reported that these effects include recruitment and retention of staff challenges and additional administrative burden and cost for both tribes and IHS. In GAO's prior reports and March 2019 high-risk update, GAO found that management weaknesses at some federal agencies limit the effective delivery of some federal programs serving tribes. For example: Oversight weaknesses. In March 2016, GAO found weaknesses in IHS's oversight of timeliness of patient care leading to long wait times at IHS facilities. GAO recommended that IHS develop standards for patient wait times, monitor these wait times, and take corrective action as needed. IHS has established wait times standards and is developing monitoring capacity. Management weaknesses . In June 2015, GAO found shortcomings in BIA's management of energy development permitting processes that led to lengthy reviews and negatively impacted energy development on tribal lands. Among other things, GAO recommended that BIA develop a process to track its review and response times. BIA has taken initial steps to develop system enhancements to capture key dates during the review and approval process for energy development documents. What GAO Recommends GAO has made more than 50 recommendations related to its high- risk area and more than 40 recommendations for tribal water infrastructure, tribal self-governance and tribal consultation of which 60 recommendations are open. Sustained focus by the respective agencies and Congress on these and other issues are essential to continued progress.

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<1. Background> <1.1. History and Purpose of the Naval Shipyards> The naval shipyards were originally designed to build wind- and steam- powered ships and range in age from 111 years to 252 years old (see fig. 1). Over the years, the Navy has adapted them into highly industrialized, large-scale operations that are essential to national defense and fulfill the legal requirement for DOD to maintain a critical logistics capability that is government owned and operated to support an effective and timely response for mobilization, national defense contingency situations, and other emergency requirements. However, as we have reported, the shipyards age, residual configuration for the shipbuilding mission, and poor condition reduces their efficiency for their modern-day mission of repairing nuclear-powered ships and submarines. The naval shipyards perform depot-level maintenance, which involves the most comprehensive and time-consuming maintenance work, including ship overhauls, alterations, refits, restorations, nuclear refuelings, and inactivations activities crucial to supporting Navy readiness. This maintenance is performed during periods designated in the Navy s Optimized Fleet Response Plan, an operational schedule of maintenance, training, and deployment periods for the entire fleet. It is designed to maximize the fleet s operational availability to combatant commanders while ensuring adequate time for the training of personnel and maintenance of ships. We reported in 2016 that successful implementation of the Optimized Fleet Response Plan depends, in part, on the shipyards completing maintenance on time and that maintenance delays reduce the time that ships are available for training and operations. As a result, successful implementation of the Optimized Fleet Response Plan is essential to the Navy s ability to maintain readiness and support operational needs. <1.2. The Navy s Shipyard Infrastructure Optimization Plan> The Navy developed the congressionally directed Shipyard Infrastructure Optimization Plan (the plan) to mitigate infrastructure deficiencies at the public shipyards. For some infrastructure, the Navy had preexisting planning that it used to outline specific mitigation projects that would address deficiencies. For other aspects of its infrastructure, the plan outlines the Navy s strategy for developing a more detailed mitigation approach. The plan serves as the Navy s engineering analysis and strategy for the optimal placement of facilities and major equipment at each public shipyard, including a 20-year investment plan for infrastructure investments needed to improve shipyard performance. The plan proposes mitigations to address limitations with three major facets of the public shipyards operations: their dry docks, facilities, and capital equipment (see fig. 2). Navy officials said they integrated previous studies in these three areas to create the plan. For example, Naval Sea Systems Command (NAVSEA) which is responsible for program management of the shipyards completed a dry dock study that identified gaps in capacity and configuration, which served as the basis for the dry dock portions of the plan. In addition, the Navy had previously developed capital investment strategies intended to help improve the state of the shipyards facilities and equipment, which were also included in the plan. The Navy estimates that the plan could eventually save 328,000 labor-days each year and recover most of the maintenance periods it currently cannot support. <1.3. Capital Planning and Reliable Cost Estimates> Capital planning is the process by which an organization prepares for the acquisition of capital assets such as the facilities and equipment in the Navy s plan. Congress, the Office of Management and Budget, and we have identified the need for effective capital planning, which can help ensure that capital funds are spent productively. In the overall capital programming process, planning is the first phase, and it drives the remaining phases of budgeting, procurement, and management. For decision makers to conduct effective capital planning, they must have reliable cost estimates. A reliable cost estimate is critical to the success of any program. Such estimates provide the basis for informed investments, realistic budgets, meaningful measurement of progress, proactive course correction, and accountability for results. According to the Office of Management and Budget, cost estimates should be well-documented and updated on a regular basis. Estimates should also encompass life-cycle costs of the program. Without high-quality estimates, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. The GAO Cost Estimating and Assessment Guide has identified a number of best practices grouped into four characteristics that are the basis of effective program cost estimating and should result in reliable and valid cost estimates that management can use to make informed decisions, as shown in figure 3 and discussed below. Comprehensive: A comprehensive cost estimate includes all costs of the program over its complete life cycle, from the start of the program through design, development, deployment, operation and maintenance, and retirement. It also fully defines the program, reflects the current schedule, and is technically reasonable. Comprehensive cost estimates provide sufficient detail to ensure that cost elements are neither omitted nor double counted. Finally, where information is limited and judgments must be made, the comprehensive cost estimate documents all cost-influencing ground rules and assumptions. Well-documented: A well-documented cost estimate is supported by detailed documentation that describes how it was derived and how the funds will be spent in order to achieve a given objective. Therefore, the documentation includes such things as the source data used, the calculations performed and their results, and the estimating methodology. Moreover, this information is captured in such a way that the data used can be easily replicated and updated. The documentation also discusses the technical baseline and how the data were standardized. Finally, the documentation includes evidence that the cost estimate was reviewed and accepted by management. Accurate: An accurate cost estimate provides results that are unbiased, and is not overly conservative or optimistic. An estimate is accurate when it is based on an assessment of the most likely costs, adjusted properly for inflation, and contains few, if any, minor mistakes. In addition, an accurate cost estimate is updated regularly to reflect significant changes in the program such as when schedules or other assumptions change and actual costs, so that it always reflects the program s current status. During the updating process, differences between planned and actual costs are documented, explained, and reviewed. Among other things, the estimate is grounded in a historical record of cost estimating and actual experiences on comparable programs. Credible: A credible cost estimate discusses any limitations of the analysis resulting from uncertainty or biases surrounding the data or assumptions. Major assumptions should be varied and other outcomes recomputed to determine how sensitive they are to changes in the assumptions. Risk and uncertainty analysis are performed to determine the level of confidence associated with the estimate. Finally, an independent cost estimate is developed by a group outside the organization to determine whether other estimating methods produce similar results. <2. The Navy s Plan Identifies Critical Shipyard Deficiencies, but Planning Has Not Been Completed, and Implementation Will Be Complex, Taking over 20 Years> The Shipyard Infrastructure Optimization Plan has identified a number of infrastructure deficiencies at the Navy s four public shipyards including deficiencies in dry docks, facilities, and capital equipment that negatively affect their ability to support the Navy s current and future force structure. However, the extent to which the Navy s plan addresses these deficiencies remains to be seen because facility planning has not been completed and the proposed actions are complex and years away from being implemented. <2.1. The Plan Generally Addresses Dry Dock Deficiencies, but Planned Improvements Will Not Be Complete Until 2035> The Navy s plan outlines steps that generally address the critical dry dock deficiencies the Navy has identified, although it does not anticipate completing these steps until 2035. Of the shipyards 18 dry docks, the plan states that eight require modernization and recapitalization projects to meet the Navy s operational needs, including accommodating new classes of ships. If all of the projects are completed as planned, the Navy anticipates that it will be able to recover 67 of the 68 maintenance periods that it currently cannot support through fiscal year 2040. According to the Navy, without these planned dry dock investments, the Navy would lack sufficient capacity for about a third of its planned maintenance periods at the shipyards and would have to defer maintenance for some ships. This could result in ships being unavailable for use until a dry dock is available, effectively reducing the size of the fleet available for operational missions. However, the extent to which the plan s actions will address the shipyards dry dock deficiencies remains to be seen because the initiation and completion of many of these projects is years away. Built in 1919, dry dock 3 is not certified to handle nuclear fuel, which means submarines must be defueled elsewhere before this dock can be used, according to Navy officials. Additionally, because of its shallow depth, the Navy can move Los Angeles class submarines into or out of the dock only during high tides. Even then, the shipyard has to remove portions of the submarine to decrease weight and over-flood the dock to create enough clearance for the boat. Shipyard officials said dry dock 3 could be modified to create a new multimission dry dock (M2D2) that would provide an additional spot to dry dock an aircraft carrier on the West Coast. This would provide the redundancy necessary to allow the Navy to perform significant seismic upgrades to dry dock 6, which faces significant seismic risks and is the only dry dock on the West Coast capable of accommodating an aircraft carrier. Navy officials said the final decision regarding the location of the M2D2 is pending a formal Environmental Impact Study. insufficient capacity to support the longer Virginia-class submarines with the Virginia Payload Module (see fig. 4), lack of redundancy for a West Coast aircraft carrier, and various other capacity and capability deficiencies that hinder the maintenance process such as small dry docks that require time- consuming workarounds or an inability to handle nuclear fuel (see sidebar). Though the Navy intends to recover most of the missed maintenance periods with these projects, according to Navy officials, the plan was developed using then-current estimates of fleet size and shipbuilding schedules derived from the fiscal year 2017 force structure projection. The Navy has since revised that projection, and the fiscal year 2020 shipbuilding projection increases both the number and accelerates the build rate of the nuclear powered ships supported by the naval shipyards (see fig. 5). Program office representatives told us that the plan, if implemented, will support the higher numbers and accelerated schedule of the Navy s 2020 shipbuilding plan. Officials also stated that they plan to stay aware of further changes to depot maintenance requirements by attending annual fleet scheduling conferences in the future. These conferences are intended to reach a Navy-wide consensus on, among other things, changes to shipbuilding plans and the schedules for various ships to undergo their dry dock maintenance. Program officials noted that their presence at the conference allows them to update the SIOP in the event that there are additional changes to the shipbuilding schedule in the future. We have previously recommended that the Navy assess the risks to implementing shipyard infrastructure improvements; changes to the shipbuilding schedule are one such risk. Because of our previous recommendation and the Navy s process for reviewing changes, we are not making an additional recommendation on this matter. <2.2. Planning to Fully Address Shipyard Facility Deficiencies Is Ongoing, with Improvements Expected to Take at Least 20 Years to Implement> It is too soon to determine whether the Navy s plan will fully address the shipyards facility deficiencies as the Navy has not yet completed the complex effort necessary to develop detailed facility optimization plans for each shipyard. Implementing the plan will be a complex, multiyear effort to redesign the workflows at each shipyard and will involve several steps (see fig. 6). As part of the facility optimization effort, the Navy will seek to address several critical facility deficiencies it has identified at the public shipyards that negatively affect the Navy s ability to complete maintenance on time. These include the average age of shipyard production shop facilities is 76 years, exceeding DOD s expected average service life of 67 years for facilities; the average condition rating of shipyard production shop facilities is 66, which is considered poor, falling below the Navy standard of 80; and inefficient facility layout at the shipyards that has not been optimized to support the maintenance, repair, and disposal of nuclear-powered Navy ships and submarines. According to the Navy, the shipyards were originally designed to support the construction of ships and submarines and not the maintenance mission for the nuclear fleet that they perform today. Because the shipyards were designed for a different mission, key facilities such as maintenance shops may be located at significant distances from where the majority of work is performed. As a result, it is not uncommon for workers to walk several miles each day because of the inefficient layout of the shipyards, according to shipyard officials. For example, building 155 at Pearl Harbor Naval Shipyard, which is actively involved in submarine maintenance, is about 1/3 mile away from the nearest dry dock. This distance creates additional travel time for both personnel and material, resulting in maintenance inefficiencies. We have noted previously that waterfront locations are often ideally located to support the shipyards maintenance mission, but that the challenges of dilapidated structures, historical designations, and other issues can make it difficult for the shipyards to make full use of the locations (see sidebar). Building 6 at Pearl Harbor Naval Shipyard is a former foundry that has not been used since the 1980s. The building s distinctive 3-tier roof architectural style make it a historic facility and therefore difficult to restore and modernize, according to shipyard officials. Because of its size and close proximity to the waterfront, shipyard officials would like to use the facility to support the maintenance mission, rather than let it sit empty. However, the building has extensive health and safety issues and also requires environmental remediation. The Navy s plan estimates that the implementation of facility optimization will take at least 20 years and require increased spending for facility construction and modernization over that time. In addition, this will be a highly complex effort to redesign four large operational industrial installations, and the time frame for its completion remains uncertain at this stage. The modeling and simulation of shipyard production facilities began in February 2019 and will not be completed until 2020. According to program office representatives, Pearl Harbor s current state facility model is scheduled to be completed near the end of fiscal year 2019, and the optimal facility model is scheduled to be completed in the 2nd quarter of fiscal year 2020 (see fig. 7). Modeling and simulation at the Norfolk, Portsmouth, and Puget Sound shipyards are not scheduled to be completed until the end of fiscal year 2020. However, some shipyard officials have expressed doubt about this timeline, stating that the modeling and simulations may take more effort to complete. For example, officials from Puget Sound Naval Shipyard told us they have done some degree of industrial modeling and simulation since 2007, but never at this magnitude and with this many variables. Because the modeling and simulation effort is so complicated, officials said it may be necessary to use the model to optimize the most critical parts of the industrial process first before gradually adding others. Shipyard officials also said that running the models will require a highly skilled and interdisciplinary team due to the complexity of the effort. If the simulations are completed as planned, the Navy expects to use them to complete the shipyard Area Development Plans in fiscal year 2021 and a prioritized list of facility development projects by fiscal year 2022. Navy officials said the list would likely inform facility investments for the following 5 years. Navy officials told us that they are suspending work on many facilities projects in order to avoid funding projects that do not serve the larger optimization goal, although some critical projects have been allowed to continue because they provide improvements needed to meet immediate operational needs, such as dry dock improvements. However, according to Navy officials, some projects have been deferred until 2022 when the prioritized list of projects to support shipyard optimization is expected to be complete. In addition, specific actions to address other infrastructure deficiencies at the shipyards are not addressed in the current plan, adding additional uncertainty. Navy officials explained that the optimized layout of shipyard facilities, which is still in early development, will drive the future efforts that address deficiencies associated with roads, utilities, sidewalks, and information-technology systems, which are not addressed in the plan. These officials explained that it will likely be several years before they can incorporate specific actions into the plan to address these deficiencies. <2.3. Planning to Fully Address Equipment Deficiencies Awaits Completion of Facility Optimization Effort, with Improvements Expected to Take at Least 20 Years> The Navy plans to mitigate equipment deficiencies at the shipyards through increased funding to replace aged shipyard equipment. Specifically, the Navy s plan states that funding levels for shipyard capital equipment will need to increase from historical levels to about $150 million annually and be sustained for at least 20 years to bring the average age of shipyard equipment to within industry standards. However, it is not clear whether this will fully address shipyard equipment deficiencies, because the Navy officials stated that they will not be able to create a more detailed goal until after the facility modeling and simulation effort is complete. The Navy s plan states that most shipyard capital equipment is beyond its effective service life, obsolete, unsupported by the original manufacturers, or at risk of failure. According to the plan, the average age for industrial equipment in the private sector is 7 to 10 years, while the average age of equipment at the four shipyards is 24 years. According to the Navy s plan, aged equipment can increase the costs of depot maintenance for submarines and aircraft carriers and place schedules at risk. Modernizing the capital equipment at naval shipyards is essential to improving their efficiency, reducing maintenance costs, and supporting fleet readiness, according to the plan. The capital equipment deficiencies identified by the Navy s plan are consistent with our recent work, which found that the equipment at the shipyards was, on average, past its expected service life (see table 1). However, it is too early to determine whether the Navy s plan to increase equipment funding will fully address the shipyards equipment deficiencies. Navy officials told us that they have not yet established a specific improvement goal for shipyard capital equipment, because developing this metric will not be possible until after the modeling and simulation phase to develop optimized facilities is complete. For example, during the modeling and simulation phase to optimize shipyard operations, the Navy will likely make decisions that will affect the amount and cost of capital equipment, such as concentrating some specialized equipment at certain yards, standardizing equipment items and purchasing them in bulk at lower cost, or purchasing more efficient items that may reduce the quantity needed. Officials stated that they developed a rough order-of-magnitude estimate of the cost to replace aging equipment. The Navy has, in the past, spent about $50 million to $60 million annually to invest in capital equipment at the shipyards. However, the Navy estimates that it will require average annual funding of $150 million over the course of 20 years at a total cost of $3 billion in order to modernize capital equipment to within private industry standards. If this effort is sustained over the 20 years identified in the plan, the capital equipment deficiencies at the shipyards will not be fully addressed until fiscal year 2040. However, this estimate is based off an earlier Navy study that identified a need for annual average funding of $150 million over a longer, 30-year period. According to this earlier equipment study, the 10 additional years of investment would total $1.5 billion. Navy officials have stated that they will attempt to address the shipyards equipment deficiencies over the 20-year time frame by taking advantage of different equipment purchasing strategies and gaining efficiencies from the facility optimization effort that will allow the Navy to recapitalize equipment more effectively than was possible with its previous strategies. However, the efficacy of these strategies cannot be assessed until the Navy completes its modeling and simulation phase in fiscal year 2020 and develops more detailed plans for recapitalizing its shipyard equipment. <3. The Navy s Initial Cost Estimate of $21 Billion to Implement Its Plan Is Preliminary and Does Not Identify All Required Resources> The Navy estimates the Shipyard Infrastructure Optimization Plan will cost about $21 billion to implement; however, the estimate is preliminary and therefore is not complete or reliable. To develop the plan, the Navy first identified deficiencies in three major categories dry docks, facilities, and equipment and then developed a cost estimate to understand the resources it would need to mitigate those deficiencies. For the dry dock and equipment portions of the estimate, the Navy was able to build on previous cost estimates that had investigated additional investments in those areas. For the facilities portion of the estimate, the Navy assumed total reconstruction of most current facilities based on current processes, using notional square-footage facility requirements in the absence of a more detailed engineering assessment. The initial estimated cost to implement this plan over 20 years includes $4 billion for improvements to the dry docks, $14 billion for facilities, and $3 billion for capital equipment. Navy officials stated that they wanted to provide Navy leadership and congressional decision makers with a rough order-of-magnitude estimate, not a budget-ready cost estimate. That is why the estimate was released in its 2018 report to Congress, instead of after the Navy completes its shipyard modeling and simulation effort, which they believe will give them a more accurate picture of the necessary investments. For example, the Navy acknowledges that several expected costs are not included in its plan, such as those for utilities, roads, and environmental remediation. Officials with the Navy agree that including these will likely add hundreds of millions of dollars to the plan s cost. However, they decided that it was not useful to calculate these costs before the facility optimization process was complete, since the facility layout is going to have an effect on the placement of roads and utilities, for example. Navy officials stated that the initial cost estimate was prepared using applicable Navy guidance and that they plan to develop a more detailed cost estimate after the Navy has finished creating digital models of the shipyards and they start prioritizing specific projects, which they estimate will be in fiscal year 2021. We found that the Navy s initial cost estimate minimally met two characteristics of a reliable cost estimate, partially met one, and did not meet one, as shown in table 2. The GAO Cost Estimating and Assessment Guide identifies four characteristics of a reliable cost estimate as well as associated cost estimating best practices as previously discussed. Specifically, we found that the initial cost estimate was not reliable because it was not developed using the following best practices: Program Baseline: The Navy s plan includes some pieces of a program baseline, such as a schedule and goals, but does not fully establish a common definition of the program from which all cost estimates could be derived. A program baseline for cost and schedule may be established prior to contract award or funding work and allows decision makers to track and report on cost and schedule deviations above certain thresholds from initial estimates throughout the life of the project, to facilitate oversight. Navy officials stated that the plan s first phase is meant to serve as the program baseline, containing all relevant data to address systemic issues across all four shipyards. However, only the facilities estimate was developed specifically for the plan; the dry dock and equipment estimates came from previous Navy efforts, conducted under different conditions. Without a program baseline, a cost estimate will not be based on a complete program description and will lack specific information regarding technical and program risks. Work breakdown structure: The Navy s plan includes a broad list of high-level goals, such as timelines for completing major lines of effort, but the estimate does not include a more detailed work breakdown structure. Including a work breakdown structure is an important part of a comprehensive plan. A work breakdown structure deconstructs a program s end product into successive levels with smaller specific elements until the work is subdivided to a level suitable for management control. This allows program office and shipyard personnel to accurately track and closely monitor the progress of efforts to meet the SIOP s goals. In addition, including this structure would ensure consistency across the various cost estimating contributors, the shipyards, and NAVSEA, and would ensure that there were no omissions from the analysis and that costs are not double counted. Navy personnel stated that a more detailed work breakdown structure would not be possible until after the modeling and simulation of the shipyards is complete, after fiscal year 2020. Methodology and key assumptions: The Navy s plan describes assumptions, but not the methodology used to develop the initial cost estimate. For example, the plan states that the size and configuration of existing facilities make it difficult to increase capacity without a significant investment, but does not describe how the Navy intends to address the issue of a larger fleet. Cost estimates are often built around assumptions such as the rate of inflation or material costs because they are attempting to predict future costs. However, the plan must include a clearly identified methodology to be considered well- documented according to GAO best practices. Unless methodology and assumptions are clearly documented, it will be impossible to reproduce the estimate, and decision makers will lack information on which costs are concrete and which are best guesses. Inflation: The estimate did not account for inflation, which is an important component of an accurate cost estimate. If an estimate does not include adjustments for inflation, cost overruns can result. Inflation costs on a $21 billion program over 20 years could reach 45 percent or more. Applying inflation is an important step in cost estimating because, in the development of an estimate, cost data must be expressed in like terms. If a mistake is made or the inflation amount is not correct, cost overruns can result. Navy officials noted that they are currently evaluating the use of a covered dry dock model at the shipyards, which could result in significant maintenance efficiencies. A covered dry dock is a dry dock with an area built over it, which allows the shipyard to develop production space that can minimize personnel and materiel movement. However, the Navy is still investigating the cost benefit of the covered dry dock, which means that there could be additional costs or complications not included in the current plan. not include a cost risk or uncertainty analysis. A comprehensive analysis of risk and uncertainty in the estimate is an important component of an accurate cost estimate. Navy officials have identified a number of risks to implementing the plan, such as the costs of complying with historical preservation requirements, environmental remediation, and the acquisition or adaptation of alternative workspace for shipyards to use while facility upgrades are performed. Officials have stated that these factors could add hundreds of millions of dollars more to the total cost of the plan. For example, an official from Norfolk Naval Shipyard said that environmental remediation of certain sites at Norfolk alone could easily cost millions of dollars to execute. Furthermore, the plan excluded certain costs that the Navy will necessarily incur in implementing it, such as those related to utilities or roads. Because cost estimates predict future program costs sometimes for projects that have never been built before Navy officials always associate uncertainty with them (see sidebar). Lacking risk and uncertainty analysis, management cannot determine a defensible level of contingency reserves that is necessary to cover increased costs resulting from unexpected design complexity, incomplete requirements, technology uncertainty, and other uncertainties. While the Navy did not initially include mitigation strategies for these risks in the plan, Navy officials have stated that they are involved in a number of efforts to address them. Sensitivity: Our analysis showed that the Navy s estimate does not include a sensitivity analysis, which evaluates the effect that individual elements or assumptions can have on the estimate. Without a sensitivity analysis, cost estimators and management will not have a full understanding of the implications that changes in ground rules and assumptions can have. Officials have stated that they plan to include a sensitivity analysis in their more detailed cost estimate in 2021. Independent Cost Estimate: Our analysis showed that the Navy s plan does not include an independent cost estimate. An independent cost estimate provides an evaluation of the quality, accuracy, and reasonableness of a program s cost estimate by a neutral third-party, with emphasis on specific cost and technical risks. It also helps to identify risks associated with budget shortfalls or excesses. Navy officials noted that an independent cost estimate was likely not feasible at this point, considering that the effort was still in its very early stages. However, the officials stated that given the size and projected cost of the plan, they anticipate they will likely seek out an independent cost estimate in the future. Navy officials said they plan to develop a more detailed cost estimate after the Navy has finished creating digital models of the naval shipyards and identifying their optimized layouts, which they estimate will be in fiscal year 2021. However, even in the context of a preliminary estimate, the best practices associated with the four characteristics are foundational and should be the building blocks upon which any sound program is based. The importance of best practices is only magnified by the size of the program, which means ignoring best practices can have meaningful effects. For example, as we noted previously, not adjusting for inflation is likely to underestimate the cost of the program. Navy officials have expressed openness to the best practices as they prepare the more detailed cost estimate. However, without incorporating these cost estimating best practices that inform Navy decision makers and Congress of the full costs of shipyard optimization, the Navy is at risk of not identifying the resources it needs to fully implement its optimization plan. In addition, without fully accounting for all costs, management will have difficulty successfully planning program resource requirements. <4. The Navy Has Created a Management Structure to Oversee the Shipyard Optimization Effort, but Has Not Yet Identified Clear Roles and Responsibilities for Shipyards> The Navy created a management structure a program management office (referred to as PMS 555) to oversee the estimated 20-year-long process of optimizing the shipyards in June 2018. Shortly thereafter, in September 2018, the Assistant Secretary of the Navy for Research, Development, and Acquisition stated that, though the shipyard optimization effort did not fit all the characteristics of a formal acquisition program, its size and importance required the Navy to treat it as one. As a result, the newly created program office was designated as the acquisition lead for all efforts related to shipyard optimization. The program office was also required to report on its progress quarterly to an executive oversight council consisting of leadership representatives from a number of Navy organizations. This program office includes representatives from Navy organizations that would necessarily be involved in shipyard construction, including Navy Installations Command and Naval Facilities Engineering Command. Navy officials explained that NAVSEA is managing the implementation of the plan through the program office; Navy Installations Command provides installation support through management of shipyard land and facilities; Naval Facilities Engineering Command provides acquisition and technical expertise for real estate, facilities, and related environmental studies; and the shipyards implement the plan s activities (see fig. 8). In the year since its creation, the program office told us they have begun taking steps to prioritize shipyard projects and complete the modeling and simulation of the existing shipyards. The office has also developed its internal organizational structure, which includes describing its relationships to essential stakeholders such as Navy Installations Command and Naval Facilities Engineering Command. However, the program office has not yet formally clarified the extent to which it will interact with the shipyards or its expectations of support from the shipyards. For example, officials with the program office have stated that they plan to locate new staff both in Washington, D.C., and at field offices at each of the shipyards. However, neither the program office nor the shipyards yet know where the field offices will fall in the shipyards reporting structures including the chain of command or precisely what their roles will be. According to program office representatives, the Navy is in the process of developing documentation, including a memorandum of agreement, to formally codify roles and responsibilities for executing the plan among the program office and its field offices, the shipyards, and other Navy organizations to accomplish these tasks, but did not provide an estimated time frame for when these roles and responsibilities would be determined. Officials said their current plan is for field offices to serve as extensions of the program office and that they will help the shipyards to oversee the execution of the plan. Program office representatives intend for shipyard personnel to help define project requirements, collect data, provide input on the digital shipyard models, and communicate the plan among the entire shipyard workforce. However, the development of the memorandum of agreement has been extended. Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity s objectives. Shipyard officials told us that the current lack of clarity has created concerns and confusion about what their roles should be during implementation. For example, shipyard officials were uncertain in what fiscal years certain positions would be needed for implementing the plan, and shipyard officials were not always involved with planning efforts. In addition, according to NAVSEA officials, the lack of clear roles and responsibilities has hampered several long-term planning efforts, including identifying and tracking performance metrics. According to Navy officials, the program office has since received funding that it intends to use to hire additional staff, and they intend to embed some of those staff members at the shipyards to coordinate with shipyard personnel. However, at present, shipyard personnel have stated that they are generally left to interpret and enact implementation activities, which could lead to inefficient or duplicative efforts. Given the time frames of the plan, even minor delays due to inefficiency could result in projects being postponed and critical ship maintenance being deferred. Establishing clear roles and responsibilities for the shipyards would better position the Navy to effectively implement the plan. <5. Conclusions> The Navy s four public shipyards are critical for repairing and maintaining the Navy s nuclear fleet, and the Navy spends millions of dollars annually on facilities and equipment in order to sustain shipyard performance. Inefficient shipyards can lead to longer maintenance times, increased costs, and reduced readiness. Lack of adequate capacity can also result in critical parts of the fleet sitting idle awaiting maintenance, incurring hundreds of millions of dollars in operating and support costs without providing any operational benefit. We note that the shipyards are struggling to meet the Navy s current needs with inadequate facilities, aging equipment, poorly configured dry docks, and an ineffective management approach for addressing these issues. The Navy is attempting to address these concerns with its Shipyard Infrastructure Optimization Plan. However, the cost estimate for implementing this plan is preliminary and therefore likely under states the costs of what will be a decades-long effort. Because the Navy will be required to request funding from Congress over 20 years in order to implement this plan, the lack of a reliable cost estimate places the effort at risk. By developing a more complete cost estimate, the Navy could reduce the risk that it might request too little funding to achieve its desired outcome. Without high- quality estimates, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. In addition, determining the roles and responsibilities of the organizations involved in implementing the plan would enhance the Navy s ability to successfully complete the effort by ensuring that all stakeholders clearly understand their roles and expectations. <6. Recommendations for Executive Action> We are making the following four recommendations to the Department of Defense: The Secretary of the Navy should ensure that the shipyard optimization program office (PMS 555) include all costs such as costs for program office activities, utilities, roads, environmental remediation, historical preservation, and alternative workspace when developing its second, more detailed, cost estimate. (Recommendation 1) The Secretary of the Navy should ensure that the shipyard optimization program office (PMS 555) use cost estimating best practices as outlined in the GAO Cost Estimating and Assessment Guide in developing its second cost estimate, including a program baseline, work breakdown structure, a description of the methodology and key assumptions, inflation, fully addressing risk and uncertainty, and a sensitivity analysis. (Recommendation 2) The Secretary of the Navy should ensure that the shipyard optimization program office (PMS 555) obtain an independent cost estimate of the program prior to the start of its project prioritization effort. (Recommendation 3) The Secretary of the Navy should ensure that the shipyard optimization program office (PMS 555), in coordination with relevant stakeholders, establish clear roles and responsibilities for the shipyards involved in the Shipyard Infrastructure Optimization Plan. (Recommendation 4) <7. Agency Comments> We provided a draft of this report to DOD for review and comment. In written comments provided by the Navy (reproduced in appendix III), DOD concurred with our recommendations. The Navy also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Navy, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at maurerd@gao.gov or (202) 512-9627. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Status of Recommendations from Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations (GAO-17-548) as of August 2019 Appendix II: The Navy s Workload Management Plan Identifies Efforts to Address Shipyard Capacity Issues, but Success Depends on Optimistic Assumptions <8. The Navy s Workload Management Plan Includes Efforts to Address Capacity Issues at the Public Shipyards That Have Contributed to Maintenance Delays and Lost Operational Days> The Navy released a 5-year plan for depot maintenance on submarines in December 2018, for fiscal years 2020 through 2024. The workload plan identifies efforts to address shipyard capacity issues across the nuclear- maintenance enterprise. According to the workload plan, the root cause of submarine idle time and associated loss of operational availability is largely that public shipyard capacity is not keeping pace with growing maintenance requirements. As a result, the public shipyards have historically struggled to complete maintenance on time, as shown in table 4. As we have previously reported, maintenance on ships and submarines may be delayed as a result of a number of factors, such as workforce gaps and inexperience, the poor condition of facilities and equipment, parts shortages, changes in planned maintenance work, and weather. The Navy s workload plan discusses several efforts to improve maintenance performance at the public shipyards. Increasing hiring for the public shipyards. The Navy hired over 20,600 workers during fiscal years 2013 through 2018. After accounting for attrition, these hires increased total end strength from 29,400 to 36,700. Accelerating training for new employees. The effect of significant attrition and hiring resulted in approximately 56 percent of the shipyard production workforce having fewer than 5 years experience. The public shipyards implemented new approaches for accelerating training to develop skills in a relatively inexperienced workforce. Accounting for new employees lower proficiency and productivity. Shipyard officials have noted that employees with less than 5 years experience are generally not as skilled or productive as more experienced personnel. The Navy has established more realistic maintenance planning parameters to account for the lower proficiency and productivity of recently hired, less experienced workers. Improving the definition of workload requirements. Naval Sea Systems Command (NAVSEA) evaluated technical and program maintenance requirements with stakeholders in the maintenance community to identify and address barriers to on-time completion. Among the areas evaluated were time and condition-based maintenance strategies; logistic strategies; work estimating processes; shipyard overtime levels; and technology strategies. Improving material reliability and availability. The Navy is taking actions such as updating class maintenance plans; identifying and tracking frequently needed parts to determine appropriate acquisition strategies; creating an improved material forecasting tool; and moving material closer to the user. Balancing the submarine maintenance workload across the public and private shipyards. The Navy identified two submarines for which maintenance could be outsourced to Electric Boat or Huntington Ingalls over the next 5 years, in addition to the four submarines for which maintenance is currently outsourced. <8.1. The Success of the Navy s Submarine Workload Management Plan Depends on Optimistic Assumptions> The workload plan contains some optimistic assumptions which may jeopardize achieving the intended benefits. According to the Navy s workload plan, the Navy s efforts identified above are intended to eliminate all submarine idle time and fully address the submarine maintenance backlog by fiscal year 2023. However, success of the plan depends on the public and private shipyards and the Navy realizing improvements in their performance that they have not yet demonstrated. For example: On-time completion of submarine maintenance, at both the public and private shipyards. The workload plan states that on-time completion of submarine maintenance, at both the public and private shipyards, is critical to eliminating submarine idle time and the submarine maintenance backlog. However, this assumption may not be realistic in light of recent performance at public and private shipyards. As discussed above, on average the public shipyards have completed maintenance on time only about 26 percent of the time between fiscal years 2007 and 2017. Of the three submarine maintenance periods that were allocated to the private shipyards between fiscal years 2015 and 2018, all three are projected to be completed about a year late, according to Navy reports. Officials with both Electric Boat and Huntington Ingalls have acknowledged the delays, which they attribute to an inexperienced workforce, lack of capital investment, and the submarines being in worse condition than expected. These officials also stated that if the Navy were to provide them with regular submarine repair work, they would expect their repair times to improve as their planning process matures and their workforce gains experience. Timely implementation of the Navy s Shipyard Infrastructure Optimization Plan. Dry dock projects outlined in the Shipyard Infrastructure Optimization Plan must be completed on schedule, or else the Navy will not have the capacity to conduct some of its anticipated maintenance. This would in turn result in additional idle time and backlog. Some projects, such as the multimission dry dock project in Portsmouth, require the completion of earlier projects in order to proceed. Anything that disrupts the schedule of the earlier project could also affect the schedule of the later project. Given that the Shipyard Infrastructure Optimization Plan describes a 20-year- long effort that, at present, does not have clear organizational roles and responsibilities or a complete accounting of all the costs, it is possible that the gains it is intended to produce will take longer than expected to materialize. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the individual named above, key contributors to this report are Suzanne Wren, (Assistant Director), James Lackey and Cody Raysinger (Analysts-in-Charge), A. Steven Bagley, Anna Irvine, Jennifer Leotta, Amie Lesser, Felicia Lopez, Carol Petersen, Michael Silver, and William Tedrick. Related GAO Products Military Depots: Actions Needed to Improve Poor Conditions of Facilities and Equipment That Affect Maintenance Timeliness and Efficiency. GAO-19-242. Washington, D.C.: April 29, 2019. DOD Depot Workforce: Services Need to Assess the Effectiveness of Their Initiatives to Maintain Critical Skills. GAO-19-51. Washington, D.C.: December 14, 2018. Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation Readiness Will Require Time and Sustained Management Attention. GAO-19-225T. Washington, D.C.: December 12, 2018. Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.: November 19, 2018. Navy Shipbuilding: Past Performance Provides Valuable Lessons for Future Investments. GAO-18-238SP. Washington, D.C.: June 6, 2018. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Affecting the Fleet. GAO-17-809T. Washington, D.C.: September 19, 2017. Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations. GAO-17-548. Washington, D.C.: September 12, 2017. Navy Shipbuilding: Policy Changes Needed to Improve the Post-Delivery Process and Ship Quality. GAO-17-418. Washington, D.C.: July 13, 2017. Department of Defense: Actions Needed to Address Five Key Mission Challenges. GAO-17-369. Washington, D.C.: June 13, 2017. Military Readiness: DOD s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-841. Washington, D.C.: September 7, 2016. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Military Readiness: Progress and Challenges in Implementing the Navy s Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May 2, 2016. Defense Inventory: Actions Needed to Improve the Defense Logistics Agency s Inventory Management. GAO-14-495. Washington, D.C.: June 19, 2014. DOD s 2010 Comprehensive Inventory Management Improvement Plan Addressed Statutory Requirements, But Faces Implementation Challenges. GAO-11-240R. Washington, D.C.: January 7, 2011.

Why GAO Did This Study The poor condition of infrastructure at the Navy's four public shipyards—Norfolk Naval Shipyard, Virginia; Portsmouth Naval Shipyard, Maine; Puget Sound Naval Shipyard, Washington; and Pearl Harbor Naval Shipyard, Hawaii—affects the readiness of the aircraft carrier and submarine fleets they are charged with maintaining. In response to congressional direction to create a plan to address the shipyards' infrastructure deficiencies, the Navy developed the Shipyard Infrastructure Optimization Plan , which the Navy estimates will require $21 billion and 20 years to implement. Senate Report 115-262 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the Shipyard Infrastructure Optimization Plan . GAO evaluated the extent to which the plan (1) addresses deficiencies in the infrastructure needed to support the Navy's projected needs, (2) includes reliable cost estimates to address those deficiencies, and (3) identifies clear roles and responsibilities for implementation. GAO reviewed the Navy's shipyard infrastructure plan and cost estimates; conducted site visits to shipyards selected to provide a variety of operational perspectives; and interviewed Navy and shipyard officials. What GAO Found The Navy's 2018 Shipyard Infrastructure Optimization Plan includes actions to address critical deficiencies at the shipyards, but the extent to which the plan fully addresses those deficiencies remains to be seen as the proposed actions are complex and years away from being implemented. The plan includes steps to address dry dock deficiencies, which the Navy expects willl provide it with the capacity and capability to perform 67 of 68 ship maintenance periods it is currently unable to support through fiscal year 2040. Once area development plans are complete (see figure), the Navy projects it will take at least $21 billion over 20 years to fully implement the plan. The Navy's initial cost estimate for the plan did not use certain best practices in developing the estimate, such as documenting key assumptions, accounting for inflation, and addressing risks that together could add billions to the ultimate cost. Navy officials stated that high-quality cost estimates will not be possible until they complete modeling and simulation in fiscal year 2020 and subsequently identify the most effective shipyard layouts and prioritize projects in fiscal year 2022. However, without fully following best practices in subsequent estimates, the Navy risks requesting inadequate resources to address shipyard deficiencies. The Navy created a program management office in June 2018 to oversee the estimated 20-year-long process of optimizing the shipyards. This program office includes representatives from multiple Navy organizations. However, the office has not formally defined the role of shipyard officials. Navy officials stated that they intend to develop an agreement to address roles and responsibilities, but this has not yet been finalized. Without defining clear shipyard roles and responsibilities, the Navy risks an ineffective implementation of its plan. What GAO Recommends GAO recommends that the Navy enhance the quality and reliability of its shipyard infrastructure plan by incorporating GAO's cost estimating best practices and determining clear shipyard roles and responsibilities for implementing the plan. The Navy concurred with these recommendations.

gao_GAO-19-259T

gao_GAO-19-259T_0

<1. Background> Victims of sexual assault may receive a sexual assault forensic examination by a medical provider who may or may not be a trained sexual assault forensic examiner. Medical providers assess victims clinical conditions; provide appropriate treatment and medical referrals; and, given consent by the victim, collect forensic evidence through a sexual assault forensic examination that may follow steps and use supplies from a sexual assault evidence collection kit. Under its protocol for sexual assault forensic examinations, the Department of Justice (DOJ) recommends that medical providers collect a range of physical evidence. In addition, sexual assault forensic exams typically include documenting biological and physical findings such as cuts or bruises and a victim s medical forensic history, such as the time and nature of the assault. Once the exam is complete, medical providers preserve the collected evidence, which may include packaging, labeling, and sealing evidence collection kits and storing kits in a secure location. Medical providers typically perform such exams only for acute cases of sexual assault, such as in cases where the assault occurred within the previous 72 to 96 hours, when the physical and biological evidence on a person s body or clothes is considered most viable. DOJ, IAFN, and the American College of Emergency Physicians (ACEP) recommend that sexual assault forensic exams be performed by specially trained medical providers known as sexual assault forensic examiners (examiners). These examiners include physicians, physician assistants, nurse practitioners, and other registered nurses who have been specially educated and have completed clinical requirements to perform sexual assault forensic exams. Sexual assault nurse examiners (SANE) a particular type of sexual assault forensic examiner are registered nurses, including nurse midwives and other advanced practice nurses, who have received specialized education and have fulfilled clinical requirements to perform sexual assault forensic exams. Examiner programs have been created in hospital or non-hospital settings whereby specially trained examiners are available to provide first-response care and exams to sexual assault victims. DOJ, IAFN, and some states have issued guidelines pertaining to the minimum level of training examiners should receive in order to properly collect and preserve evidence, identify victims medical and emotional health care needs, and provide counseling and referrals for victims. These guidelines include recommendations of objectives and topics that training programs should cover. DOJ administers several grant programs that aim to, among other things, improve response to and recovery from four broad categories of victimization domestic violence, sexual assault, dating violence, and stalking. In our March 2016 report we describe three key grant programs administered by DOJ s Office on Violence Against Women that could be used by grant recipients including states or other eligible entities to fund or train sexual assault forensic examiners. <2. Nationwide Data on the Availability of Sexual Assault Forensic Examiners Are Limited; Officials in Selected States Reported a Need for Additional Examiners> In our March 2016 report examining the availability of sexual assault forensic examiners, we found that only limited nationwide data exist on the availability of sexual assault forensic examiners that is, both the number of practicing examiners and health care facilities that have examiner programs. While IAFN reported that, as of September 2015, there were 1,182 nurses with an active IAFN SANE certification in the United States, such data do not represent all practicing examiners nationwide. For example, the data do not account for examiners who completed training through an IAFN or a state training program but never became certified or were certified through another entity, such as a state board of nursing. IAFN also collects data on examiner programs nationwide that is, data on hospitals, clinics, and other sites where examiners practice. Such data provide an indication of the availability of examiners, but the data are also limited. While 703 examiner programs nationwide voluntarily reported to IAFN s examiner program database, as of September 2015, IAFN officials noted that the database is often not up to date; and some health care settings where sexual assault forensic exams are conducted, such as child advocacy centers, are not represented. In addition, data collected on staffing characteristics of examiner programs are often unavailable in the IAFN examiner program database. For example, only about one-third of the examiner programs reported on the number of examiners practicing in their program, and about one-third reported on whether examiners were available on-site versus on-call. In three of the six selected states we reviewed in our March 2016 report, grant administrators or officials from sexual assault coalitions were able to provide estimates of the number of practicing examiners, and, in all six states, they were able to provide information on the estimated number of examiner program locations in their state. Of states that reported, the number of practicing examiners and examiner programs varied by state. (See table 1.) However, such data may also present an incomplete picture of the availability of examiners. For example, only one of the six selected states has a system in place to formally track the number and location of examiners. Instead, officials generally reported on the estimated number of examiners or examiner locations that were part of a statewide examiner program or were identified through an ad hoc data collection effort. Although data are limited, grant administrators and sexual assault coalition officials in all six selected states nevertheless told us that the number of examiners available does not meet the need for exams within their states. For example, coalition officials in Wisconsin told us that nearly half of all counties in the state do not have any examiner programs available, and coalition officials in Nebraska told us that most counties in the state do not have examiner programs available. In addition, in four of the six selected states Colorado, Florida, Nebraska, and Wisconsin state grant administrators and coalition officials told us that few or some health care facilities in their state have examiners available. As a consequence, officials said victims may need to travel long distances to be examined by a trained examiner or be examined by a medical professional without specialized training. While in the other two selected states Massachusetts and Oregon state grant administrators and coalition officials stated that some or most facilities have examiners available, they noted that there is still a need for additional capacity to reduce the burden on those examiners who are available, or to make examiners available in a number of areas where examiners are currently unavailable. In health care facilities where examiners are available, they are typically available through hospitals on an on-call basis, according to literature we reviewed as well as all grant administrators and coalition officials we interviewed for our report. In addition, among facilities that have examiners available, the number of examiners available varies and may not provide enough capacity for facilities to offer examiner coverage 24 hours, 7 days a week, according to state grant administrators and coalition officials we interviewed. Nebraska coalition officials, for example, told us that while one hospital in Omaha has a team of 26 examiners available, other facilities in the state may have as few as three examiners available. Further, officials from Florida and Colorado told us that there are few facilities in their states able to offer full coverage with examiners available 24 hours, 7 days a week. <3. Selected States Faced Challenges Training Examiners, Maintaining Stakeholder Support, and Retaining Examiners> In our March 2016 report, we found that maintaining a supply of trained examiners that meets communities needs for exams is challenging for multiple reasons, and that state officials have employed a variety of strategies to address these challenges, as described below. Limited availability of training. Officials in five of the six selected states told us that the limited availability of classroom, clinical, or continuing education training is a barrier to maintaining a supply of trained examiners. Regarding classroom training, some officials told us that training may only be offered once per year in their states. Additionally, officials from both Florida and IAFN told us that there is a need for qualified instructors to run training sessions. Experts and officials from Colorado, Nebraska, and Oregon also told us that medical professionals in rural areas may have difficulty completing the clinical training necessary to become an examiner. Obtaining clinical experience, such as performing exams under the supervision of a trained examiner, is a particular challenge in rural areas where hospitals may treat only a few sexual assault cases per year. One official in Nebraska told us that trained examiners in rural areas might not feel competent to perform exams due to the low number of cases they treat. A lack of continuing education opportunities may also pose a challenge for examiners in maintaining the skills necessary to perform exams. For example, the National Sexual Violence Resource Center (NSVRC) reported that based on common challenges identified through a survey of, and group discussions among, examiner program coordinators maintaining competency may be difficult for nurses in rural areas due to a low volume of patients presenting in need of exams and limited access to ongoing and advanced training. Officials told us they have been able to increase the availability of examiner training through alternative training methods such as web- based training courses and simulated clinical training. For example, officials in Colorado told us their state s web-based examiner training program has made training less expensive and has increased examiner recruitment. Officials in Wisconsin told us they developed a clinical training lab that allows examiners to gain hands-on experience by performing elements of exams on experienced teaching assistants hired for the purpose of training new examiners. Further, in 2014, a DOJ- funded evaluation of examiner training programs found that a web-based training course may help increase the availability of trained examiners; the study also found that implementing web-based training had benefits such as decreasing the costs associated with attending in-person training, expanding training opportunities to remote areas, and allowing examiners to be trained by national experts. Lack of technical assistance and other supportive resources. Officials in four of the six selected states told us that the limited availability of technical assistance and other supportive resources for examiners poses a challenge to maintaining a supply of trained examiners. For example, officials in Florida, Nebraska, Oregon, and Wisconsin explained that, in general, there is a lack of mentorship opportunities and leadership within the examiner community. Officials also noted that the sustainability of examiner programs may be threatened by a lack of internal capacity, such as not having a full-time, paid examiner program coordinator available. Further, in its survey of and group discussions with examiner program coordinators, NSVRC found that examiners and examiner programs needed technical assistance and support in the following areas: aspects of performing exams, training, leadership development and policy issues, and examiner program sustainability. Officials we spoke to told us about strategies that can be used to increase support for examiners and examiner programs, such as offering web- based technical assistance. For example, officials in Massachusetts told us that, through their National Sexual Assault TeleNursing Center, trained SANEs provide remote clinical guidance to two hospitals in the state that do not have trained examiners available. In addition, officials from Colorado told us an examiner program coordinator in an urban hospital in the state provides volunteer on-call technical assistance and clinical guidance to examiners in rural parts of the state, where those resources are not otherwise available. Further, one study we reviewed found several states were engaged in promising practices to increase support for examiners, such as implementing state-wide mentorship programs, developing regional examiner list-serves and online discussion boards, creating formal leadership positions within the examiner community, and requiring examiner program evaluations. Weak stakeholder support for examiners. Officials in five of the six selected states told us that limited stakeholder support for examiners and examiner programs, such as from hospitals and law enforcement, is a challenge to maintaining a supply of trained examiners. Some officials told us that hospitals may be reluctant to support examiners and examiner programs due to a low number of sexual assault cases treated each year. One official told us that hospitals may be reluctant to send nurses to examiner training, as it takes away from their regular shift availability. Additionally, some hospitals do not pay examiners to be on call. Officials in three states told us that hospitals typically either do not pay examiners to be on call or pay on-call examiners significantly less than other on-call medical professionals. Apart from hospital support, officials in Colorado and Oregon explained there is a need for more multidisciplinary support for examiners, such as increased law enforcement, prosecutor, and first-responder understanding of examiners role. The literature we reviewed also shows that ambiguity around the role of the examiner in responding to sexual assault may be a source of conflict between examiners and other professionals. For example, examiners were found to have experienced instances where victim advocates or law enforcement questioned examiners medical decisions, speed of evidence collection, or asked examiners to comment on the credibility of a victim s case. One nationally representative survey of examiner programs found that examiner program coordinators felt ongoing education of community stakeholders on sexual assault and examiner programs was needed due to the high turnover in staff at relevant community institutions and agencies, such as law enforcement officers, victim advocates, and prosecutors. Through our interviews with officials, we learned of strategies selected states have used to increase or mitigate limited stakeholder support for examiners and examiner programs. For example, officials in Colorado, Florida, Nebraska, Oregon, and Wisconsin told us that sexual assault response teams have been developed in their states to help community stakeholders to understand examiners role and better coordinate to meet the medical and legal needs of sexual assault victims. Low examiner retention rates. Officials in four of the six selected states told us that low examiner retention rates can be an impediment to maintaining a supply of trained examiners. In addition to the challenges of limited training opportunities, technical assistance and other supportive resources, and stakeholder support for examiners, the physically and emotionally demanding nature of examiner work contributes to low examiner retention rates. Further, studies have indicated that dissatisfaction with compensation, long work hours, and lack of support, among other things, may contribute to examiner burnout. Examiners typically work on call in addition to their full time jobs as, for example, emergency department nurses. Officials in Florida told us that examiners may be on call for 6-hour, 12-hour, or even 24-hour shifts. Further, one survey of examiner programs in Maryland found that examiners were required to be on call for an average of 159 hours per month. Wisconsin officials estimated that, although 540 SANEs were trained over a 2-year period, only 42 (less than 8 percent) were still practicing in the state at the end of those 2 years. Chairman Harper, Ranking Member DeGette, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. GAO Contact and Staff Acknowledgments> For further information about this statement, please contact A. Nicole Clowers at (202) 512-7114 or clowersa@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. In addition to the contact named above, key contributors to this statement were Kristi Peterson (Assistant Director), Patricia Roy, Katherine Mack, Laurie Pachter, and Emily Wilson. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study In 2016, about 323,000 individuals age 12 or older were reported victims of sexual assault, according to the Bureau of Justice Statistics. Studies have shown that exams performed by sexual assault forensic examiners—medical providers trained in collecting and preserving forensic evidence—may result in better physical and mental health care for victims, better evidence collection, and higher prosecution rates. Yet, concerns have been raised about the availability of such examiners. The Department of Justice administers grant programs that can be used by states and other eligible entities to train and fund examiners. This statement summarizes GAO's findings from its March 2016 report ( GAO-16-334 ) describing (1) what was known in 2016 about the availability of sexual assault forensic examiners nationally and in selected states and (2) the challenges selected states faced in maintaining a supply of sexual assault forensic examiners. For that report, GAO reviewed literature on the availability of examiners and challenges training and retaining them. GAO also interviewed knowledgeable officials, including recipients of federal sexual assault examiner related grants and officials from sexual assault coalitions in six states (Colorado, Florida, Massachusetts, Nebraska, Oregon, and Wisconsin) selected to achieve variation in factors such as population and geographic location. What GAO Found GAO's March 2016 report examining the availability of sexual assault forensic examiners found that only limited nationwide data existed on the availability of sexual assault forensic examiners—both the number of practicing examiners and health care facilities that had examiner programs. At the state level, GAO found that, in three of the six states it selected to review, grant administrators or officials from sexual assault coalitions were able to provide estimates of the number of practicing examiners and, in all six states, they were able to provide information on the estimated number of examiner program locations in their state. However, officials in all six selected states told GAO that the number of examiners available in their state did not meet the need for exams, especially in rural areas. For example, officials in Wisconsin explained that nearly half of all counties in the state did not have any sexual assault examiner programs available and officials in Nebraska told GAO that most counties in the state did not have examiner programs available. As a consequence, officials said victims may need to travel long distances to be examined by a trained examiner. In health care facilities where examiners were available, they were typically available in hospitals on an on-call basis, though the number available varied by facility and may not provide enough capacity to offer examiner coverage 24 hours, 7 days a week. GAO's March 2016 report also found there were multiple challenges to maintaining a supply of examiners, according to its review of the literature and interviews with officials in the six selected states. These challenges include: Limited availability of training . Officials in five of the six selected states reported that the limited availability of classroom, clinical, and continuing education training opportunities is a challenge to maintaining a supply of trained examiners. For example, officials told us that there is a need for qualified instructors to run training sessions. Weak stakeholder support for examiners. Officials in five of the six selected states reported that obtaining support from stakeholders, such as hospitals, was a challenge. For example, hospitals may be reluctant to cover the costs of training examiners or pay for examiners to be on call. Low examiner retention rates. The above-mentioned and other challenges, including the emotional and physical demands on examiners, contribute to low examiner retention rates. Officials in one of the selected states estimated that while the state trained 540 examiners over a two-year period, only 42 of those examiners were still practicing in the state at the end of those 2 years. Officials described a variety of strategies they have employed that can help address these challenges, such as implementing web-based training courses, clinical practice labs, mentorship programs, and multidisciplinary teams that respond to cases of sexual assault.

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<1. Background> <1.1. VHA s Allocation of Funds> In February of each year, the President submits the budget request for VHA health care, which includes requested funding for the upcoming fiscal year as well as an advance appropriation request to Congress. VHA allocates funds by the beginning of each fiscal year October 1 to VISNs and medical centers based on the amount VA received in the advance appropriation. Once appropriations are enacted for the upcoming fiscal year, VHA updates the allocated funding levels for VISNs and medical centers. For example, VHA s appropriations for fiscal year 2018 included advance appropriations for fiscal year 2019. VHA allocated funds by October 1, 2018 (the beginning of fiscal year 2019), based on the advance appropriation for fiscal year 2019 and updated the funding levels once appropriations for fiscal year 2019 were enacted. VHA allocates general purpose funds to its 18 VISNs through the Veterans Equitable Resource Allocation (VERA) model. It uses a separate model, called the Medical Center Allocation System (MCAS), to allocate each VISN s general purpose funds as determined by the VERA model to the medical centers within each network. VHA guidance permits VISNs to make adjustments to the general purpose funding levels determined by MCAS for each medical center. VHA uses other methods to allocate specific purpose funds to VHA program offices that manage various health care programs, such as those for community care, prosthetics, and homelessness. The program offices, in turn, typically allocate funds for these programs directly to medical centers. (See fig. 1.) Once funds are allocated and distributed to VISNs and medical centers, these funds may be redistributed in accordance with law across VA s health care system. These redistributions can help address unfunded needs or surpluses that may arise. For example, according to officials, a medical center may need additional funds to provide care for veterans when natural disasters occur. <1.2. VHA s General Purpose and Specific Purpose Funding Levels> From fiscal year 2015 to fiscal year 2019, general purpose funds increased by 33 percent- from $37 to $49 billion while specific purpose funds increased by 24 percent from $19 to $23 billion. (See fig. 2.) In fiscal year 2019, community care accounted for $10.5 billion 46 percent of the $23 billion allocated in specific purpose funds. Patient care services, homelessness programs, non-recurring maintenance, and medical residency programs also accounted for large portions of specific purpose funds. <1.3. VA s Appropriation Accounts and Community Care> As of fiscal year 2017, VA primarily receives appropriated funds for all health care it provides or purchases through four appropriation accounts. The amount of funds in each appropriation account is determined by VA s annual appropriation. VHA allocates both general and specific purpose funds from these appropriation accounts. These accounts include the following: Medical Services: health care services provided to eligible veterans and other beneficiaries in VA facilities and non-VA facilities, among other things. Medical Community Care: health care services that VA authorizes for veterans and other beneficiaries to receive from community providers. Medical Support and Compliance: the administration of the medical, hospital, nursing home, domiciliary, supply, and research activities authorized under VA s health care system, among other things. Medical Facilities: the operation and maintenance of VHA s capital infrastructure, such as the costs associated with nonrecurring maintenance, leases, utilities, facility repair, laundry services, and groundskeeping, among other things. Separate from VA s health care appropriation accounts, the Veterans Access, Choice, and Accountability Act of 2014 established the Veterans Choice Fund and provided $10 billion in funds for the Veterans Choice Program (Choice Program), which was implemented in early fiscal year 2015 and authorized until funds were exhausted or through August 7, 2017, whichever occurred first. The Choice Program allowed veterans to elect to receive care from community providers when the services needed were not available at a VA medical center, were not available within VHA s wait-time goals, or when veterans did not reside near a VA medical facility with a full-time primary care provider. Eligible veterans could also elect to receive care in the community if they met other eligibility criteria as well. VA received additional authority and funds to maintain the Choice Program through June 6, 2019, when it sunsetted, and the new Veterans Community Care Program (VCCP) went into effect. The VCCP was established by the VA MISSION Act and consolidated the Choice Program along with several other community care programs. The VCCP is primarily funded through specific purpose funds in the Medical Community Care appropriation account. The VCCP is similar to the former Choice Program in allowing veterans to elect to receive care from community providers when certain eligibility criteria are met, including criteria relating to the availability and accessibility of the services at VHA. Under the VCCP, VHA adopted designated access standards for VCCP eligibility determinations that are broader than the eligibility criteria that existed under the Choice Program. <2. VHA Allocates Funds Based on Patient Workload but Does Not Use the Most Up- to-date Data and Certain Adjustments to Funding Levels May Lead to Inefficiencies> <2.1. VHA Allocates General Purpose and Community Care Funds Based on Patient Workload> VHA s VERA model uses a national, formula-driven approach that considers the number and type of veterans served and the complexity of care provided collectively referred to as patient workload as well as certain geographic factors, such as local labor costs, to determine the amount of general purpose funds each VISN should receive. VHA uses VERA to establish funding levels for each VISN in the following areas: patient care, equipment, education support, and research support, the largest of which is patient care. After determining the amount of funds VISNs should retain for VISN-level initiatives, administrative purposes, and reserves, VHA uses its MCAS model to distribute the remainder of each VISN s general purpose funds to medical centers within the VISN. MCAS is based on a workload measure developed by VHA, called patient-weighted work (PWW) that accounts for medical center-level factors such as patient volume, case- mix, and specialized services. According to VHA officials, PWW establishes an equitable measure of workload among medical centers that vary significantly in their geographic location, and types and costs of services provided. Furthermore, PWW lessens the impact of cost differences between medical centers, by recognizing the varying costs and levels of resource intensity associated with providing care for each patient at each medical center. For example, PWW would result in more funds being allocated to a medical center that provides more complex care, such as open heart surgery, than a workload measure based solely on a count of each individual patient, which would not account for the additional costs associated with more complex care. Similar to MCAS, VHA s Office of Community Care uses a patient workload-based model to allocate community care funds which are specific purpose funds to medical centers, based on each medical center s community care patient workload in prior years. To determine the community care funding needs for each medical center, VHA calculates the PWW associated with community care. VHA determines the total amount of funds available for community care based on the amounts appropriated to the Medical Community Care appropriation account and the amount available for community care in the Veterans Choice Fund. VHA distributes the funds to each medical center in proportion to each medical center s PWW. VHA officials told us that VHA is considering making changes to the methodology for allocating community care funds under the new VCCP, but as of July 2019, updates to the methodology had not been developed or implemented. The other four program offices we reviewed developed other methodologies for allocating other specific purpose funds. In general, these methodologies involve coordination between VISNs and their medical centers on needs for these funds and allocating available funds based on identified needs. For example, the Office of Patient Care Services which manages prosthetics and hepatitis C drugs allocates available funds based on identified needs by each of the medical centers. Appendix 1 provides an overview of the methodologies used by these four program offices to allocate special purpose funds. <2.2. VHA s Allocation Models for General Purpose and Community Care Funds Do Not Reflect the Most Up-To-Date Patient Workload Data Available> To allocate funds for an upcoming fiscal year, VHA s allocation models rely on actual patient workload data from prior fiscal years, but not the most recently completed fiscal year. VHA s VERA model relies on actual patient workload data from two to six years prior to the upcoming fiscal year, in addition to future workload projections. For example, to allocate funds for fiscal year 2019, the VERA model relied on actual workload data from fiscal years 2013 and 2017, in addition to some future projected workload, but did not take into account actual workload data from fiscal year 2018. VHA s MCAS and community care models rely on actual patient workload data from two years prior to the upcoming fiscal year. For example, the 2019 MCAS and community care models were based on actual workload data from fiscal year 2017, but did not take into account actual workload data from fiscal year 2018. According to VHA officials, patient workload data from the most recently completed fiscal year are not yet available when VHA runs the preliminary VERA, MCAS, and community care models for each fiscal year in August. However, these officials told us that these data would be available in December of each year and therefore could be incorporated into the final model run after VHA receives its enacted appropriation amount for the upcoming fiscal year. These officials told us that doing so would result in little to no delay in when the final model run and the final distribution of funds takes place, which occurs after the appropriation act is enacted. Specifically, according to officials from VHA s Office of Finance, if the full fiscal year appropriation is enacted prior to the start of the fiscal year on October 1, VHA will be able to perform the final model runs by mid- November. As a result, incorporating data from the most recent fiscal year would result in a one month delay in the final model run. Should the enactment of a full year appropriation be delayed, the timing of the final model would not be impacted by using data from the most recently completed fiscal year. (See fig. 3.) A VHA Office of Finance official told us that VHA had not previously considered using patient workload data from the most recently completed fiscal year because VHA did not believe that using updated data would have a significant impact on the model. However, the official told us that the implementation of the VCCP in June 2019 may result in more significant year-to-year workload changes due to veterans increasing their use of VHA health care services. As a result, the official told us that using more up to date information would be more useful in informing allocation levels. Federal standards for internal control related to information calls for management to use quality information to achieve the entity s objectives. Quality information is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Because the VERA, MCAS, and community care models do not use the most up-to-date patient workload data available, the models may not reflect the most recent workload trends affecting medical centers. This may result in funding levels determined by the models that may not be commensurate with medical centers actual patient workload. For example, VHA data we reviewed show that some medical centers experienced workload changes in fiscal year 2018 changes that were not captured by the models for fiscal year 2019 allocations. Specifically, from fiscal years 2017 through 2018, while PWW for care provided by VA medical centers grew over 1 percent VHA-wide, 34 medical centers experienced growth of over 3 percent, and 9 experienced a decline of over 3 percent. Similarly, the PWW for care in the community grew over 6 percent VHA-wide from fiscal year 2017 to fiscal year 2018, with 97 medical centers experiencing growth of over 3 percent and 25 experiencing a decline in community care of over 3 percent over this time period. Additionally, officials we interviewed at six VISNs told us that the models have not accounted for recent workload growth their medical centers were experiencing due to an increase in the number of veterans they serve, the addition of new services, or changes in the medical centers reliance on community care. Two of these VISNs analyzed recent workload trends at the medical centers within their VISN and allocated additional funds to those medical centers with recent growth not accounted for by MCAS. If VHA were to incorporate the most recent available workload data into its allocation models, the need for such funding changes would likely be reduced. <2.3. VHA Does Not Adequately Monitor Adjustments Made to Medical Centers Allocated Funding Levels, and Certain Adjustments May Lead to Inefficiencies> As part of the allocation process, VISNs may make adjustments to the amounts of general purpose funds calculated by MCAS and allocated to medical centers. VHA guidance requires VISNs to provide a written explanation to VHA for any adjustments. However, we found that VHA does not adequately monitor these adjustments and that some of these adjustments may lead to inefficiencies. <2.3.1. VHA Does Not Adequately Monitor Allocation Adjustments> We found that VHA Office of Finance officials did not adequately review the fiscal year 2019 MCAS adjustments to ensure that adjustments were documented and fully explained. Specifically, VHA did not provide evidence that they sought an explanation for MCAS adjustments made by 2 VISNs that provided no written explanation for their adjustments, even though these explanations are required by VHA guidance. VHA Office of Finance officials said they use informal methods via email to learn about the adjustments and follow-up as needed, but could not provide documentation that follow-up and review had occurred. Additionally, VISN officials we interviewed from all 18 VISNs stated that they had not received questions or other feedback from the VHA Office of Finance on the adjustments they made, even if they had not documented and explained the adjustments. Furthermore, even if VISNs follow the requirement and submit written explanations for the adjustments, they may not provide the type of information VHA needs to adequately monitor the adjustments. This is because VHA guidance does not require VISNs to provide information on how they determined how much and for what reasons they are making the adjustments. For example, we found that 6 VISNs provided limited explanations for their fiscal year 2019 MCAS adjustments, such as stating that they had decided to reallocate funds among medical centers to ensure continuity of operations, which is insufficient information to allow VHA to determine if the adjustments were appropriate. Federal standards for internal control related to monitoring state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. These monitoring activities could include establishing a formal process to document VHA s review of VISN adjustments to medical center allocations. Additionally, monitoring activities could include requiring VISNs to provide information on how they determined how much and for what reasons they are making the adjustments and then reviewing such information. As VHA evaluates the adjustments, documenting the results of its monitoring and having the information needed to help determine the appropriateness of the adjustments will help VHA identify areas for improvement in the allocation process. Without adequate monitoring, VHA cannot reasonably ensure these adjustments are justified and align with VA s strategic plan, which calls for the efficient allocation of funds. <2.3.2. Certain Adjustments May Lead to Inefficiencies> Based on interviews with VISN officials, we found that, in fiscal year 2019, seven VISNs adjusted the allocations determined by MCAS to ensure that every medical center within their VISN received either the same level of funding or a minimum funding increase of up to 2 percent relative to the prior year. According to VISN officials, funds were often shifted from medical centers that had received relatively large increases in funds due to growing workload to medical centers that had received a decrease or relatively flat funds compared to the prior year due to either declining or relatively flat workload. According to VISN officials, declining workload may be the result of medical centers serving fewer patients or patients obtaining care from community providers rather than VA providers. When asked about these adjustments, officials at the seven VISNs stated that they were necessary to ensure that affected medical centers could continue to cover the costs for the services they offer and the staff they employ, including providing federally mandated annual salary increases for those staff. Officials from four of these VISNs stated that it is difficult for medical centers to absorb a funding cut or only a small increase in funding from one year to the next due to rising costs they face. While VISNs are allowed to make adjustments to medical centers allocated general purpose funds, these adjustments may lead to inefficiencies because medical centers are not required to improve efficiency such as, adjust the level of services they offer to account for their decreases in workload. Additionally, officials from VHA s Allocation Resource Center within the Office of Finance, which is responsible for developing and executing VHA s allocation models, told us that because allocations made through MCAS are based on medical center workload, VISNs should avoid reallocating funds so that all medical centers receive a minimal increase. These officials said that doing so results in medical centers failing to adjust the level of services to meet workload needs. However, we found that for medical centers with declining workload, VHA guidance on allocation of funds does not require VISNs in conjunction with these medical centers to develop and submit approaches to improve the efficiency of medical center operations. Such improvements in efficiency would help lower overall costs. As we have previously stated, VHA s strategic plan calls for the efficient allocation of funds. In addition, federal internal control standards related to control activities state that management should design control activities to achieve agency objectives. Such an activity could include having guidance on the allocation and adjustment of funds that promotes the efficient use of funds for delivering health care services to veterans. Without requiring VISNs in conjunction with medical centers to develop and submit an approach to change how medical centers with decreasing workload should operate, VHA increases the risk that these adjustments will not align with VA s strategic plan. <3. VHA Monitors the Use of Allocated Funds, but Does Not Adequately Monitor Redistribution of Funds> <3.1. VHA Monitors the Use of Allocated General Purpose and Specific Purpose Funds Using Multiple Mechanisms> Once funds are allocated and distributed to VISNs and medical centers, VHA uses multiple mechanisms to monitor the balance of general purpose and specific purpose funds. VA uses these mechanisms to ensure that VISNs and medical centers operate within their allocated funding levels and are in compliance with the Anti-Deficiency Act. VHA s primary monitoring mechanism is through VA s financial management system, which is used to track obligations and prevent VISNs and medical centers from obligating amounts that are greater than the funds they have available. VHA also employs additional mechanisms to monitor the use of general and specific purpose funds. These additional mechanisms are described below. <3.1.1. General Purpose Funds> VHA s Office of Finance requires each VISN to prepare an annual operating plan after the initial allocation of general purpose funds for each fiscal year that reflects the total planned obligations for the medical centers they oversee. These operating plans describe the planned obligation of funds throughout the fiscal year for various budget categories, such as personnel, equipment, transportation, and supplies and materials. VHA requires planned obligations reported in operating plans to align with the funding levels available to each VISN, which include allocated funds as well as anticipated collections, reimbursements, and funds carried over from previous years. VISNs are required to revise their operating plans during the fiscal year if major changes are made to their available funding levels, due to, for example, the enactment of a final appropriation bill, which results in final allocations. To monitor VISNs use of general purpose funds, VHA uses the operating plans to compare each VISN s planned obligations with actual obligations on a monthly basis. VHA does not compare planned obligations with actual obligations for each medical center individually; instead, each of the 18 VISNs as well as the five medical centers we reviewed developed their own tools to monitor the use of funds. According to VHA officials, VHA requires each VISN to provide an explanation to VHA s Office of Finance on a monthly basis about any variances of 5 percent or more above or below the amount between planned obligations in their operating plans and actual obligations. Based on VHA documents we reviewed, all 18 VISNs provided explanations for situations in which their actual obligations were equal to, higher, or lower than 5 percent from their planned obligations in fiscal years 2018 and 2019 and in some cases, also explained the actions they were planning to take to address the variance. VISNs reported several reasons for the variances. For example, some VISNs reported that their actual obligations exceeded planned obligations in some months because contracts or equipment purchases were executed earlier than anticipated in the year. Conversely, some VISNs reported that contracting delays led to actual obligations lagging behind planned obligations reported in their operating plans. An official from the VHA Office of Finance told us that they may contact VISN leadership including the Director and Chief Financial Officer if the variations are significant and additional actions needed to be taken. VHA Office of Finance officials also told us that they may review other reports if they become aware of an issue of significant interest to VHA leadership regarding a VISN s or medical center s obligations. <3.1.2. Specific Purpose Funds> Based on our review of VHA documents and interviews with program office officials, VHA program offices use various monitoring processes developed by each program office to monitor the use of specific purpose funds. Specifically, officials from the Office of Community Care told us that they monitor the use of community care funds by comparing actual obligations to planned obligations based on authorized community care. According to VHA officials, as of February 2019, VHA was in the process of developing an updated process to monitor the use of community care funds, which starting in fiscal year 2019 were obligated at the time of claim payment rather than when care in the community was authorized. The other four VHA program offices we reviewed monitor the use of the funds they manage by generating a monthly or quarterly budget status report that compares each medical center s actual obligations against their planned obligations. For example, officials from the Office of Patient Care Services told us that to monitor the use of funds for prosthetics, they conduct monthly reviews of obligations and ask the VISNs and medical centers to explain deviations between the actual and planned expenditures and provide an action plan. <3.2. VHA Does Not Adequately Monitor the Redistribution of Funds Throughout the VA Health Care System, Which May Promote Inefficiencies> After funds are allocated and distributed to VISNs and medical centers, VHA can redistribute funds across the VA health care system in accordance with law. VHA officials told us these redistributions are done to address unfunded needs and surpluses as they are identified and occur throughout the year. However, we found that VHA does not adequately monitor redistributions. We identified the following instances in which allocated funds are redistributed: VHA officials told us that VHA s Office of Finance redistributes any surplus general purpose and specific purpose funds to medical centers based on VHA priorities and to address needs identified by VISNs. These officials said that these redistributions typically occur after the middle of the fiscal year. As of June 2019, according to VHA officials, one VISN had identified unfunded needs to VHA, but the VISN was working on addressing the funding needs using its own internal resources. Officials from another VISN told us that the VISN anticipated unfunded needs, but had not made a request to VHA for additional funds as of the end of May 2019. VISNs may also exchange funds with other VISNs. For example, if a VISN has excess medical facilities funds but a shortage of medical services funds, the VISN may exchange these funds with another VISN that has excess medical services funds but a shortage of medical facilities funds. According to VHA officials, VISNs must inform VHA about these exchanges of funds, but are not required to provide an explanation and do not require VHA approval for the exchanges. VHA officials told us that VISNs also have the flexibility to redistribute funds throughout the year from medical centers within their VISN that are experiencing a funding surplus to ones with unfunded needs. However, VISNs are not required to inform VHA about these redistributions and are not required to provide an explanation or get approval from VHA. For example, officials at one medical center told us that in recent years, its VISN redistributed an average of $15 million per year above allocated funding levels to this medical center to address unfunded needs. While the redistribution of funds throughout the year gives VHA flexibility to move funds where they are needed, VHA s Office of Finance does not adequately monitor these redistributions. Specifically, VHA s Office of Finance does not require VISNs to identify the reasons why they redistribute funds between VISNs and medical centers, and a VHA Office of Finance official told us VHA does not examine the amount of funds that are redistributed. For example, VHA s Office of Finance could not provide us the total amount of redistributions that occurred throughout fiscal year 2018. As a result, VHA s Office of Finance does not know why VISNs redistributed funds and the extent to which redistributions resulted in a deviation from VHA s workload-based allocation levels. Monitoring the redistributions would provide VHA with information on the effectiveness of the allocation models and how they might be improved. VHA s actions are inconsistent with federal internal control standards related to monitoring, which state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. Without requiring VISNs to provide this information and without requiring VHA to document the results of its review of the redistributions, VHA cannot ensure that these redistributions align with VHA s workload-based allocation of funds. As a result, VISNs and medical centers may not be efficiently operating within available funding levels, which include allocated funds, collections, reimbursements, and carry over from previous years. <4. Conclusions> VA s strategic plan calls for the efficient use of funds for delivering health care services to veterans. Accordingly, it is critical that VHA closely monitor and account for how its funds are allocated to VA medical centers and redistributed throughout the year to help ensure the most efficient use of funds. Especially as the number of veterans eligible to receive care from a community provider potentially expands, it will be important for VHA to ensure allocated funding levels accurately reflect individual medical center funding needs. However, VHA has opportunities to strengthen its processes for allocating and monitoring funds distributed across its health care system. VHA could improve how it allocates funds to its VISNs and medical centers if it were to use the most up-to-date workload data available as part of its allocation models. This would allow VHA to account for significant changes in workload from year-to-year. VHA could also improve how it monitors VISN adjustments to medical center allocation levels as well as redistributions that may occur after medical centers receive their allocations. While these adjustments and redistributions afford flexibility and may be appropriate in certain circumstances, VHA does not have the information it needs to monitor these changes to ensure that they are appropriate and consistent with department goals. Specifically, VHA does not require VISNs and medical centers to provide information on how they determined the amount and reasons for adjustments, nor does VHA require VISNs in conjunction with medical centers to develop and submit an approach to improve efficiency at medical centers with declining workload, such as adjusting the level of services offered. Additionally, VHA does not require VISNs to identify the reasons why they redistribute funds between VISNs and medical centers after allocations have been made, and VHA does not document its review of these redistributions. As a result, VHA lacks reasonable assurance that adjustments and redistributions align with its strategic goals for efficient use of funds to best serve the needs of veterans across its healthcare system. <5. Recommendations for Executive Action> We are making the following five recommendations to VHA: The VA Under Secretary of Health should use workload data from the most recently completed fiscal year as part of the models that inform VISNs and medical centers general purpose funding needs, when doing so would not significantly delay the allocation of funds. (Recommendation 1) The VA Under Secretary of Health should establish a formal process to document VHA s review of VISNs adjustments to medical center allocation levels. (Recommendation 2) The VA Under Secretary of Health should revise VHA s existing guidance to require VISNs to provide information on how they determined how much and for what reasons they made adjustments to medical center allocation levels. (Recommendation 3) The VA Under Secretary of Health should revise its existing guidance to require VISNs in conjunction with medical centers to develop and submit approaches to improve efficiency at medical centers with declining workload that received adjusted funding levels. These approaches could include adjusting the level of services offered. (Recommendation 4) The VA Under Secretary of Health should require VISNs to provide explanations on the amount of funds redistributed between VISNs and medical centers and VHA to document its review of these redistributions. (Recommendation 5) <6. Agency Comments> We provided a draft of this report to VA for review and comment. In its written comments, reprinted in appendix II, VA concurred with four recommendations and concurred in principle with one recommendation. VA also described steps that it plans to take to implement the recommendations. In addition, VA provided a technical comment, which we incorporated as appropriate. Specifically, VA concurred with the first recommendation, stating that it will re-run the VERA model to allocate funds based on prior year workload data if an enacted budget is passed after the start of the second quarter of the current fiscal year. VA also concurred with the second and third recommendations, stating that it will update guidance to establish a formal process to document the review of VISN adjustments to medical center allocation levels and will require VISNs to provide information on how they determined adjustments prior to processing the adjustments. VA concurred in principle with the fourth recommendation, stating that VHA is conducting market assessments over a multi-year period to increase access and quality of care to veterans. VA said that after completing the market assessments and reviewing information from other VHA efforts, it may consider adjusting the level of services along with other alternatives. VA also concurred with the fifth recommendation, stating it will require review of redistributions between VISNs to ensure adequate explanations are included. According to VA, the department will also run a monthly report identifying redistributions between medical centers in a VISN that exceed 1.5 percent of the VISN s funding allocation. We are sending copies of this report to the Secretary of Veterans Affairs, appropriate congressional committees, and other interested parties. This report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or silass@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Methodologies Used by Four Selected Program Offices to Allocate Specific Purpose Funds In addition to the Office of Community Care, which managed $10.5 billion, or 46 percent, of specific purpose funds in fiscal year 2019, we contacted four other Veterans Health Administration (VHA) program offices that managed the largest amounts of specific purpose funds in fiscal year 2019 these included funds for patient care services, homelessness programs, non-recurring maintenance, and medical residency programs. These four program offices managed at least $1 billion of funds and collectively managed about 36 percent of all specific purpose funds in fiscal year 2019. The four program offices developed methodologies for allocating specific purpose funds that involve coordinating with VISNs and their medical centers on the purposes for which the funds would be used and allocating available funds based on these needs. See table 1. Appendix II: Comments from the Department of Veterans Affairs Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Rashmi Agarwal (Assistant Director), Michael Zose (Analyst-in-Charge), and Carmen Rivera-Lowitt made key contributions to this report. Also contributing were Krister Friday, Cathleen Hamann, Jacquelyn Hamilton, and Ethiene Salgado- Rodriguez. Related GAO Products VA Health Care: Estimating Resources Needed to Provide Community Care. GAO-19-478. Washington, D.C.: June 12, 2019. VA s Health Care Budget: In Response to a Projected Funding Gap in Fiscal Year 2015, VA Has Made Efforts to Better Manage Future Budgets. GAO-16-584. Washington, D.C.: June 3, 2016. Veterans Health Care Budget: Improvements Made, but Additional Actions Needed to Address Problems Related to Estimates Supporting President s Request. GAO-13-715. Washington, D.C.: August 8, 2013. Veterans Health Care: Improvements Needed to Ensure That Budget Estimates Are Reliable and That Spending for Facility Maintenance Is Consistent with Priorities. GAO-13-220. Washington, D.C.: February 22, 2013. Veterans Health Care Budget: Better Labeling of Services and More Detailed Information Could Improve the Congressional Budget Justification. GAO-12-908. Washington, D.C.: September 18, 2012. Veterans Health Care Budget: Transparency and Reliability of Some Estimates Supporting President s Request Could Be Improved. GAO-12-689. Washington, D.C.: June 11, 2012. VA Health Care: Estimates of Available Budget Resources Compared with Actual Amounts. GAO-12-383R. Washington, D.C.: March 30, 2012. VA Health Care: Methodology for Estimating and Process for Tracking Savings Need Improvement. GAO-12-305. Washington, D.C.: February 27, 2012. Veterans Health Care Budget Estimate: Changes Were Made in Developing the President s Budget Request for Fiscal Years 2012 and 2013. GAO-11-622. Washington, D.C.: June 14, 2011. VA Health Care: Need for More Transparency in New Resource Allocation Process and for Written Policies on Monitoring Resources. GAO-11-426. Washington, D.C.: April 29, 2011. Veterans Health Care: VA Uses a Projection Model to Develop Most of Its Health Care Budget Estimate to Inform the President s Budget Request. GAO-11-205. Washington, D.C.: January 31, 2011. VA Health Care: Challenges in Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations. GAO-09-664T. Washington, D.C.: April 29, 2009. VA Health Care: Challenges in Budget Formulation and Execution. GAO-09-459T. Washington, D.C.: March 12, 2009. VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement. GAO-09-145. Washington, D.C.: January 23, 2009.

Why GAO Did This Study VHA operates one of the largest health care systems in the nation with an estimate of $81 billion for providing care to over 6.9 million veterans in fiscal year 2019. Recently, VHA has repeatedly requested that Congress provide supplemental funding due to higher-than-expected needs for care. GAO was asked to examine how VHA allocates funds and monitors use of these funds. This report examines (1) VHA's processes for allocating general purpose and specific purpose funds to its VISNs and medical centers and (2) the extent to which VHA monitors the use of these funds. GAO reviewed VHA's processes for allocating funds, analyzed data on allocation levels for fiscal years 2015 through 2019, and reviewed documentation on VHA's processes for allocating funds and monitoring. GAO interviewed officials from VHA; all 18 VISNs; and a non-generalizable sample of five medical centers selected based on size, facility complexity, growth in funding, and geographic variation. What GAO Found The Department of Veterans Affairs' (VA) Veterans Health Administration (VHA) has developed processes for allocating health care funds to its regional Veterans Integrated Service Networks (VISN) and medical centers. Each year, VHA allocates about two-thirds of funds for general patient care—known as general purpose funds—using two, main allocation models. The first model allocates general purpose funds to each VISN and a second model then allocates these funds to the medical centers that report to each VISN. These models are based on patient workload—that is, the number and type of veterans served and the complexity of care provided. VHA allocates its remaining one-third of funds—known as specific purpose funds—to program offices that manage various, specific programs, such as community care and prosthetics. Program offices, in turn, allocate these funds directly to medical centers using different methodologies, including a workload-based model for community care. GAO found the following weaknesses in VHA's processes for allocating funds: VHA's allocation models do not use workload data from the most recently completed fiscal year. For example, the fiscal year 2019 allocation levels determined by the models were based on data from fiscal years 2013 through 2017 but did not include data from fiscal year 2018. The models do not use more recent data because officials believed that doing so would not significantly affect allocations. By not using the most recent data available when it makes final allocations, VHA's allocations may not accurately reflect medical centers' funding needs if they experience workload changes. For example, from fiscal years 2017 through 2018, 34 medical centers had patient workload growth of over 3 percent, and 9 experienced a decline of over 3 percent, which was not reflected in the fiscal year 2019 allocations. VISNs are allowed to make adjustments to allocated funding levels determined by the models and must submit written explanations for doing so according to VHA guidance. However, VHA officials did not adequately review adjustments for fiscal year 2019 to ensure adjustments were documented. Specifically, VHA officials did not provide evidence they sought an explanation for adjustments made by two VISNs that provided no written explanation for their adjustments. Furthermore, GAO also found that VHA guidance does not require VISNs to explain how they determined adjustment amounts and why they made them. Without requiring this information, VHA cannot ensure that these adjustments lead to efficient use of funds. Once VISNs have made adjustments to allocated funding levels and funds are distributed to VISNs and medical centers, VHA uses multiple mechanisms to monitor the balance of funds. Throughout the year, VHA redistributes funds across the VA health care system to address unfunded needs and surpluses that are identified. However, GAO found that VHA does not adequately monitor the redistribution of allocated funds between VISNs and medical centers. VHA does not require VISNs to provide explanations for redistributions and does not review the amount redistributed. As a result, VHA does not know the extent to which redistributions deviate from workload-based allocations and if VISNs and medical centers are operating efficiently. What GAO Recommends GAO is making five recommendations including that VHA use workload data from the most recently completed fiscal year to allocate funds; take steps to review adjustments; revise existing guidance to require VISNs to provide information on adjustment amounts and the reasons for doing so; and require VISNs to provide explanations for redistributions of allocated funds between VISNs and medical centers and then review the amounts redistributed. VA concurred with four recommendations and concurred in principle with one recommendation.

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<1. Background> DOD has reported that more than a decade of conflict, budget uncertainty, and reductions in force structure have degraded military readiness. In response, DOD has made rebuilding the readiness of the military forces a top priority. The 2018 National Defense Strategy states that the central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition with China and Russia. Further, the strategy stresses that restoring and retaining readiness for large-scale combat is critical to success in this emerging security environment. Nevertheless, DOD reported that readiness of the total military force remains low and has remained so since 2013. In June 2017, we found that Army readiness goals and timelines for rebuilding readiness are not clear for all portions of the force, especially for the reserve component, although the Army is making progress in these areas. Across the department, DOD has made progress in developing a plan to rebuild the readiness of the military force, with the military services providing regular input on the status of their readiness recovery efforts. In August 2018, we reported that the Office of the Secretary of Defense developed a Readiness Recovery Framework that the department is using to guide the services efforts, and plans and to regularly assess, validate, and monitor readiness recovery. The Office of the Secretary of Defense and the services have recently revised readiness goals and accompanying recovery strategies, metrics, and milestones to align with the 2018 National Defense Strategy and Defense Planning Guidance. According to The Army Strategy, the Army projects that it will reach its readiness goals by 2022, at which point its priority is expected to shift to modernization. We have ongoing work assessing DOD s progress in achieving its overall readiness goals in each of five warfighting domains: ground, sea, air, space, and cyberspace. The number one stated goal of Army leadership is readiness, including recovering the readiness lost from years of sustained conflict while preparing for potential large-scale combat operations against a global competitor such as Russia or China. These efforts are occurring in a challenging context that requires DOD to make difficult decisions regarding how best to address continuing operational demands while preparing for future challenges. An important aspect of this, across all of the military services, is determining an appropriate balance between maintaining and upgrading legacy weapon systems currently in operational use, and modernizing to ensure the ability to outpace advancing competitors. Our work has shown that the Army has improved ground force readiness in recent years; however, the Army has also identified capability shortcomings in its weapon systems and platforms that have yet to be addressed through its modernization efforts. In an effort to achieve higher, more consistent levels of readiness over longer time periods, the Army is implementing a redesigned way to generate forces called the sustainable readiness concept. A key part of the concept includes determining readiness objectives by unit type, which are developed by comparing the numbers of key unit types against planned and potential warfighting demands. In addition, since 2014 the Army has invested significantly in stocks of warfighting equipment that are being stored in Europe, and has begun deploying armored formations to the continent on a continuous basis for training and exercises to enhance its readiness against potential Russian aggression. As the Army works to rebuild and sustain higher readiness of its current force, the service is moving to update its doctrine, equipment, and formations to conduct operations in a more complex warfighting environment. The Army believes that it must be able to operate not only on land against potential adversaries, but also have the capability to act against them in other domains, namely air, sea, cyber, and space. The new Army Operating Concept, published in December 2018, describes how the Army would operate in a multi-domain environment. It identifies readiness as being key to deterring aggression from potential adversaries and, should conflict occur, addresses how Army forces would operate in multiple domains to penetrate anti-access and area denial systems. To support this concept, the Army s modernization strategy aims to build the next generation of weapon systems and platforms that are more agile, lethal, resilient, and sustainable on the future battlefield. We have ongoing work reviewing the Army s efforts to develop its multi-domain operations concept and to field capabilities to support such operations. <2. The Army Has Increased Personnel and Force Structure, but Manning and Management Challenges Remain> The Army is growing slightly from a previously-planned size of 980,000 uniformed personnel to just over 1 million personnel. The Army is also adjusting its force structure to address increasing operational risks as it prepares for potential combat operations against a major adversary. However, our work shows that the Army faces challenges in filling and maintaining key skills in a number of areas, and in managing the time Army personnel spend away from their home station. <2.1. The Army Is Adding End Strength and Capacity to Its Force, Reversing a Planned Decline> In 2016, we reported that the Army was planning to reduce its end strength from a high of about 1.11 million uniformed personnel in fiscal year 2011 to an end strength of 980,000 by fiscal year 2018. The Army stated that at this level it could execute the National Defense Strategy, but at significant risk. Army leadership testified in March 2015 that if there were further end strength reductions, the Army would not be able to execute the defense strategic guidance. We reported in 2016 that the Army needed to assess the risks associated with the planned reductions and better document its force-planning process. The Army concurred with both of our recommendations, changed the way it assessed risk, and made adjustments to its force structure based on these assessments. After our 2016 report, Congress partly reversed these planned reductions by authorizing end-strength increases in fiscal years 2017 through 2019. The principal increase occurred in 2017, when Congress authorized an end strength of 1.018 million uniformed personnel, or 28,000 more than the Army had planned for that year. The Army s authorized end strength since 2011, including planned end strength in 2017 and 2018, are summarized in figure 1. Additionally, as we found since our 2016 report was published, the Army has added or plans to add capacity, including converting two infantry brigades into armored brigades and activating two new Mobile Short Range Air Defense battalions by fiscal year 2022, to better prepare the force for large-scale combat against major adversaries. Also, to support combat forces during a conflict, the Army is activating additional combat sustainment formations that are responsible for supply, distribution, and transportation. Our ongoing work has found that over the next few years the Army is building or plans to build several new cyber and electronic warfare units to operate at various levels within the force to make the Army more effective in contested environments. <2.2. The Army Faces Challenges in Meeting Authorized End Strength, Filling Key Skills Shortages and Managing Personnel Time Away from Home> According to the Chief of Staff of the Army, in a January 2019 speech, the Army has used its end strength increases to increase the manning of combat units. The goal of Army leadership is to fill operational units to 100 percent by the end of fiscal year 2019, and 105 percent by the end of fiscal year 2020. However, in preparing this statement we found that, in three of the past four years, the Army has fallen short of meeting its overall end strength authorizations. Army officials told us that these differences from the authorized end strength fall under the Secretary of Defense s authority to reduce the end strengths by a certain amount. Moreover, these officials added that in 2015 and 2016, the Army was drawing down end strength and planning further reductions. However, the Army fell short of its end strength authorization by 0.38 percent in 2017, and fell short again by 2.56 percent in 2018. The percentage differences between authorized and actual end strength for the total Army, from 2015 through 2018, are summarized in figure 2. As we prepared this statement, Army officials told us that the primary reason why it has struggled to meet its authorized end strength is because it has had difficulty meeting recruiting goals, which have negatively affected the Army s ability to expand the force. For example, Army officials told us the Army was short of its goal for 2018 by 6,500 new recruits for the regular Army. Army officials told us that the Army does not expect to be able to achieve its authorized end strength for fiscal year 2019. Looking ahead, the Army is considering revisions to its expansion plans and now expects to reach a new end strength goal by 2025. In addition to challenges in meeting authorized end strength, our past and ongoing work indicates that the Army faces challenges in filling and maintaining key skills in a number of areas, and in managing the time Army personnel spend away from their home station. Both of these challenges can negatively affect readiness. For example: Accelerated activation of Security Force Assistance Brigades led to manning challenges. In December 2018, we reported that the Army s decision to deploy the first security force assistance brigade 8 months earlier than planned posed challenges to manning the unit. The Army currently plans to activate up to six of these brigades (one in the U.S. Army National Guard) by the end of fiscal year 2019. The Army views the Security Force Assistance Brigades to be critical to restoring the readiness of its combat forces. Prior to their formation, the Army met security force assistance missions by, among other things, pulling senior leaders and other personnel with specific ranks and skills from active-duty brigades, which compromised their readiness for large-scale combat. The Army has had difficulty filling new cyber and electronic warfare units. During our ongoing work, we have found that the Army has had difficulty filling new formations with personnel to conduct operations in the cyber domain, including electronic warfare. In October 2018, the Army activated part of a Multi-Domain Task Force, which is focused on intelligence, information, cyber, electronic warfare, and space missions and is being used in major exercises in the Pacific region. However, Army headquarters officials told us that the Army activated the unit as a pilot, or a test, unit and with an accelerated timeline to learn how the new formation should be structured, equipped, and trained. Based on our ongoing work, filling the unit with personnel with the right skills has been a slow process. Near the end of January 2019 the unit was staffed at 50 percent, and the Army projects it will reach 75 percent by August 2019, according to Army headquarters officials. The officials added that many of the shortages are in senior level and cyber positions. Meanwhile, Army documentation obtained during our ongoing work shows that the service is considering options for creating more task forces for other regions. Additionally, there are plans for new cyber and electronic warfare force structure supporting Brigade Combat Teams. Army officials stated that these will be fielded in an accelerated manner as well, adding that filling these units could be challenging because cyber personnel are in high demand. Army headquarters officials said they are exploring options to address the challenges. Army depots have had difficulty filling and maintaining critical skills in their workforces. For our December 2018 report, officials told us that Army depots experienced consistent challenges in hiring critical personnel. Also, we reported that workload fluctuations usually resulted in too little workload to maintain proficiency in certain skills. For example, we reported that a hiring freeze at Corpus Christi Army Depot in 2017 caused shortages of civilian flight test pilots, who are responsible for test flights before returning aircraft to service after maintenance. The Army, however, had not assessed how effective the depots have been at hiring, training, and retaining the critical skills of their workforce. We recommended that the Army do this, as personnel challenges such as these have affected depots ability to meet mission requirements and created maintenance delays for some equipment. The Army concurred with our recommendation and stated that it would assess the effectiveness of the depots hiring, training, and retention programs to ensure Army requirements are met and critical skills are maintained. The Army has had difficulty manning ballistic missile defense units. As we reported in October 2017, the Army s Patriot and Terminal High Altitude Area Defense (THAAD) ballistic missile defense forces have been in high demand for many years. Army officials told us at the time that with reductions in end strength, the Army in 2016 stopped its practice of assigning extra personnel to these units to ensure operational requirements would be met. Army officials stated that the high aptitude standards and specialized nature of operating Patriot and THAAD systems reduced the number of eligible recruits. Officials also stated that enlistment shortfalls could have long-term effects on these forces operations and career development. Since we issued our report, Army officials told us that fewer-than-expected new recruits had advanced into Patriot and THAAD career fields in 2018, but the Army was forecasting improvements. High personnel tempos can negatively affect personnel. In 2018, we reported that the pace of operations has had a negative effect on Army readiness, including Brigade Combat Teams and Combat Aviation Brigades. We also reported that managing personnel tempo the amount of time that individual service members spend away from home on official duties had been a persistent challenge for the Army. In 2015, the Army issued a regulation identifying a personnel tempo threshold for its service members, but officials told us that the threshold is not enforced and stated the regulation was published only to emphasize that personnel tempo data was a priority. We found that personnel tempo data collected by DOD was incomplete. However, we estimated from the data that at least 41 percent of Army service members who were away from their home station in fiscal year 2016 were away for more than 7 months. Because time away from home can stress the force, we recommended that DOD or the Army take steps to clarify and follow personnel tempo guidance on thresholds, and also take steps to emphasize the collection of complete and reliable personnel tempo data to allow monitoring. DOD concurred with both recommendations. <3. The Army Is Developing New Warfighting Concepts and Modernizing Equipment, but Faces Challenges in Maintenance Timeliness and Managing Modernization Efforts> <3.1. The Army Is Developing Concepts for Future Warfare and Modernizing Its Equipment to Support Future Readiness> The Army is in the process of updating and developing new concepts and equipment to deal with a future environment that will be increasingly lethal, competitive, complex, and dynamic. The Army anticipates that it will have to contend with a resurgent Russia and a rising China, as well as regional challenges from North Korea and Iran. According to the Army, these adversaries have improved their military capabilities, in particular their ability to prevent U.S. forces from massing close to the potential battlefield, thereby eroding advantages that the Army has enjoyed for decades. Once deployed, the Army stated it expects that its forces will be constantly under surveillance and potentially under attack. To counter the adversaries threats, the Army is focusing on updating warfighting concepts and modernizing the force. In December 2018, the Army published a new Army Operating Concept that is specifically designed to deter and defeat China and Russia, and addresses large- scale ground combat. The concept emphasizes that the Army must demonstrate its readiness to conduct multi-domain operations such as ground, air, and cyber as a key part of deterring adversaries from escalation. To support its readiness for future missions in this complex environment, the Army has begun to update or upgrade multiple weapon systems. In April 2018, the Army published its Army Modernization Strategy, which identified six priorities that are key to operationalizing multi-domain operations, including long-range precision fires and next generation combat vehicles, as shown in table 1. All six of these priorities involve modernizing equipment and/or acquiring new equipment with improved capabilities. The Army has identified the need to make changes to how it develops and acquires new weapons systems. To that end, the Army established the Army Futures Command to provide unity of command, accountability, and modernization at the speed and scale required to prevail in future conflicts. <3.2. The Army Faces Equipping Challenges Due to Maintenance and Modernization Management Issues> Our prior work has found that the Army has faced challenges with managing maintenance efforts and developing requirements for future weapon systems. Some of the challenges include the following: The Army lacks an implementation plan to guide its retrograde and reset activities, which could lead to inconsistent reset efforts. As we reported in May 2016, officials from different Army entities disagreed about which documents constituted their guidance for implementing retrograde and reset, suggesting that there was confusion about the Army s strategies for these activities. We recommended that the Army develop an implementation plan for its retrograde and reset efforts. In August 2018, however, we reported that the Army did not have plans to act on this recommendation. According to one official, this was because guidance and plans are adjusted based on the unique circumstances of each situation. Given the Army s drawdown of equipment used during operations in Iraq and Afghanistan is coming to a close, we continue to believe that an implementation plan for retrograde and reset of equipment used during any future operations would help ensure that the Army more consistently and effectively budgets for and distributes resources. The Army has not comprehensively assessed the causes of reset maintenance delays for Patriot equipment, which can limit unit training time. In June 2018, we reported that of seven Patriot battalions undergoing reset in fiscal years 2014 through 2017, only one received all of its equipment back from depot maintenance within the Army s policy of 180 days, as shown in figure 3. Since delays in returning equipment to units can reduce units training time, we recommended that the Army analyze the various factors affecting reset delays such as equipment arriving late to the depot, supply chain delays, and worker errors to identify their relative importance and inform corrective actions. The Army concurred with our recommendation, stating that it will identify and address factors that may affect reset timeliness. The Army s near-term modernization efforts face management challenges. In September 2018, we reported that the Army had not established processes for evaluating its modernization efforts against its overarching objective of outpacing rapidly advancing competitors, such as Russia or China. Also, we found that the Army had not fully estimated the costs of its near-term modernization efforts. Further, we found that the Army s April 2018 modernization strategy report set near-term goals for closing critical capability gaps and a longer term, overarching objective of being able to decisively defeat major adversaries. The strategy also identified the cost of key modernization investments through fiscal year 2023, but did not discuss tens of billions in already-programmed modernization-related investments, or describe how the funding would support upgrades for existing weapon systems. Moreover, the strategy did not disclose the extent to which the Army had relied on Overseas Contingency Operations (OCO) appropriations for upgrading weapon systems. Army officials told us at the time that the Army had been preparing to analyze its efforts to address specific warfighting capability gaps, but had not decided on an overall evaluation approach. Additionally, officials told us that the Army planned to reflect its analysis of near-term modernization investments in the fiscal year 2020 budget submission. We recommended that the Army (1) develop a plan to finalize the processes for evaluating how its near-term investments contribute to the Army s ability to decisively defeat a major adversary, and (2) finalize its cost analysis of near-term investments and report those costs to Congress. The Army concurred with our recommendations. The Army has been unable to ensure that requirements for new warfighting capabilities are feasible. In June 2017, we reported that the Army had prioritized combat readiness and rebuilding force structure over resourcing its requirements development process to meet future readiness needs. We reported that even though the Army made some improvements in this area, officials were unable to ensure requirements for major defense acquisition programs were well-informed and feasible because of workforce constraints. For example, we found that the Army s requirements development workforce declined by 22 percent from 2008 to 2017, with some requirements development centers reporting more significant reductions. In that report, we recommended that the Army assess the resources necessary for the requirements development process and determine whether shortfalls can be addressed given other funding priorities. The Army concurred with our recommendation. In 2018, Army officials told us that the Army plans to implement this recommendation once Army Futures Command is fully operational and key Army development entities are reorganized under its command. The Army has not fully applied leading practices for technology development in its modernization efforts. We reported in January 2019 that while the Army has generally applied leading practices identified by GAO to its modernization efforts, it may be beginning weapon systems development at a lower level of maturity than what leading practices recommend. As we concluded in that report, establishing Army Futures Command creates unique opportunities for the Army to improve its modernization efforts. However, proceeding into weapon systems development before technology is sufficiently mature raises the risk that the resulting systems could experience cost increases, delivery delays, or failure to deliver desired capabilities. The Army concurred with our four recommendations to apply leading practices and lessons learned as it moves forward with its modernization efforts. In its response to our January 2019 report, the Army stated that it would conduct operational technology demonstrations and was exploring a train-the-trainer program, among other actions. <4. The Army Has Made Progress Implementing Its Training Priorities and Addressing Past Issues, but Faces Some Implementation Challenges> Our prior work has shown that the Army has made progress in preparing the force for large-scale combat operations by increasing training exercises and reducing mandatory training requirements. It also has addressed past issues we reported on, including making better use of virtual training devices and accounting for the training needs of supporting units in its Pacific Pathways exercises. Moreover, our prior and ongoing work has shown that the Army faces implementation challenges in training new units that the Army plans to field on shortened schedules. <4.1. The Army Has Made Progress Implementing Its Training Priorities and Addressing Past Challenges> Army units are receiving more frequent training for large-scale combat. Our prior work has shown that the Army has made progress in preparing the force for large-scale combat by increasing training exercises. After a decade of focusing its training on counterinsurgency operations, the Army assessed that opportunities to train thousands of company commanders, field-grade officers, and battalion commanders on tasks related to large-scale combat were lost. However, in August 2016, we reported that the Army increased the number of brigades that had completed a decisive-action exercise from one brigade combat team in fiscal year 2011 to 14 brigade combat teams in fiscal year 2015, while at the same time decreasing training for counterinsurgency. We noted in a September 2016 report that a key part of the Army s plan to rebuild readiness was to ensure that soldiers have repeated training experience on their core competencies. Since we completed our work, the Army is funding up to 26 brigade combat teams to go through a decisive-action training event at its combat training centers in fiscal year 2019. Mandatory training and directed tasks have been reduced. In August 2016, we also reported that the Army had determined that mandatory training requirements and directed tasks were too numerous and were creating challenges for commanders in balancing their units training time with these other requirements. Additionally, we identified steps the Army had taken to make these requirements less burdensome. We reported, for example, that the Army had delegated authority to two-star commanders to exempt units, as needed, from certain mandatory training. We reported that the Army had begun to lock in a unit s planned training six weeks in advance, in an effort to protect units from external tasks that could affect training schedules of brigades and their subordinate units. The early setting of training schedules was intended to prevent an external task from interfering with that training. We did not make any recommendations related to reducing mandatory training; however; since we completed our work, the Secretary of the Army has directed the elimination of numerous individual training requirements, such as eliminating certain requirements to train in avoiding accidents, and other administrative tasks, such as maintaining a physical reference library of corrosion prevention and control publications. The Army is making better use of virtual devices to train and prepare units. In the same 2016 report, we identified a number of challenges the Army faced in using virtual training devices to help units prepare for major conflict. Using such devices is important because of the challenges of training for combat in a live environment, such as limited range availability and resource constraints. We reported that the Army had taken some steps to improve the integration of virtual training devices into its operational training. However, our work identified several factors that limited the Army s ability to conduct training with virtual training devices, including outdated virtual training policies, a lack of guidance for analyzing the effectiveness of virtual training devices, and the need to better integrate devices in training strategies. As of January 2019, the Army has implemented two of the three recommendations we made in our report. Specifically, the Army published a training analysis best- practices guide, analyzed virtual training devices effectiveness, and analyzed regular Army formations readiness training models, among other steps to implement these recommendations. Additionally, the Army further plans to modify its policy on virtual training devices in 2021, which would require that training developers consider the amount of time available to train with or expected usage rates of new virtual training devices. Further, in preparing this statement, Army officials told us that the Army has used acquisition authorities provided by Congress to prototype new technologies to replace existing simulators. It is investing in these prototypes based on the usage rates of the older training equipment, and at the same time involving operational forces in the prototyping for their feedback and to help inform requirements. The Army is taking some steps to improve its Pacific Pathways initiative. In November 2016, we reported on an initiative, known as Pacific Pathways, intended to strengthen relationships with allies and build readiness by combining certain exercises with partner nations. The Army began the Pacific Pathways initiative which deploys a battalion-size task force to the Asia-Pacific region to conduct multiple exercises over 90 days as a way of building the readiness of its participating units. We found that the size and complexity of the operations under Pacific Pathways created potentially unique training opportunities for supporting units such as transportation units to exercise the capabilities they would be required to provide in a contingency. However, we found that the Army could improve its approach by fully synchronizing Army plans, stakeholders, and objectives into the exercises. The Army has implemented two of the recommendations that we made in our report to modify processes and guidance so that stakeholders are integrated into the planning, and also to seek and incorporate the training objectives of supporting units. U.S. Army Pacific officials have stated that they do not plan to implement the recommendation to perform a cost-benefit analysis of Pacific Pathways because it is not required. <4.2. The Army Faces Challenges with Training Pilots for Unmanned Aerial Systems (UAS), and Personnel for New Cyber Units> Our prior and ongoing work has identified some challenges that the Army faces in training personnel in particular specialties, especially as it stands up new units on shortened schedules. These include: A lack of training facilities and airspace creates challenges for UAS pilot training and further steps could be taken to enhance pilot candidate selection. In January 2017, we reported that the Army s UAS pilot training strategy did not account for some challenges the Army faced, such as a lack of adequate training facilities and limited available airspace. The Army used flexibilities to overcome some of these challenges, but at the time of our report it was too early to tell whether these flexibilities would be enough to overcome training shortfalls. In addition, we found that the way the Army assessed whether service members were good candidates for UAS pilot training could have been improved. For example, we reported that the Army used only 3 of the 78 identified competencies that an Army-Air Force research team identified as moderately, highly, or extremely important for UAS pilots. We made recommendations on these issues, and DOD partially concurred, stating that although the actions we recommended were prudent or already an integral part of workforce management, additional Army guidance would be unnecessary. Fielding and deploying new types of units can pose challenges to training. The accelerated pace at which the Army is creating new units can pose challenges to training and readiness. As previously discussed, the Army is activating new units to sustain readiness and to operate in a more complex environment. However, the Army s approach can pose training challenges, and negatively affect readiness. Also, our ongoing work indicates that the Army is fielding new cyber units at an accelerated pace, resulting in the units not having either fully trained personnel or the equipment to conduct training, according to Army officials. For example, the Army is planning to add uniformed personnel who specialize in cyber operations to its combat units and as part of newly established Multi- Domain Task Forces, but there is not yet a clear understanding of the tasks they will have to perform or an updated training strategy to support them, according to Army officials. Army officials stated that this will affect the readiness of the units to perform their missions, but they are taking steps to clarify and update these issues. - - - - - In sum, while the Army has made progress in rebuilding readiness, it continues to face challenges meeting its goals. Moreover, the Army will need to balance the readiness of its existing force with plans to grow and modernize. We have made 44 recommendations that the Army has generally concurred with; the Army has implemented 7 of them, and taken actions to begin implementing many others. These recommendations provide a partial roadmap to address important readiness challenges, and implementing our recommendations to improve the management of personnel, equipment maintenance, and training would help the Army meet current threats and assist it as it refocuses on readiness for large- scale combat operations. In addition, sustained management attention and continued congressional oversight will be needed to ensure that the Army demonstrates progress in addressing its personnel, equipment, and training challenges. Chairman Sullivan, Ranking Member Kaine, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. <5. GAO Contact and Staff Acknowledgments> If you or your staff have questions about this testimony, please contact John H. Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or pendletonj@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Kevin O Neill (Assistant Director), Matthew Spiers (Analyst In Charge), Steven Bagley, Rebecca Beale, Cynthia Grant, Kris Keener, Alberto Leff, Amie Lesser, Jon R. Ludwigson, Shahrzad Nikoo, Marcus Oliver, Richard Powelson, James A. Reynolds, Cary Russell, Michael Silver, Matthew Ullengren, Nicole Volchko, Erik Wilkins-McKee, Matthew Young, and Delia Zee. Appendix I: Implementation Status of Prior GAO Recommendations Related to Army Readiness Over the past 4 years, we issued several reports related to Army readiness that are cited in this statement. Table 2 summarizes the status of key GAO recommendations related to Army and DOD components in coordination with the Army since 2016, which include a total of 44 recommendations. The Department of Defense has implemented 7 of these recommendations to date. For each of the reports, the specific recommendations and their implementation status are summarized in tables 3 through 19. Related Prior GAO Work Army Modernization: Steps Needed to Ensure Army Futures Command Fully Applies Leading Practices, GAO-19-132. Washington, D.C.: January 23, 2019. DOD Depot Workforce: Services Need to Assess the Effectiveness of Their Initiative to Maintain Critical Skills [Reissued with revisions on December 26, 2018.], GAO-19-51. Washington, D.C.: December 14, 2018. Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation Readiness Will Require Time and Sustained Management Attention, GAO-19-225T. Washington, D.C.: December 12, 2018. Air Force Readiness: Actions Needed to Rebuild Readiness and Prepare for the Future, GAO-19-120T. Washington, D.C.: October 10, 2018. Army Modernization: Actions Needed to Measure Progress and to Fully Identify Near-Term Costs, GAO-18-604SU. Washington, D.C.: September 28, 2018. Military Readiness: Analysis of Maintenance Delays Needed to Improve Availability of Patriot Equipment for Training, GAO-18-447. Washington, D.C.: June 20, 2018. Military Readiness: Clear Policy and Reliable Data Would Help DOD Better Manage Service Members Time Away from Home, GAO-18-253. Washington, D.C.: April 25, 2018. European Reassurance Initiative: DOD Needs to Prioritize Posture Initiatives and Plan for and Report their Future Cost, GAO-18-128. Washington, D.C.: December 8, 2017. Military Readiness: Personnel Shortfalls and Persistent Operational Demands Strain Army Missile Defense Units and Personnel, GAO-18-168SU. Washington, D.C.: October 5, 2017. Army Weapon Systems Requirements: Need to Address Workforce Shortfalls to Make Necessary Improvements, GAO-17-568. Washington, D.C.: June 22, 2017. Supply Chain Management: DOD Could More Efficiently Use Its Distribution Centers, GAO-17-449. Washington, D.C.: June 21, 2017. Army Readiness: Progress Made Implementing New Concept, but Actions Needed to Improve Results, GAO-17-458SU. Washington, D.C.: June 8, 2017. Unmanned Aerial Systems: Air Force and Army Should Improve Strategic Human Capital Planning for Pilot Workforces, GAO-17-53. Washington, D.C.: January 31, 2017. Comprehensive Assessment and Planning Needed to Capture Benefits Relative to Costs and Enhance Value for Participating Units [Reissued on November 30, 2016], GAO-17-126. Washington, D.C.: November 14, 2016. Military Readiness: DOD s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan, GAO-16-841. Washington, D.C.: September 7, 2016. Patriot Modernization: Oversight Mechanism Needed to Track Progress and Provide Accountability, GAO-16-488. Washington, D.C.: August 25, 2016. Army Training: Efforts to Adjust Training Requirements Should Consider the Use of Virtual Training Devices, GAO-16-636. Washington, D.C.: August 16, 2016. Military Readiness: DOD Needs to Incorporate Elements of a Strategic Management Planning Framework into Retrograde and Reset Guidance, GAO-16-414. Washington, D.C.: May 13, 2016. Army Planning: Comprehensive Risk Assessment Needed for Planned Changes to the Army s Force Structure, GAO-16-327. Washington, D.C.: April 13, 2016. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study The 2018 National Defense Strategy emphasizes that restoring and retaining readiness across the entire spectrum of conflict is critical to success in the emerging security environment. The top priority for Army leadership is readiness. The Army has undertaken a variety of efforts since 2016 to prepare for potential large-scale combat operations against major adversaries. This statement provides information on the Army's progress and challenges in readiness rebuilding in the areas of (1) force structure and personnel, (2) equipment repair and modernization, and (3) training for potential large-scale conflict. Also, GAO summarizes recommendations to address these challenges and actions taken by the Army to address them. This statement is based on previously published GAO work since 2016. This prior work related to, among other things, Army readiness, skills shortages, equipment maintenance and modernization, acquisition, training, force structure. GAO also updated information and incorporated preliminary observations from ongoing work related to warfighting concepts. What GAO Found In GAO's prior and ongoing work, GAO found that the Army has made progress in rebuilding readiness and projects that it will reach its readiness goals by 2022. While the Army continues to make progress, it faces challenges in staffing its evolving force structure, repairing and modernizing its equipment, and training its forces for potential large-scale conflicts (see table). Looking to the future, the Army plans to grow its forces, provide them with modernized equipment, and train units to conduct large-scale, decisive-action operations. All of these efforts are underway as the Army contemplates the implications of future warfare—which it reports is likely to require operations in multiple domains, especially cyber. As a result, it is important for the Army to balance its efforts to rebuild and sustain the operational readiness of its existing force with its preparations for future threats. What GAO Recommends GAO has made 44 recommendations in prior unclassified work described in this statement. DOD and the Army have generally concurred with them, have implemented seven, and have actions underway to address others. Continued attention to these recommendations can assist and guide the Army moving forward as it seeks to rebuild the readiness of its force and transforms for the future.

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<1. Background> <1.1. Overview of Medicaid Expenditures and Oversight> Medicaid expenditures are financed jointly by the federal government and the states. In order to receive federal matching funds for Medicaid expenditures, states must adhere to a broad set of federal requirements and administer their programs consistent with individual state plans approved by CMS. These plans are agreements between a state and the federal government that describe how states will administer their Medicaid programs, including how the state will administer Medicaid third- party liability procedures. When states make changes to their Medicaid programs or policies, including when necessary to comply with a change in federal law, they must submit a state plan amendment to CMS. CMS reviews and approves state Medicaid plans and state plan amendments. The federal government matches each state s Medicaid expenditures for services according to a statutory formula called the Federal Medical Assistance Percentage. This formula provides for a match that is no lower than 50 percent of a state s Medicaid expenditures and no higher than 83 percent. States can receive a 90 percent federal match for the costs associated with the development of each state s Medicaid Management Information System (MMIS), a claims processing and retrieval system supporting the administration of the state s Medicaid program. States also receive a 75 percent match for the costs associated with ongoing MMIS maintenance and operations. States use their MMIS systems to process provider claims, including claims for prenatal care services, pediatric preventive services, and services provided to CSE beneficiaries. The Medicaid program is administered at the state level and overseen at the federal level by CMS, which, among other things, ensures that funds are used appropriately and beneficiaries have access to covered services. Medicaid allows significant flexibility for states to design and implement their programs. Within broad federal parameters, states have discretion in, among other things, setting Medicaid eligibility standards and provider payment rates; determining the amount, scope, and duration of covered benefits; and developing their own administrative structures. States may also decide how Medicaid-covered services provided to beneficiaries will be delivered. For example, states may pay health care providers for each service they provide fee-for-service or contract with MCOs to provide a specific set of Medicaid-covered services to beneficiaries and pay them a set amount per beneficiary, typically per month. While most states use both delivery systems, the percentage of beneficiaries served through MCOs has grown in recent years, and represented nearly 70 percent of all Medicaid beneficiaries in 2016. <1.2. Federal Third-Party Liability Requirements> Medicaid beneficiaries across various eligibility categories may have access to private health insurance or other sources of third-party coverage. For example, some adult beneficiaries may be covered by employer-sponsored private health insurance even though they also qualify for Medicaid. Children, similarly, may be eligible for Medicaid, while also being covered as a dependent on a parent s private health plan. As such, federal law requires states to perform various activities to ensure that Medicaid is the payer of last resort, including taking all reasonable measures to identify Medicaid beneficiaries other potential sources of health coverage and their legal liability. Specifically, states must ensure that the following steps, among others, are taken. 1. Coverage identification. To identify beneficiaries with third-party health coverage, states are required to request coverage information from potential Medicaid beneficiaries at the time the agency makes any determination or redetermination of eligibility. States are also required to obtain and use information pertaining to third-party liability, for example, by conducting data matches with state wage information agencies, Social Security Administration wage and earning files, state motor vehicle accident report files, or state workers compensation files. 2. Coverage verification. When other health coverage is identified, states often verify the information, including the services covered through the other insurance and the dates of eligibility. 3. Cost avoidance payment procedures. As a general rule, federal law requires states to apply cost avoidance payment procedures to claims for most Medicaid items and services. Under cost avoidance procedures, the state must reject claims for which a third party is or is probably liable, and the agency instructs the provider to collect from the third party. Once the provider determines the amount of the third party s liability, the provider submits a claim to the state Medicaid agency for any remaining balance, up to the maximum amount allowed under the state s payment schedule. States are then required to make timely payment to the provider, generally within 30 days from the date the claim for the balance is filed. 4. Pay-and-chase payment procedures. The Consolidated Omnibus Budget Reconciliation Act of 1985 made an exception to cost avoidance procedures for three types of services: prenatal care services, pediatric preventive services, and services provided to CSE beneficiaries. It required states to pay such claims without regard to the liability of the third party, a procedure CMS calls pay and chase. Under the pay-and-chase payment procedure, the state Medicaid agency is generally required to make a timely payment to the provider within 30 days, and then the state, instead of the provider, will seek to recover payment from any potentially liable third parties within 60 days. According to CMS, cost avoidance does not apply to these claims because there is a risk some providers might not participate in Medicaid to avoid dealing with the administrative burden of cost avoidance. (See fig. 1.) The Bipartisan Budget Act of 2018 amended various sections of the Medicaid third-party liability statute, including the required processes states must follow when paying claims with probable third-party liability for the following three types of services: Prenatal care services. The Bipartisan Budget Act of 2018 eliminated, effective February 2018, the statutory exception for prenatal care services that had required states to apply pay-and- chase procedures to such claims. Thus, under the amended statute, states must apply cost avoidance procedures to claims for prenatal care services when it is apparent that a third party is or may be liable at the time the claim is filed. Additionally, to the extent states had opted under CMS regulations to apply pay-and-chase procedures to claims for labor, delivery, or postpartum care services which CMS calls pregnancy-related services states must now apply cost avoidance procedures to those as well. Pediatric preventive services. Beginning in October 2019, under federal law as amended by the Bipartisan Budget Act of 2018, states are no longer required to pay claims for pediatric preventive services immediately. While states will still have the option to apply pay-and- chase procedures to these claims, a state may instead choose if it determines doing so is cost-effective and will not adversely affect access to care to require the provider to first submit the claim to the third party and wait 90 days for payment by the third party before seeking Medicaid payment. For purposes of this report, we refer to such a 90-day period as a wait-and-see period. Services provided to CSE beneficiaries. Beginning in October 2019, states must make payment for a CSE beneficiary s claim if the third party has not paid the provider s claim within a 100-day wait-and- see period. However, the state may instead choose if the state determines doing so is cost-effective and necessary to ensure access to care to make payment within 30 days. (See table 1.) Once the third-party liability changes in the Bipartisan Budget Act of 2018 are fully implemented, states will have authority to require providers to wait longer to receive Medicaid payments in certain circumstances. For example, Prenatal care services claims, which were previously paid within 30 days under pay-and-chase procedures, are now subject to cost avoidance. This could potentially result in providers waiting indefinitely to receive payment, depending on whether the provider is able to resolve the third-party liability (i.e., submit a claim for payment to the third party and determine the amount of the third-party liability), which must occur before the state may make payment under cost avoidance. Pediatric preventive services claims, which are generally paid within 30 days under pay-and-chase procedures, could be subject to a 90-day wait-and-see period beginning in October 2019 if a state decides to implement one. This could result in providers waiting 120 days to receive payment (90 days to wait and see if the liable third party pays, and then another 30 days for the state to make timely payment on any remaining balance). Claims for services for CSE beneficiaries, which are currently subject to pay-and-chase procedures or a 30-day wait-and-see period at state option, may be subject to either a 30-day or 100-day wait-and- see period beginning in October 2019, depending on which option the state chooses. This could result in providers waiting 130 days to receive payment (up to 100 days to wait and see if the liable third party pays, and then another 30 days for the state to make timely payment on any remaining balance). <2. Some Selected States Have Implemented Third- Party Liability Changes for Prenatal Care Services; Most of the States Were in the Early Stages of Planning for Other Changes> Officials from four of the nine selected states we reviewed reported having implemented the required third-party liability changes for prenatal care services. The changes were required to be implemented in February 2018. For the third-party liability changes affecting pediatric preventive services and services provided to CSE beneficiaries, which are due to take effect October 2019, Medicaid officials from six of the nine selected states noted that they were in the very early stages of planning how they might implement the changes. <2.1. Four of Nine Selected States Have Implemented Required Third-Party Liability Changes for Prenatal Care Services> Officials from four of the nine selected states we reviewed stated that their state Medicaid agency had implemented the mandated third-party liability changes for prenatal care services, which required states to implement cost avoidance payment procedures for claims for these services beginning in February 2018. Officials from three of the four states that have implemented the third-party liability changes for prenatal care services told us that changing from pay-and-chase to cost avoidance procedures involved identifying all the applicable service codes for prenatal care and making the necessary changes in their systems to ensure that any new claims were subject to cost avoidance procedures. They said it also involved communicating the need for such changes to the MCOs in their state. State Medicaid officials from the remaining five states generally noted that they were discussing the changes internally, researching how to implement the changes in their MMIS, assessing the likely impact of these changes on MMIS, or waiting for additional guidance from CMS. For example: Officials from several states noted that they were undertaking activities, such as identifying the prenatal care codes in their data systems that would need to be switched to cost avoidance payment procedures, or researching the best way to implement these changes. Officials from one state said they were in the process of assessing what the likely impact of these changes on beneficiaries and providers would be, and would only subject claims for prenatal care services to cost avoidance if they determined that doing so was the best course of action. Officials from one state indicated that they were waiting to determine whether it was more cost effective to implement these changes in their legacy MMIS, or wait and implement the changes in the new MMIS they are planning to roll out in the future. State Medicaid officials also described other efforts that they would need to undertake as they implemented these changes to third-party liability. These included staff retraining and communicating the changes to providers in their states. Beyond state Medicaid programs, officials from the five Medicaid MCOs we interviewed all stated that their organizations had not yet implemented the prenatal care third-party liability changes. The MCO officials stated that they were waiting for additional instructions on how to implement the third-party liability changes or for revised contract language from their state Medicaid agencies. Officials from one of the MCOs noted they were not aware of the third-party liability changes until we reached out to them for an interview. Officials from two MCOs we interviewed generally agreed that the third-party liability changes for prenatal care services would require changes to claims processing systems and internal processes, but would not be significant. Several MCO officials noted that these changes would likely result in some cost-savings to MCOs in the future. <2.2. Most Selected States Were in Early Stages of Planning Implementation of Third-Party Liability Payment Changes for Pediatric Preventive Services and Services to CSE Beneficiaries> Medicaid officials from six of the nine selected states noted that they were in the very early stages of planning whether or how they would implement the wait-and-see periods for pediatric preventive services and services to CSE beneficiaries. For example, some Medicaid officials from these six states described how they were assessing what changes would need to be made to their MMIS, deciding whether to implement the wait-and-see periods, or exploring how to assess the potential impact of these changes. Some Medicaid officials also expressed uncertainty regarding how such changes would affect Medicaid beneficiaries or the amount of effort required by their agency to implement the third-party liability changes. Officials from one state noted that they had begun discussions about implementing the third-party liability changes for both pediatric preventive services and services for CSE beneficiaries in June 2018, and were in the process of identifying the necessary system changes needed to implement third-party liability changes by the October 2019 effective date. Officials from two of these states stated that they do not believe their state will implement the wait-and-see periods for pediatric preventive services or CSE beneficiaries when the changes go into effect. Officials from the remaining three states noted at the time of our interviews they had not yet developed plans for assessing implementation of these changes. Table 2 summarizes the status of selected states implementation of the third-party liability changes. For pediatric preventive services, state Medicaid officials generally noted that the third-party liability changes would involve identifying the relevant codes and making changes to their MMIS to ensure those claims were subject to a wait-and-see period, if implemented. Several state Medicaid officials characterized this effort as significant or difficult. For services delivered to CSE beneficiaries, officials from several state Medicaid agencies speculated that making the third-party liability changes to their MMIS would necessitate having some sort of indicator in their system to identify which claims were for the CSE beneficiaries and, therefore, should be subject to a wait-and-see period, if implemented. Some state Medicaid agency officials said that this would require obtaining the information from another state agency responsible for administering CSE agreements. Several of the state Medicaid officials we interviewed expressed concerns regarding how to implement the wait-and-see periods for pediatric preventive services and services for CSE beneficiaries. Specifically, these officials noted that within their MMIS it is not possible to capture on a Medicaid claim when a provider has billed a third party, waited a specified amount of time, and not received payment. As a result, officials from one state noted that additional guidance from CMS on how to implement and track provider billing of third parties including wait-and-see periods and providers collection of payment would be necessary before moving forward with implementing the third-party liability changes. Officials from two states said that the administrative burden associated with these changes would possibly make them not cost-effective to implement. However, MCO officials we interviewed generally acknowledged that while these changes would require changes to their claims processing systems and internal processes, they were not significant and could potentially result in some cost-savings to their MCO in the future. The third-party liability change affecting all Medicaid services provided to CSE beneficiaries was a particular concern for officials from three state Medicaid agencies and three MCOs. Specifically, these officials said there is currently no way to identify CSE beneficiaries in their MMIS or claims processing systems, which could potentially make this change difficult, if not impossible, to implement. Officials from one state described how setting up a system to receive this information would involve a significant effort, potentially necessitating new hardware and system modifications, as well as a data sharing agreement with the state entity maintaining the CSE information. Officials from one MCO noted that the third-party liability changes affecting CSE beneficiaries was a particular concern, because those changes would potentially require additional administrative work and changes to their processes in order for providers in their network to track down insurance information from a non-custodial parent. <3. CMS Has Issued Implementing Guidance with Information Inconsistent with Federal Law and Has Not Overseen States Implementation of Third-Party Liability Changes> <3.1. CMS s Implementing Guidance Contains Information Inconsistent with Provisions of Federal Law Related to Medicaid Third-Party Liability> After enactment of the Bipartisan Budget Act of 2018 in February 2018, CMS issued guidance in the form of an informational bulletin to states on June 1, 2018, to facilitate states implementation of the key provisions of the Bipartisan Budget Act of 2018 related to third-party liability in Medicaid. However, CMS s June informational bulletin is missing some key information and contains information that is inconsistent with the federal law. This is inconsistent with CMS s responsibility for ensuring states compliance with federal requirements. In particular, Pregnancy-related claims. Under federal law, states must apply standard cost avoidance procedures to all non-pediatric claims, including claims for prenatal services beginning in February 2018. However, CMS guidance indicates that a state need not apply cost avoidance procedures to claims for labor and delivery services if those claims can be differentiated from prenatal services. The guidance also provides that, effective October 1, 2019, states will have 90 days to pay claims related to labor, delivery, and postpartum care claims. As a result, CMS s guidance is inconsistent with federal law, which requires states to reject any such claim under cost avoidance procedures until the third-party liability is resolved, regardless of how many days that might take. Pediatric preventive claims. Under federal law, states must generally apply pay-and-chase procedures to pediatric preventive services. However, beginning in October 2019, states are permitted to implement a 90-day wait-and-see period before making payment for these services if the state determines that it would be cost-effective and would not adversely affect access to care to do so. However, CMS guidance simply provides that states will have 90 days to pay such claims, suggesting that states need not make the cost- effectiveness or access determinations required by statute. CSE beneficiary claims. Under federal law, beginning in October 2019, for claims for services to CSE beneficiaries, states may choose to make payment within 30 days (as opposed to implementing a 100- day wait-and-see period), if the state determines doing so is cost- effective and necessary to ensure access to care. If the state does not make such a determination, the statute would require the state to avoid making payment for such services for up to 100 days to allow third parties to make payment first. However, CMS guidance does not identify this as an option for states. Instead, CMS guidance simply provides states with the option of implementing the wait-and-see period, omitting the option for states to make payment within 30 days. CMS officials told us that the Bipartisan Budget Act of 2018 did not change state responsibilities related to cost-effectiveness and access to care, and CMS does not intend to issue additional guidance on this issue. However, prior to enactment of the Bipartisan Budget Act of 2018 in February 2018, federal third-party liability law did not authorize states to apply cost avoidance procedures to preventive pediatric claims or pediatric services provided to CSE beneficiaries. Furthermore, other CMS guidance documents, such as the third-party liability handbook and CMS regulations on third-party liability, are out of date and not a reliable source of information for states to use in implementing the new federal third-party liability requirements. In particular, the third-party liability handbook was last revised in 2016 and does not reflect the Bipartisan Budget Act of 2018 changes. Additionally, CMS regulations implementing federal requirements for state payment of claims for prenatal care, labor and delivery services, postpartum care, preventive pediatric services, and services to CSE beneficiaries were last amended in 1997 and, accordingly, do not reflect current statutory requirements, including the Bipartisan Budget Act of 2018 requirement to cost avoid prenatal and other non-pediatric claims beginning February 2018. CMS officials told us the agency is in the process of updating its third- party liability handbook and anticipates issuing the updated document in September 2019. Agency officials also told us they plan to revise the agency s regulations regarding pay-and-chase and release the revised regulations in early 2020. However, federal law requires state Medicaid plans to provide for proper third-party liability procedures, which states often carry out through references to federal regulation, according to CMS officials. Without updated third-party liability guidance that is timely, complete, and consistent with federal law, states may lack the necessary information to update their state Medicaid plans so that they comply with these requirements. <3.2. CMS Has Not Overseen States Implementation of Third-Party Liability Changes> CMS has not taken steps to determine the extent to which state Medicaid agencies are meeting the third-party liability requirements, and therefore CMS officials were unaware of whether states were meeting the new requirements. In particular, CMS officials did not know the extent to which the selected states in our review had implemented the required third-party liability changes. In our interviews with nine selected state Medicaid agencies conducted between November 2018 and March 2019, we learned that five states continued to apply pay-and-chase procedures to prenatal care claims, despite the federal requirement to implement cost avoidance since February 2018. During our interviews, we also learned that CMS had not monitored state Medicaid agencies third-party liability approaches prior to the Bipartisan Budget Act of 2018. For example, officials from one of the selected states told us that they had been using cost avoidance for most claims for pediatric preventive care, rather than applying pay-and-chase procedures, as required by law. We also learned from an official from another selected state that the state had been applying cost avoidance procedures to claims for prenatal care services well in advance of the enactment of the Bipartisan Budget Act of 2018, despite the federal requirement to apply pay-and-chase procedures to such claims from 1986 to 2018. CMS s failure to monitor the implementation of the third-party liability changes in the Bipartisan Budget Act of 2018 is inconsistent with the agency s responsibilities for oversight of the Medicaid program, including ensuring that federal funds are appropriately spent. We have previously recommended that, given the significant federal Medicaid outlays, the federal government has a vested financial interest in further increasing states third-party liability cost savings, and that CMS should play a more active leadership role in monitoring, understanding, supporting, and promoting state third-party liability efforts. However, CMS officials stated that they expect states to comply with current law for Medicaid third-party liability, and that they do not verify whether states have implemented the required third-party liability changes unless the agency is made aware of non-compliance. When asked how CMS ensures that states apply pay-and-chase procedures required under federal law, such as for pediatric preventive claims, CMS officials stated that it is the agency s expectation that states comply with current law. According to agency officials, if a state has difficulty complying and reaches out to CMS for technical assistance, the agency will work with that state to come into compliance. CMS officials told us that CMS plans to review all state Medicaid plans and provide technical assistance for any necessary action only after the agency has updated its regulations related to third-party liability. As of May 2019, CMS anticipated that it would release updated regulations in early 2020. Because CMS has not monitored states compliance with federal third- party liability requirements, the agency does not know whether states have applied the federally required third-party liability procedures to certain Medicaid claims as required by federal law. In the case of prenatal care services claims, the failure to implement cost avoidance payment procedures could result in unnecessary Medicaid expenditures, to the extent that Medicaid pays providers for services for which a third party is liable. To the extent that states are not properly applying pay-and-chase procedures to pediatric preventive service claims, children s access to such services could be impacted. <4. Stakeholders Anticipate Third-Party Liability Changes Could Affect Beneficiary Access to Care; Selected States Discussed Using Existing Methods to Assess Effects of Changes> <4.1. Most Stakeholders Anticipate Increased Administrative Requirements for Providers and a Possible Decrease in Beneficiary Access to Care> According to most of the stakeholders we interviewed, Medicaid providers especially prenatal care and rural providers could face increased administrative requirements or delays in payments for services as a result of the third-party liability payment changes to the three service categories in the Bipartisan Budget Act of 2018. Several stakeholders agreed that the tasks associated with identifying sources of third-party liability and attempting to collect from third parties would shift from state Medicaid agencies to providers as a result of the payment changes, although opinions differed on the extent to which this shift would affect providers. Several stakeholders said that the third-party liability changes could increase administrative requirements for providers, because obtaining accurate information on third-party liability sources for Medicaid beneficiaries and resubmitting claims that result from incorrect or outdated third-party liability information can be resource intensive and time consuming. One provider and officials from one state Medicaid agency noted that providers may lack the administrative resources or claims-processing expertise to deal with these changes. Officials from one state Medicaid agency, two state provider associations, and an organization advocating for Medicaid beneficiaries also noted that providers may encounter Medicaid beneficiaries who may be unaware or may not disclose that they have other insurance policies; for example, children who are covered under multiple insurance policies by custodial and non-custodial parents or experience insurance transitions following birth. These issues may increase the amount of time and resources providers spend on processing and resubmitting claims. Other stakeholders were less certain that the added requirements would cause difficulties for providers. Officials from one state Medicaid agency and one MCO said that the payment changes would not be difficult to implement, because providers were familiar with billing third parties for medical services for other beneficiaries. Officials from four state Medicaid agencies and two MCOs noted that providers may prefer to submit claims to commercial insurers, because these insurers pay at a higher rate compared with state Medicaid programs. Several stakeholders we interviewed agreed that providers could wait longer periods of time for payment as they track down third-party insurers or wait up to 100 days for potential payment from these insurers before seeking payment from the state Medicaid agency. According to one provider and officials from two provider associations and one MCO, these delays could put providers at risk of not receiving payments for services or not having enough cash on hand to sustain operations. Additionally, officials from three provider associations noted that payment delays would affect pediatric providers in particular, because the majority of the services that pediatricians provide are preventive care which would be affected by the third-party liability changes. According to several stakeholders we interviewed, smaller or independent providers and those located in rural areas could be more affected by the third-party liability changes compared with providers affiliated with managed care systems or those located in urban areas. Officials from one state Medicaid agency, two provider associations, and one MCO noted that smaller or rural-based providers generally have fewer staff and resources to deal with the larger volume of administrative paperwork and delays in payment for services that could result from the payment changes. Most of the stakeholders we interviewed said that providers might be less willing to serve Medicaid beneficiaries due to the administrative and payment issues, potentially reducing access to care or delaying services for children and pregnant women. However, some other stakeholders said that the third-party liability changes would have little to no effect on Medicaid beneficiaries. Officials from one state Medicaid agency and one MCO noted that third-party liability payment practices for other Medicaid populations and services have been in place for many years, and providers would already be familiar with processing claims with third-party liability. Several stakeholders said that providers may opt to reduce or eliminate the number of Medicaid beneficiaries they serve, because of actual or perceived increase in administrative requirements or payment delays. Officials from three state provider associations speculated that the potential for additional delays in payment for services could be the final straw in providers decision to stop serving Medicaid beneficiaries. Other stakeholders, including a Medicaid expert, one provider, and officials from one state provider association noted that providers may decide to see fewer Medicaid beneficiaries, but are unlikely to stop seeing them entirely, because some providers are reluctant to deny care to these beneficiaries. Payment delays could also lead to delays in beneficiaries receiving time- sensitive services, such as immunizations, as well as reduced access to specialists, such as midwives or mental health professionals, according to several stakeholders. Officials from one national provider association and an organization advocating for Medicaid beneficiaries noted that providers may seek to identify sources of third-party liability before providing services to beneficiaries. In addition, officials from one state Medicaid agency, a state provider association, and an organization advocating for Medicaid beneficiaries expressed concern that the third-party liability changes had the potential to reduce access to care for populations, such as children and pregnant women, that already faced challenges in accessing adequate, timely, or quality health care. <4.2. Selected States Discussed Using Existing Methods for Assessing Provider Availability and Beneficiary Access to Care Once Payment Changes Are Implemented> Medicaid officials we interviewed from seven of the nine selected states said that their agencies will or could use existing methods to assess the effects of the third-party liability changes on provider availability and beneficiary access to prenatal care services, pediatric preventive services, and services for CSE beneficiaries. Officials from the remaining two states did not discuss or provide information on how they could assess the effects of the changes. Medicaid officials provided examples of existing methods that could be used to assess the effects of payment changes: Tracking beneficiary access by comparing a set of access-to-care measures for a state s Medicaid population with its non-Medicaid, commercially insured population, as well as carrying out customer satisfaction surveys with Medicaid beneficiaries, Using a third-party liability hotline to track patient issues and conducting secret shopper calls to monitor if providers are accepting new patients, Contracting with a state university to evaluate Medicaid beneficiary access for prenatal and pediatric services. In addition, one state has an independent health advocacy agency that monitors and seeks to resolve provider availability and beneficiary access issues on behalf of the state s Medicaid population. However, one state Medicaid official and a Medicaid expert agreed that measuring any possible effects of the third-party liability changes such as a decline in provider availability or beneficiary access would be difficult without baseline data. According to officials from two state Medicaid agencies and a Medicaid expert, many other factors could potentially affect provider availability and beneficiary access, making it difficult or impossible to pinpoint if a decline in provider availability or beneficiary utilization of services was the result of the third-party liability changes or something else such as changes in the managed care market or levels of private coverage among beneficiaries. We found other evidence suggesting that it might be challenging for some states to assess the effects of the third-party liability changes. Specifically, Medicaid officials from eight of the nine selected states did not readily identify the number of beneficiaries in their state that had third- party liability and would be affected by the changes. Moreover, officials from two states noted that obtaining this data would require a significant effort. Officials from five states shared information on the number of children, pregnant women, or births covered by Medicaid in their state, but did not specify how many of these beneficiaries had other insurance coverage. Seven of the nine selected states had no data readily available on CSE beneficiaries who were also covered by Medicaid. In several cases, officials noted that their MMIS or other data systems had no way to track whether a child was a CSE beneficiary. <5. Conclusions> Omissions and inaccuracies in CMS s guidance to states on third-party liability changes from the Bipartisan Budget Act of 2018 have the potential to adversely affect the extent to which Medicaid expenditures are being used to pay for services for which a third party is liable, as well as states compliance with federal requirements. Furthermore, CMS has not assessed whether state Medicaid agencies are complying with federal third-party liability requirements, under which states must change how they pay claims for certain services as a result of the Bipartisan Budget Act of 2018 and subsequently enacted legislation. In the absence of CMS overseeing states compliance, the agency cannot ensure that federal funds are being spent properly and that states are complying with current federal statute. <6. Recommendations> We are making the following two recommendations to CMS: The Administrator of CMS should ensure the agency s Medicaid third- party liability guidance is consistent with federal law related to the requirement for states to apply cost avoidance procedures to claims for labor, delivery, and postpartum care services, the requirement for states to make payments without regard to potential third-party liability for pediatric preventive services unless the state has made a determination related to cost-effectiveness and access to care that warrants cost avoidance for 90 days, and state flexibility to make payments without regard to potential third- party liability for pediatric services provided to child support enforcement beneficiaries. (Recommendation 1) The Administrator of CMS should determine the extent to which state Medicaid programs are meeting federal third-party liability requirements and take actions to ensure compliance as appropriate. Such actions can include ensuring that state plans reflect the law. (Recommendation 2) <7. Agency Comments> We provided a draft of this report to the Department of Health and Human Services for comment. In its written comments, which are reprinted in appendix I, HHS concurred with our recommendations and indicated a commitment to providing states with accurate guidance on the third-party liability changes in the Bipartisan Budget Act of 2018. The agency noted that it is in the process of updating its guidance and third-party liability handbook to reflect the changes and ensure that such guidance is consistent with federal law. The agency also noted that it will determine the extent to which state Medicaid programs are meeting federal third- party liability requirements and will take actions to ensure compliance. We are sending copies of this report to the appropriate congressional committees, the Secretary of Health and Human Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. Major contributors to this report are listed in appendix II. Appendix I: Comments from the Department of Health and Human Services Appendix II: GAO Contacts and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Tom Conahan (Assistant Director), Andrea E. Richardson (Analyst-in-Charge), Marybeth Acac, Drew Long, Corinne Quinones, Jennifer Rudisill, and Ethiene Salgado- Rodriguez made key contributions to this report.

Why GAO Did This Study The Medicaid program is typically the payer of last resort. The Bipartisan Budget Act of 2018 changed the Medicaid third-party liability payment requirements for prenatal care services, pediatric preventive services, and services provided to CSE beneficiaries. Before the act, in the case of these three services, states were generally required to pay providers for services delivered to Medicaid beneficiaries and then obtain any payments from liable third parties. The Bipartisan Budget Act of 2018 also included a provision for GAO to study the potential effects of these changes. In this report, GAO (1) describes the status of selected states' implementation of Medicaid third-party liability changes; (2) evaluates CMS's implementation and oversight of the Medicaid third-party liability changes; and (3) describes stakeholders' views of the possible effects of these changes on providers and beneficiaries. GAO conducted interviews with state Medicaid agencies and provider associations in nine selected states, which were selected by taking into consideration Medicaid spending and stakeholder recommendations, among other factors. GAO also conducted interviews with national experts in Medicaid, national organizations representing beneficiaries and providers, and officials from CMS. What GAO Found Medicaid officials in the nine selected states GAO reviewed described being in various stages of implementing third-party liability changes as required by law. These changes affect whether health care providers must seek payment from a liable third party, such as private insurance, before the state Medicaid agency pays for services. The changes apply to prenatal care services, pediatric preventive services, and services for children subject to child support enforcement (CSE beneficiaries). At the time of GAO's review, Officials from four of the nine selected states reported having fully implemented the changes for prenatal care services, which were required to be implemented starting in February 2018. Officials from the remaining five states were discussing the changes internally, researching how to implement the changes in their Medicaid payment systems, or waiting for additional guidance from the Centers for Medicare & Medicaid Services (CMS), the federal agency responsible for overseeing states' Medicaid programs. None of the nine states had implemented the changes to pediatric preventive services and services for CSE beneficiaries, which must be implemented starting in October 2019. Officials from six states told GAO that they were in the early stages of exploring how they would make the changes, while the remaining three states had not developed such plans. GAO found that guidance issued by CMS in June 2018 to assist states in implementing the third-party liability changes contains information inconsistent with the law. For example, CMS's guidance incorrectly informs states that providers do not need to seek third-party payments before the state pays for some prenatal services. In addition, CMS has not determined the extent to which states are meeting third-party liability requirements. CMS officials stated that they expect states to comply with current law for Medicaid third-party liability and that they do not verify whether states have implemented the required third-party liability changes unless the agency is made aware of non-compliance. However, this approach is inconsistent with CMS's Medicaid oversight responsibilities, including its responsibility to ensure federal funds are appropriately spent. Medicaid experts and other stakeholders told GAO that the third-party liability changes could affect some health care providers in ways that could result in decreased beneficiary access to care, because some providers might be less willing to see Medicaid patients. According to stakeholders, this could occur for two primary reasons. 1. The changes may increase administrative requirements for providers by requiring them to identify sources of coverage, obtain insurance information, and submit claims to third-party insurers before submitting them to Medicaid. 2. The changes may result in providers waiting longer to receive Medicaid payment for certain services to the extent that states require providers to seek third-party payments before paying the providers' claims. What GAO Recommends GAO is recommending that CMS (1) ensure that its guidance to states on third-party liability requirements reflects current law, and (2) determine the extent to which state Medicaid programs are meeting federal third-party liability requirements. The Department of Health and Human Services concurred with these recommendations.

gao_GAO-19-494

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<1. Background> This section provides an overview of (1) the legal framework governing mixed HLW, (2) the status of EM s IWTU reengineering project, (3) EM s requirements for capital asset projects and operations activities, (4) DOE s policy for the review of projects with start-up risks, and (5) our best practices for assessing cost and schedule estimates. <1.1. Legal Framework Governing Mixed HLW> The treatment and disposal of mixed HLW at INL is governed by a number of federal laws that define the roles of federal agencies and states in managing mixed HLW, as well as cleanup agreements among DOE, the state of Idaho, and other parties. DOE primarily regulates radioactive components of HLW under the Atomic Energy Act of 1954, as amended, and the Nuclear Waste Policy Act of 1982, as amended. These acts define HLW as (1) the highly radioactive waste material resulting from the reprocessing of spent nuclear fuel, including liquid waste produced directly in reprocessing and any solid material derived from such liquid waste that contains fission products in sufficient concentrations, and (2) other highly radioactive material that the Nuclear Regulatory Commission determines by rule, consistent with existing law, requires permanent isolation. DOE considers calcine waste HLW because it is solidified liquid waste produced during the reprocessing of spent nuclear fuel. EM manages the SBW as mixed HLW because, according to reports from DOE and National Academies, (1) the SBW was produced in the later stages of spent nuclear fuel reprocessing, (2) the tanks in which the SBW is stored previously held HLW, (3) the SBW is stored in a location at INL where waste is managed as HLW, and (4) the waste contains hazardous chemicals subject to RCRA and EPA s implementing regulations or authorized state programs that operate in lieu of the federal program. HLW must be disposed of in a geologic repository unless the Nuclear Regulatory Commission approves an alternative disposal site. DOE Order 435.1 and Manual 435.1-1 describe the department s policy and requirements for managing DOE s radioactive waste, including HLW, to ensure that it is managed in a manner that is protective of worker and public health and safety and the environment. Manual 435.1-1 also established processes to determine whether waste resulting from reprocessing spent nuclear fuel can be managed as transuranic waste or low-level waste if certain criteria are met, which is referred to as a determination that the waste is incidental to reprocessing. According to the manual, HLW is waste incidental to reprocessing if, among other things, the waste has been processed, or will be processed, to remove key radionuclides to the maximum extent technically and economically practicable. Hazardous components of mixed HLW are regulated by EPA or authorized states under RCRA. EPA s regulations require hazardous waste to meet certain treatment standards before land disposal of the waste unless a variance is granted. The regulations specify that the treatment standard (i.e., the required method for treatment) for Idaho s mixed HLW is vitrification the immobilization of waste in glass. Where EPA has authorized states to implement hazardous waste management programs, those state programs operate instead of the federal program. EPA, under RCRA, has authorized the state of Idaho to administer its own hazardous waste management program. EPA has also authorized New Mexico to administer its own hazardous waste management program. Pursuant to such authorization, New Mexico s Environment Department issues the permit for hazardous waste storage and disposal at WIPP under the New Mexico Hazardous Waste Act. <1.2. Status of IWTU Reengineering Project> As of March 2019, EM s IWTU reengineering project was in phase two of the four-phased approach to get the facility operational, according to EM Idaho Cleanup Project officials. According to project reports, phase one focused on identifying fixes to resolve problems with the facility s equipment and waste treatment process, for example, by performing engineering analyses and chemistry studies. Phase two has focused on implementing these fixes, for example, by modifying a piece of equipment that separates solidified waste before it is moved to storage canisters, according to the contractor s project plan. Figure 1 summarizes the four- phased approach for the IWTU reengineering project. According to EM documents, as of February 2019 total expenditures on phases one and two were approximately $150 million, about $64 million more than original costs estimated for those two phases combined, and the project was over 1 year behind schedule. Phase two has taken longer and cost more than initially estimated because of additional problems and required modifications to the facility as the work has progressed, according to EM Idaho Cleanup Project officials. Appendix II provides information on the actual costs of phases one and two compared to estimated costs. As previously noted, EM officials with the Idaho Cleanup Project estimated in March 2019 that phase three may begin in summer 2019. Further, these officials stated that phase three will involve a 6- month outage to continue implementing changes to the facility prior to the start of a 60-day performance test using a simulated waste form. EM Idaho Cleanup Project officials stated that phase four could begin in early 2020 and that EM and Fluor Idaho had yet to determine whether an outage would need to occur before starting testing with a small amount of the SBW. <1.3. EM s Requirements for Capital Asset Projects and Operations Activities> EM divides its cleanup work into capital asset projects and operations activities, two types of activities governed by different applicable project management policies: Capital asset projects. DOE Order 413.3B governs EM s program and project management activities for the acquisition of capital assets, with the stated goal of delivering fully capable projects within the planned cost, schedule, and performance baseline. The order establishes five critical decision points of project development that each end with a major approval milestone that cover the life of a project. The order specifies requirements that must be met, including developing and managing project cost and schedule estimates to move a project past each critical decision milestone. EM capital asset projects include construction projects and cleanup projects, such as soil and water remediation and facility decommissioning and demolition. Operations activities. Operations activities are recurring facility or environmental operations, as well as activities that are project-like, with defined start and end dates, according to EM policy. EM operations activities include operating waste processing facilities and the stabilization, packaging, transportation, and disposition of nuclear waste. EM manages operations activities based on requirements listed in a cleanup policy that it issued in July 2017. In February 2019, we found that EM cleanup site managers have discretion in how to classify cleanup work because DOE and EM have not established requirements on what work should be managed as an operations activity under EM s cleanup policy or as a capital asset project under DOE Order 413.3B. Further, we found that operations activities have less stringent management requirements than capital asset projects. We recommended that EM establish requirements for classifying work as an operations activity and revise its cleanup policy to follow program and project management leading practices. DOE generally agreed with our recommendations. Beginning in January 2005, EM managed the development and construction of the IWTU facility as a capital asset project. Once EM determined that construction on the facility was complete in April 2012, the project exited the capital asset oversight process established in DOE Order 413.3B and has since been managed as an operations activity, according to EM Idaho Cleanup Project officials. DOE officials also told us that the IWTU reengineering project has been managed as an operations activity because the facility has been constructed and is now in a period of maintenance and repair. Figure 2 shows a picture of the exterior of the IWTU facility. <1.4. DOE s Policy for the Monitoring of Projects with Start-up Risks> In August 2016, DOE s Deputy Secretary of Energy issued a memorandum establishing a new oversight requirement for selected projects for which an extended period of transition to operations is likely the phase after construction is complete but before full operational capability is attained called the operational release milestone. According to the memorandum, DOE created the operational release milestone in the department s project life cycle to provide additional oversight after the completion of the project under DOE s Order 413.3B. DOE officials from the Office of Project Management stated that the operational release milestone was largely created in response to EM s experience with the IWTU facility not operating as expected. Under these new requirements, program offices are to provide DOE s Project Management Risk Committee (PMRC) with regular updates on selected projects until full operational capability of each facility is attained. Specifically, program offices are required to (1) develop and execute a plan that describes how the program will reach operational capability, which is referred to as an operational release plan, and (2) provide progress updates to the PMRC on the project, as described below. Operational release plan. Officials from DOE s Office of Project Management which serves as the secretariat for the PMRC stated that the purpose of the operational release plan is for the program office to describe what steps are required for the project to reach its operational capability. According to EM s guidance, the operational release plan should present the key processes, activities, interrelationships, risks, management and oversight, decision milestones and approvals, and overall schedule to achieve operational release. Progress updates. According to the memorandum and the PMRC s standard operating procedures, program offices are to provide the PMRC with quarterly progress updates on selected projects, including lessons learned, until full operational capability is attained. <1.5. GAO s Best Practices for Developing Cost and Schedule Estimates> The GAO s cost guide and schedule guide compiled best practices corresponding to the characteristics of high-quality and reliable cost and schedule estimates. According to the cost guide, a high-quality, reliable cost estimate has four characteristics: comprehensive, well-documented, accurate, and credible. A comprehensive cost estimate has enough detail to ensure that cost elements are neither omitted nor double-counted. If a cost estimate is not comprehensive (that is, complete), then it cannot fully meet the other characteristics (i.e., well-documented, accurate, or credible). In addition, according to the schedule guide, a high-quality, reliable schedule has four characteristics: comprehensive, well- constructed, controlled, and credible. A comprehensive schedule captures all government and contractor activities necessary to accomplish a project s objectives, and a well-constructed schedule sequences all activities using the most straightforward logic possible. If a schedule is not comprehensive, with all activities accounted for, it is uncertain whether all activities are scheduled in the correct order, resources are properly allocated, missing activities will appear on the critical path, or a schedule risk analysis can account for all risk. If a schedule is not well-constructed, it will not be able to properly calculate dates and predict changes in the future, among other things. <2. EM Has Not Fully Followed Selected Best Practices for Cost and Schedule Estimates, and Unreliable Data May Limit EM s Ability to Measure Performance> EM has not fully followed selected project management best practices for cost and schedule estimates for the IWTU reengineering project. EM generally followed best practices for a reliable EVM system to measure the performance of the reengineering project. However, in analyzing IWTU reengineering project data from March 2017 through February 2018, we found that the system is producing unreliable data, which may limit EM s ability to measure the project s performance. Further, EM has taken some steps toward meeting requirements under DOE s process for monitoring projects with start-up risks. <2.1. EM Has Not Fully Followed Selected Best Practices for Cost and Schedule Estimates for the IWTU Reengineering Project> EM has not fully followed (i.e., has partially met) selected best practices in developing the cost and schedule estimates we reviewed for phases one and two of the IWTU reengineering project and future planned IWTU operations. We made the following observations based on our analysis of these cost estimating documents and a March 2018 project schedule: Comprehensive cost estimate (partially met): EM partially met best practices for a comprehensive cost estimate. According to our cost guide, a comprehensive cost estimate should reflect the project s technical requirements and current schedule and account for all possible costs. While the cost estimate was based on documented technical information, it was not based on a standardized work breakdown structure. Without a standard, product-oriented work breakdown structure to facilitate the tracking of resource allocations and expenditures, EM may not be able to reliably estimate the cost of future similar programs. While assumptions are listed in EM s documents describing the cost estimates, no document discusses whether the assumptions came from inputs from technical subject matter experts or whether the assumptions are associated with specific risks. Since assumptions are best guesses, best practices state that the risk associated with any of these assumptions changing need to be identified and assessed. Further, the IWTU reengineering project s cost estimate was not complete because it did not account for all possible costs. According to our cost guide, a life cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to develop, produce, deploy, and sustain a particular program. The project s cost estimate did not reflect all life cycle costs, in part because estimates for phases three and four of the project had not been developed at the time of our review. Best practices state that all costs be included in an estimate, even in early stages, such as at a rough order of magnitude. EM officials from the Idaho Cleanup Project said that a cost estimate was not developed for the total cost of the IWTU reengineering project because of the approach for negotiating the cost and schedule baseline prior to the start of each phase. Without developing a cost estimate for the IWTU reengineering project that is comprehensive (e.g., accounts for all possible costs), EM will not have reasonable assurance that it can successfully plan program resource requirements. Well-constructed schedule estimate (partially met): EM partially met best practices for a well-constructed schedule. According to our schedule guide, a well-constructed schedule includes activities that are logically sequenced; a valid critical path; and a reasonable amount of total float, meaning an accurate reflection of the schedule s flexibility. EM s March 2018 schedule had minimal sequencing issues and a continuous critical path, with the exception of an external dependency, and the critical path was free of lags and constraints. However, there were long duration activities on the critical path that should be reevaluated to determine if they can be broken into more manageable pieces. Without a valid critical path, management cannot focus on activities that will detrimentally affect the key program milestones and deliveries if they slip. Additionally, the schedule estimate included unreasonably large values of positive and negative float. According to best practices, a schedule should identify reasonable values of float so that the schedule s flexibility can be determined to help accommodate for delays. EM officials from the Idaho Cleanup Project explained that the amount of total float was a result of the methods they used to structure the logic of the schedule estimate, which according to our best practices may have caused the schedule to be overly optimistic. According to scheduling best practices, without accurate values of total float, the schedule cannot be used to identify activities that could be permitted to slip and thus release and reallocate resources to activities that require more resources to be completed on time. Inaccurate values of total float also falsely depict true program status, which could lead to decisions that may jeopardize the program. In addition, the March 2018 schedule contained 14 activities with large amounts of negative float, meaning that these activities were behind schedule. Without fully developing a well-constructed schedule estimate for the IWTU reengineering project, EM will not have reasonable assurance that it can successfully achieve its plans to reengineer the IWTU and begin treatment of the SBW without further delays. Comprehensive schedule estimate (substantially met): EM substantially met best practices for a comprehensive schedule. According to our schedule guide, a comprehensive schedule includes all activities for both the government and its contractors to accomplish their objective, assigns resources (e.g., labor and materials) to all activities, and establishes how long each activity will take. EM s March 2018 schedule substantially captured all activities, but it may not have been planned to the level of detail for the work necessary to accomplish a program s objectives as defined in the program s work breakdown structure. For example, the schedule had activities that were described as level of effort but were not assigned the level of effort activity type. Level of effort activities represent effort that has no measurable output and, according to best practices, should be clearly marked so they do not interfere with the critical path. Further, the schedule substantially met the best practice of assigning resources to all activities. For example, the schedule assigned resources to specific materials and equipment as well as to travel, training, and labor. Appendix II contains the full results of our analysis of selected best practices for the cost and schedule of the IWTU reengineering project. As previously noted, EM is managing the IWTU reengineering project as an operations activity. We reported in February 2019 that EM manages operations activities using less stringent requirements than those used for capital asset projects, posing cost and schedule risks. For example, under EM s 2017 cleanup policy, there is no requirement for operations activities to follow best practices for cost estimates developed during contract execution. We recommended that EM review and revise its 2017 cleanup policy to include project management leading practices related to scope, cost, schedule performance, and independent reviews. DOE concurred with our recommendation and stated that EM was already in the process of reviewing its policy for necessary updates, revisions, and modifications, and that EM would consider our recommendation, as appropriate, during this process. EM officials with the Idaho Cleanup Project acknowledged that they do not have an estimate for the total cost or a completion date for the IWTU reengineering project or a schedule for when waste treatment operations will begin and be completed. An EM Idaho Cleanup Project official told us that Fluor Idaho submitted cost and schedule estimates for phases three and four of the reengineering project in January 2019 and that EM requested an independent cost estimate for this work from the Defense Contract Audit Agency, with contract negotiations between EM and Fluor Idaho for these phases estimated to begin in spring 2019. In addition, EM officials from the Idaho Cleanup Project acknowledged that a schedule for waste treatment operations at the project has not been developed. Further, these officials noted that design modifications to the IWTU are expected to reduce its operating capability, lengthening the time needed to treat the SBW. As a result, EM and Fluor Idaho plan to renegotiate the cost of their contract related to the treatment of the waste in the project, according to EM Idaho Cleanup Project officials. Specifically, because of the modifications to the project, the rate at which the SBW is treated will be slower than initially estimated, according to EM officials from the Idaho Cleanup Project. Treatment of all 900,000 gallons of the SBW was originally estimated to be completed in 10 months, but agency officials now estimate that treatment may take from 3 to 7 years as much as eight times longer than originally planned. As previously noted, EM has already experienced approximately $64 million in added costs and, as of February 2019, a delay of over 1 year. Without fully following best practices for a comprehensive cost estimate and well- constructed schedule estimate for SBW waste treatment operations, EM cannot be assured that it has reliable cost and schedule estimates for decision-making, placing it at risk of continued cost overruns and delays in achieving its plans to reengineer the IWTU and begin treatment of the SBW. <2.2. EM Generally Followed Best Practices for Measuring Project Performance and Has Taken Some Steps toward Meeting Requirements for Monitoring the IWTU Reengineering Project> <2.2.1. EM s EVM System for the IWTU Reengineering Project Generally Followed Best Practices, but Unreliable Data May Limit EM s Ability to Measure Performance> We analyzed IWTU reengineering project data for March 2017 through February 2018 from EM s EVM system and found that while EM has followed (i.e., fully met or substantially met) some best practices for a reliable EVM system, the system is producing unreliable data. These unreliable data may limit EM s ability to measure the project s performance. EVM is a management tool used to measure the value of work accomplished in a given period and compare it with the planned value of work scheduled for the same period and with the actual cost of the work accomplished. EVM data can alert project managers to potential problems sooner than expenditures alone can, and EVM s use as a management tool is considered a best practice for conducting cost and schedule performance analysis for projects, according to our cost guide. EM requires the use of an EVM system under its contract with Fluor Idaho for the Idaho Cleanup Project. Overall, we found that EM followed best practices to ensure that its EVM data for the IWTU reengineering project were (1) comprehensive and (2) used by leadership for decision-making. However, EM did not follow (i.e., partially met) best practices to ensure that the data resulting from the EVM system are reliable. Specifically: EM substantially met best practices for a comprehensive EVM system by, for example, requiring the contractor s EVM system to comply with the guidelines established by the Earned Value Management Systems EIA-748-D Intent Guide; EM conducted a compliance review of Fluor Idaho s EVM system in March 2017 and found some areas in need of improvement. In addition, EM has an EVM surveillance system in place under its contract with Fluor Idaho, and EM officials from the Idaho Cleanup Project stated that they review data from the EVM system each month. EM substantially met best practices ensuring that leadership uses the EVM data for decision-making. For example, Fluor Idaho updated data in its EVM system monthly during the period we reviewed, and EM reported issues in a monthly review briefing between EM and the contractor, according to EM Idaho Cleanup Project officials. Agency management also tracked the causes of cost and schedule variances in the data. However, the monthly reports did not contain all the information that best practices recommended. Specifically, the performance measurement baseline was not included in the contractor performance reports provided, so we could not determine how the performance measurement baseline changed as the project evolved. EM partially met best practices ensuring that the EVM system provides reliable data because, for instance, the system contained numerous anomalies, leading the system to produce unreliable data. Specifically, we found one or more anomalies present in all months of data reviewed, such as missing or negative values. While EM was able to explain the causes for most of these anomalies, negative values should occur rarely, if ever, in EVM reporting because they imply the undoing of previously scheduled or performed work. According to best practices, all anomalies should also be identified and the reason for each should be fully explained in EM s monthly EVM reports. However, EM did not document the reasons for these anomalies in its monthly reports. EM officials from the Idaho Cleanup Project said that most of the anomalies in the data were due to the phase two estimate including authorized unpriced work that is, additional work that EM agreed to let the contractor perform without first negotiating or independently verifying the costs. If errors in EVM reports are not detected, then EVM data will be skewed, resulting in bad decision-making and limiting EM s ability to use the EVM system to measure project performance. Appendix III provides detailed information on EM s performance on each EVM best practice. An EVM system that produces unreliable data may contribute to EM s challenges in measuring the performance of its operations activities. Our findings in this regard are consistent with our prior reports examining EM s use of EVM systems in other contracts. For example, in February 2019 we reviewed the use of EVM systems in the 21 contracts EM uses to execute its operations activities, including Fluor Idaho s contract for the cleanup at INL, and found that EM has not followed best practices to ensure that these systems (1) are comprehensive, (2) provide reliable data, and (3) are used by EM leadership for decision-making. We recommended that EM update its cleanup policy to require that EVM systems be maintained and used in a way that follows EVM best practices, such as ensuring the reliability of the data in the system. Without following best practices for ensuring EVM data reliability for the IWTU reengineering project s EVM system, EM leadership may not have access to reliable performance data with which to make informed decisions as it manages billions of dollars worth of cleanup work and provides information to Congress and other stakeholders on the cleanup work every year. <2.2.2. EM Has Taken Some Steps toward Meeting Requirements for Monitoring the IWTU Reengineering Project under DOE s Process for Projects with Start-up Risks> In 2016, DOE instituted independent review requirements to monitor facilities with commissioning or start-up risks, and EM has taken some steps toward meeting those requirements for the IWTU reengineering project. As previously noted, DOE s policy requires program offices to (1) develop and execute an operational release plan and (2) provide progress updates to the PMRC on the project each quarter. We made the following observations on EM s actions to meet these requirements for the reengineering of the IWTU project: EM developed an operational release plan for the IWTU project in December 2016, which preceded EM s developing guidance for these plans. We found that the operational release plan included the majority of elements that EM s guidance later required. EM has provided five progress update briefings to the PMRC on the IWTU reengineering project, according to DOE documents, but these briefings have not occurred each quarter as required by DOE s policy. Officials from DOE s Office of Project Management told us that briefings generally occur when progress has been made on a project. EM s guidance for operational release plans also states, with regard to progress update briefings, that an alternate reporting schedule may be proposed for PMRC approval. The PMRC made recommendations in three of these five briefings. For example, the PMRC recommended that EM revisit and review documents to ensure that the delegated authority is clear, current, and appropriate prior to facility start-up and the introduction of radioactive materials. According to documentation prepared following EM s most recent briefing to the PMRC in February 2019, the PMRC recommended an update on the project in July 2019. <3. EM Faces Three Main Challenges to Its Plans for SBW Disposal but Does Not Have a Strategy or a Timeline to Manage Those Challenges> Based on our review of EM documentation and plans, the agency does not have a strategy or timeline to address its three main challenges for disposing of the SBW or for identifying an alternative disposal pathway. EM identified WIPP as its preferred disposal site for the SBW in a 2005 Record of Decision document, but in March 2019 EM officials told us that a final decision on the disposal path for the SBW had not been made. The three main challenges EM faces in its plan to dispose of the SBW at its preferred disposal site are: (1) the permit for WIPP prohibits the SBW from being disposed of at WIPP, (2) federal law prohibits HLW from being disposed of at WIPP, and (3) there are existing capacity limitations to disposal at the WIPP facility. EM has taken some steps to address these challenges, as discussed further below. WIPP permit s prohibition of the disposal of certain tank waste. New Mexico amended its permit for WIPP in 2004 to prohibit waste that has ever been managed as HLW, including the SBW at INL, from being disposed at WIPP unless the disposal of such waste is specifically approved through a permit modification. In 2013, DOE and its contractor responsible for operating and managing the facility filed a request with the state of New Mexico to modify the WIPP permit to remove this prohibition, which could allow the SBW to be disposed of at WIPP if EM determined that the SBW is waste incidental to reprocessing. However, the process was put on hold following the suspension of operations at WIPP in 2014, according to officials from DOE s Carlsbad Field Office and New Mexico s Environment Department. In April 2019, officials from New Mexico s Environment Department said that they anticipated holding discussions with DOE and its contractor for the facility regarding the prohibition after the renewal of the WIPP permit in July 2020. However, a representative from a New Mexico environmental organization said that this proposed modification would likely face strong public opposition. This representative noted that previous DOE attempts to expand the types of waste that could be disposed of at WIPP caused significant public concern in New Mexico. Further, New Mexico Environment Department officials told us that processing permit modifications of this nature would likely require public hearings and opportunities for input and may take as long as 2 years or more to complete. Federal statutory prohibition on HLW disposal at WIPP. The Waste Isolation Pilot Plant Land Withdrawal Act prohibits disposal of HLW at WIPP. Therefore, to enable EM to dispose of the SBW at WIPP, the SBW would need to be classified as non-HLW, or the act would need to be amended to remove the prohibition. DOE has a process for determining that certain waste resulting from reprocessing spent nuclear fuel, such as the SBW and calcine waste, could be managed as either transuranic waste or low-level waste, which are not HLW. Under DOE Order 435.1 and Manual 435.1-1, DOE may determine that waste is incidental to reprocessing and therefore manage the waste as transuranic waste or low-level waste if it meets certain criteria. EM began developing documentation supporting a waste incidental to reprocessing determination for the SBW in 2001. For example, in September 2001, EM requested consultation from the Nuclear Regulatory Commission, which oversees the nuclear power industry, on a draft waste incidental to reprocessing determination so that the SBW could be managed as transuranic waste and disposed of at WIPP rather than in an HLW repository. DOE s Authority to Determine That Certain Waste Is Not HLW In 2002, while litigation over the Department of Energy s (DOE) authority to use DOE Order 435.1 and Manual 435.1-1 was pending, DOE sought enactment of legislation clarifying its authority to manage portions of tank waste that have low levels of radioactivity as low- level waste. In response, Congress enacted section 3116 of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 in October 2004. Under section 3116, radioactive waste resulting from the reprocessing of spent nuclear fuel is not high- level waste (HLW) if the Secretary of Energy, in consultation with the Nuclear Regulatory Commission, determines that it meets specified conditions. These conditions include that the waste does not require disposal in a deep geologic repository and has had highly radioactive radionuclides removed to the maximum extent practical. However, section 3116 only applies to waste stored at DOE sites in Idaho and South Carolina that is not transported from those states. Therefore, DOE cannot use section 3116 to classify the sodium-bearing waste (SBW) as transuranic waste for disposal as DOE s agreements with Idaho require the SBW to be removed from the state. However, DOE s authority to use Order 435.1 and Manual 435.1-1 to classify the SBW and other waste from reprocessing as non-HLW was challenged in a federal lawsuit in 2001, resulting in EM suspending its development of the waste incidental to reprocessing determination. Following the dismissal of the lawsuit on procedural grounds, EM restarted the internal process for developing the waste incidental to reprocessing determination for the SBW, according to EM officials and documents. For example, EM identified the waste incidental to reprocessing determination for the SBW as a priority item for executive decision-making in a 2017 EM study on mission operations. Internal discussions about this determination continued between EM and DOE into 2018, but the waste incidental to reprocessing determination was not finalized, according to EM officials. In October 2018, EM published a notice in the Federal Register seeking public comment on its proposed interpretation of the statutory definition of HLW, which EM officials said could help the agency make a decision about the classification of the SBW. EM also published a supplemental notice in June 2019 to modify the interpretation and provide additional information to the public, such as on the role of the Nuclear Regulatory Commission and states. Table 1 presents the statutory definition, the proposed interpretation from the October 2018 Federal Register notice, and the modified interpretation from the June 2019 Federal Register notice. EM officials told us that under the new interpretation, waste would be disposed of in accordance with its characteristics (which determines risk) instead of solely based on the source of the waste (which does not determine risk). Stakeholders, including members of the public, state and local governments, tribes, and the Nuclear Regulatory Commission, expressed a range of perspectives about EM s proposed interpretation in public comments. For example, some stakeholders submitted comments expressing concern about the Nuclear Regulatory Commission being excluded from the determination of what is HLW under the interpretation. These comments also stated that the interpretation is contrary to federal law and that the interpretation will elicit legal challenges. Other stakeholders expressed support for the interpretation in comments submitted to EM stating, for example, that the proposed interpretation could accelerate the cleanup of tank waste at DOE sites and result in cost savings. According to an EM document, potential benefits of the interpretation, if implemented, include a more risk-based approach to waste classification, which could provide a more cost-effective and timely approach to DOE s cleanup mission. However, EM officials stated that it was premature to discuss the administrative actions, such as revising orders or regulations that would be required to implement the new interpretation. The June 2019 Federal Register notice states that DOE will consider what actions may be needed and appropriate to update applicable DOE directives, such as Order 435.1 and Manual 435.1-1, in light of this interpretation and address any revisions in future actions. EM officials also told us that they did not have a timeline for implementing the new interpretation. Further, EM officials stated that if the HLW interpretation is implemented, alternative disposal options could also be considered for the SBW, but they declined to specify what those options could be. Limitations on disposal at WIPP. Further, existing limitations in the disposal space at WIPP could affect the disposal of the SBW at the facility. We reported in September 2017 that DOE does not currently have sufficient disposal space at WIPP for the waste identified in its 2016 annual inventory report a document that tracks waste intended to be disposed of at the facility. Specifically, DOE will need to expand the repository to accommodate this waste as well as other potential waste, such as the SBW, for which DOE has yet to determine if it meets all of WIPP s waste acceptance criteria. In March 2019, DOE officials stated that WIPP could be expanded within the current Waste Isolation Pilot Plant Land Withdrawal Act boundary for the site to accommodate the current planned waste and additional waste inventories. Specifically, DOE officials said that mining for a new disposal panel and design work for additional disposal panels was under way, and mining of the additional panel was scheduled to commence in 2021. Further, in September 2017 we also reported that additional potential waste beyond what is captured in the inventory could exceed WIPP s statutory capacity. However, in December 2018, New Mexico s Environment Department approved a modification to the WIPP permit which was requested by DOE and its contractor that operates and manages WIPP that will change the way waste volume is calculated to exclude empty space inside waste packing. According to DOE officials, this means that additional waste can be disposed of at WIPP under the existing statutory limit. Further, DOE officials stated that the revised counting methodology will reduce an overstatement in the volume of record for emplaced waste by about 30 percent. However, in January 2019 three environmental organizations filed lawsuits challenging the modification, which the court consolidated and, in May 2019, stayed pending mediation. EM officials said that if the office is not able to dispose of the SBW at WIPP, its plan is to dispose of the SBW once it is treated to a solid form in the IWTU with the calcine waste in an HLW geologic repository. However, there is still no HLW disposal site in the United States. In 2008, DOE submitted a license application to the Nuclear Regulatory Commission for an HLW repository at Yucca Mountain, Nevada, about 100 miles northwest of Las Vegas. In 2010, however, DOE terminated its efforts to obtain a license for the Yucca Mountain repository. Under the 1995 settlement agreement with the state of Idaho, DOE is required to treat the SBW so that it is ready for disposal outside of the state by a target date of 2035. An EM official responsible for the disposition of the SBW at INL told us that EM has not developed a strategy, including a timeline, for addressing challenges, including the WIPP permit prohibition, the federal law prohibition, and existing capacity limitations, that could affect EM s ability to meet this target date. According to standards for internal control, federal agency management should identify, analyze, and respond to risks related to achieving a defined objective. Until it develops such a strategy, including a timeline, to implement the actions required to achieve its preferred disposal pathway, or an alternative, for the SBW, EM will not have reasonable assurance that it can achieve its preferred plan for disposal or begin identifying an alternative. Moreover, if EM implements its new interpretation of HLW and uses this definition to classify the SBW as non- HLW, there is significant risk for extended litigation, which may delay to EM s plans to dispose of the SBW at its preferred disposal site. <4. Because of Technological and Disposal Path Challenges, EM Has Suspended Its Plans to Treat Calcine Waste but Has Not Formally Identified an Alternative Approach EM Is Suspending Development of Its Selected Treatment Technology for Calcine Waste Because of Technological and Disposal Path Challenges> EM faces challenges implementing its selected treatment technology for calcine waste and faces uncertainties with a waste disposal pathway. As a result, the agency is suspending further development of its plan to treat calcine waste for land disposal, according to EM documents and officials. EM Idaho Cleanup Project officials told us that the agency is continuing to make progress toward its milestones for calcine waste disposal by considering alternatives for processing the waste for land disposal and conducting a pilot project to remove it from the oldest storage vessel. However, EM does not have a strategy or timeline for determining its next steps for the ultimate treatment and disposal of calcine waste. Because of challenges with implementing its chosen treatment technology as well as selecting a potential waste disposal pathway, EM is suspending further development of its plan to treat calcine waste for land disposal, according to EM documents and officials. In December 2009 EM identified hot isostatic pressing as its preferred treatment technology for preparing the calcine waste for land disposal outside of Idaho. Hot isostatic pressing is a manufacturing process that applies elevated temperatures and pressurized gas to materials in a containment vessel, resulting in a ceramic waste form. EM officials from the Idaho Cleanup Project told us that while hot isostatic pressing is a technology used in other industries, such as in industrial manufacturing, it has not been used before to treat HLW. Further, hot isostatic pressing would require a variance or an EPA regulation establishing a new treatment standard prior to land disposal. According to EM Idaho Cleanup Project officials and agency documents, EM selected hot isostatic pressing as the treatment technology because EM s analyses assumed it would result in significant cost savings for disposal at Yucca Mountain compared to other methods. In February 2011, an independent DOE review team issued a preliminary technology readiness assessment for using hot isostatic pressing for calcine waste treatment as part of DOE s process for managing capital asset projects. The review team identified several concerns, such as whether components of the technology would be mature enough to meet EM s planned milestones and challenges with EM s decision to retrofit and reuse the IWTU for the calcine waste treatment mission. EM officials from the Idaho Cleanup Project said that the decision to retrofit and reuse the IWTU for the calcine waste after treating the SBW resulted from reluctance within DOE to build another first-of-a-kind treatment facility. However, the review team s report stated that the decision to retrofit the facility may result in logistical and physical maintenance challenges because of space limitations and height requirements. Based on the results of an independent analysis of alternatives for calcine waste disposition, published in April 2016, EM decided to suspend developing the hot isostatic pressing technology, according to EM officials from the Idaho Cleanup Project. DOE initiated this analysis of alternatives in response to a new requirement from the Secretary of Energy and because hot isostatic pressing is not a mature technology for HLW, according to EM s summary report for the analysis. The report identified uncertainties and challenges with the use of hot isostatic pressing when compared to other potential treatment options given, including that hot isostatic pressing is significantly different than vitrification and would require the development and acceptance of testing protocols to validate that it produces a robust waste form, hot isostatic pressing had the second greatest estimated cost (more than $2 billion) of the options assessed in the analysis of alternatives, hot isostatic pressing represented the highest operational safety risk of all of the options assessed given its use of high pressures and temperatures, and other treatment options may perform better for managing the waste because of significant advances in technology since the selection of hot isostatic pressing in 2009. The independent team performing this analysis also concluded that uncertainties regarding plans for an HLW geologic repository also affect EM s ability to move forward with selecting a treatment technology. According to EM officials from the Idaho Cleanup Project and documents, EM s selection of hot isostatic pressing was based on assumptions developed based on sending the waste to the Yucca Mountain disposal facility. Specifically, an important factor in the selection of hot isostatic pressing as the treatment technology was its ability to provide the lowest volume of final waste, while producing a robust waste form, which would reduce disposal costs at Yucca Mountain. As previously noted, the licensing for developing the Yucca Mountain facility was terminated in 2010. The team performing the analysis of alternatives concluded that because selecting an appropriate treatment technology greatly depends on the calcine waste s disposal path and associated waste form performance requirements, EM should defer making a final decision on the treatment technology until the performance objectives of the disposal path are better defined. <4.1. EM Is Focusing on Interim Activities for Calcine Waste Treatment and Disposal but Does Not Have a Strategy, Including a Timeline, for Addressing Challenges> While further decisions regarding a treatment technology for the calcine waste are suspended, EM officials from the Idaho Cleanup Project said that they are taking steps to demonstrate to regulators from Idaho s Department of Environmental Quality that they are making progress to prepare the calcine waste for disposal outside the state. Under DOE s 1995 settlement agreement with Idaho, treatment of all calcine waste is to be completed by a target date of December 31, 2035. Further, DOE is required to meet interim milestones for the cleanup of the waste under a site treatment plan that DOE developed for the Idaho Department of Environmental Quality. EM officials from the Idaho Cleanup Project told us that they planned to work with the Idaho Department of Environmental Quality to make changes to milestones specific to calcine waste in the site treatment plan, and Idaho Department of Environmental Quality officials stated in December 2018 that preliminary discussions on this topic occurred in September 2018. Further, EM Idaho Cleanup Project officials identified actions that EM is taking at the site to study alternatives to treatment and aspects of the disposal process. EM officials from the Idaho Cleanup Project stated that with the suspension of developing hot isostatic pressing, they are studying the potential packaging of the calcine waste for disposal without additional treatment, or direct disposal. The analysis of alternatives report identified direct disposal as having significant cost savings over other technologies. However, the team performing the analysis of alternatives also found that this method has a high degree of regulatory uncertainty and it is not clear whether it would be accepted by stakeholders, such as state regulators and the public. EPA officials told us that if EM wanted to proceed with plans for the direct disposal of the calcine waste in a geologic repository, EM would need, among other things, to seek a no-migration variance from EPA. A petition for a no-migration variance must demonstrate, to a reasonable degree of certainty, that the hazardous components would not leak or escape once the HLW is buried underground for as long as the waste remains hazardous. EPA officials added that there is a very high bar for such variances; only one such request has been approved since 1984, and it was later rescinded. In February 2019, an EM Idaho Cleanup Project official told us that EM has met with officials from the Idaho Department of Environmental Quality and EPA to receive their preliminary input on this approach. EM Idaho Cleanup Project officials said that they are focusing in the near term on developing and testing a system to retrieve the calcine waste from its storage vessels, called bin sets. According to EM documents, retrieval of the calcine waste from the bin sets is a precursor to treating or packaging the waste for disposal, and there are several challenges to address in developing an effective retrieval system. As a result, EM directed its contractor to conduct a project to retrieve calcine waste from the oldest bin set and move it to a partially empty bin set under EM s contract for hazardous waste cleanup at INL. The project serves to both test different forms of technologies and also to cease use of the older bin set, which does not have the same structural integrity as the other bin set because of its design, according to EM officials from the Idaho Cleanup Project and documents. The project is estimated to cost $50 million over 5 years, according to these officials. Fluor Idaho s plan for the calcine waste retrieval project involves developing a full-scale mock-up of the retrieval process for testing in fiscal years 2019 and 2020, with the commissioning and start-up of the full-scale system and transfer of the waste to occur in fiscal year 2021. In February 2019, an EM official told us that $6 million was obligated to the pilot project in fiscal year 2019 in part because of increased costs for the IWTU reengineering project and cleanup of transuranic waste at INL. Despite these efforts, EM officials from the Idaho Cleanup Project acknowledged that the agency has no plan to issue a new Record of Decision or amend the 2010 Record of Decision selecting the treatment option for calcine waste. Although EM identified challenges with using hot isostatic pressing for the treatment of the calcine waste in its technical readiness assessment in 2011 and analysis of alternatives in 2016, an EM official told us that the agency does not have a strategy for determining its next steps in treating this waste for land disposal. According to standards for internal control, federal agency management should identify, analyze, and respond to risks related to achieving a defined objective. Without developing a strategy, including a timeline, to identify and develop a treatment approach for the calcine waste, EM does not have reasonable assurance that it will meet milestones for the completion of treatment of all calcine by a target date of December 31, 2035. <5. Conclusions> EM has been working since 2005 to construct and operate the IWTU to treat the SBW and calcine waste at INL. Despite declaring construction complete in 2012 at a cost of $571 million, EM is still working to repair and reengineer the IWTU following the discovery of facility problems during testing, with expenditures surpassing $416 million. EM has made progress in identifying the engineering problems plaguing the facility and implementing technical changes and expects to complete the second of the four phases of the reengineering project in mid-2019, with its next series of system testing to begin in early 2020. However, EM has experienced significant cost increases and schedule delays in phase two of the IWTU project, and additional engineering and testing remains to be completed before beginning a multiyear effort to treat the SBW. EM s ability to achieve the project s estimated cost and schedule in phase two may have been hampered because EM has not fully followed best practices for ensuring that the cost estimate is complete and the schedule estimate is well-constructed. By ensuring that the cost estimate for future phases of the IWTU reengineering project and the SBW treatment operations is comprehensive (e.g., account for all possible costs), EM will have greater assurance that it can successfully plan program resource requirements. Moreover, by developing a well-constructed schedule estimate for the IWTU reengineering project and the SBW treatment operations, EM will have greater assurance that it can successfully achieve its plans to reengineer the IWTU and begin treatment of the SBW without further delays. Further, while EM is using an EVM system to measure the performance of the project and generally followed best practices for EVM systems, the system produces unreliable data. By following best practices for ensuring EVM data reliability for the IWTU reengineering project s EVM system, EM leadership will have better access to reliable performance data as it manages billions of dollars worth of cleanup work and provides information to Congress and other stakeholders on the cleanup work every year. EM faces long-standing challenges to implementing its preferred alternative for disposing of the treated SBW at WIPP. Key among these challenges are provisions in federal law and the WIPP permit that prevent EM from disposing of the SBW at WIPP. EM has taken some steps toward addressing these challenges, such as seeking public comment on its new interpretation of the statutory definition of HLW that according to EM could allow the waste to be disposed of at WIPP or an alternative to an HLW geologic repository. However, EM has no strategy or timeline for making any changes to DOE policies and regulations that may be required to implement its new interpretation or for making decisions regarding disposing of the SBW. Until it develops such a strategy, including a timeline, to implement the actions required to achieve its preferred disposal pathway, or an alternative, for the SBW, EM will not have reasonable assurance that it can achieve its preferred plan for disposal or begin the process of identifying an alternative. Further, if EM implements its new interpretation of HLW and uses this definition to classify the SBW as non-HLW, there is significant risk for extended litigation, which may delay EM s plans to dispose of the SBW at its preferred disposal site. Moreover, EM faces challenges in completing treatment of the calcine waste by a target date of December 31, 2035, in light of its decision to suspend development of the selected treatment technology, hot isostatic pressing, and the absence of an HLW geologic repository. Even though EM is studying alternatives to using hot isostatic pressing to prepare the calcine waste for disposal, it has not developed a strategy or a timeline for determining its plans for treating this waste for disposal. Without developing such a strategy, including a timeline, for the treatment and disposal of the calcine waste to ensure that EM meets the milestone for completing the treatment of the waste by December 31, 2035, EM does not have reasonable assurance that it can meet its milestones. <6. Recommendations for Executive Action> We are making five recommendations to DOE: The Secretary of Energy should direct the Assistant Secretary of EM to develop cost estimates for the IWTU reengineering project and the SBW treatment operations that meet best practices for being comprehensive (e.g., account for all costs). (Recommendation 1) The Secretary of Energy should direct the Assistant Secretary of EM to develop schedule estimates for the IWTU reengineering project and the SBW treatment operations that meet best practices for being well- constructed. (Recommendation 2) The Secretary of Energy should direct the Assistant Secretary of EM to follow best practices for ensuring the reliability for the IWTU reengineering project s EVM system. (Recommendation 3) The Secretary of Energy should direct the Assistant Secretary of EM to develop a strategy, including a timeline, for implementing the actions required to achieve its preferred disposal pathway, or an alternative, for the SBW. (Recommendation 4) The Secretary of Energy should direct the Assistant Secretary of EM to develop a strategy, including a timeline, to identify and develop a treatment approach for the disposal of the calcine waste to ensure that EM meets the milestone for completing the treatment of this waste by the target date of December 31, 2035. (Recommendation 5) <7. Agency Comments and Our Evaluation> We provided a draft of this report for review and comment to the Secretary of Energy and the Administrator of the EPA. DOE provided written comments on the draft report, which are presented in appendix IV. EPA did not provide written comments. DOE and EPA both provided technical comments that we incorporated in the report as appropriate. DOE agreed with our recommendations related to the management of the IWTU reengineering project, including developing cost and schedule estimates that meet best practices and ensuring the reliability of the EVM system for the project. Regarding the cost estimate, DOE committed to developing cost estimates that meet best practices and stated that cost estimates for phases three and four of the IWTU reengineering project have been developed and reviewed by the Defense Contract Audit Agency. For the schedule estimate, DOE stated that the schedules for phases three and four have been developed and that the inclusion of these phases in the schedule is in accordance with best practices for the well-constructed characteristic. With regard to the EVM system, DOE stated that cost and performance data will be included in the EVM system in accordance with EVM best practices once contract negotiations are completed, which the agency estimated would conclude by December 31, 2019. DOE also agreed with our recommendations to develop a strategy, including a timeline, for the disposal of the SBW and calcine waste. DOE further stated that EM is in the process of developing a site options analysis for INL and other EM sites to identify opportunities to complete cleanup work through more efficient and innovative approaches over the next decade. This analysis is expected to be completed in fiscal year 2020, according to DOE. DOE stated that EM s HLW interpretation issued in June 2019 could potentially open new disposal pathways for some reprocessing waste, such as SBW and calcine, while noting that decisions about whether and how this interpretation will apply to existing wastes have yet to be made. In its written comments, DOE disagreed with our recommendation to seek clarification from Congress on DOE s authority to classify the SBW as other than HLW if such clarification is necessary to avoid extended litigation. DOE stated the agency does not require additional clarification from Congress to classify reprocessing waste as other than HLW. We are deleting our recommendation but continue to believe that there is significant risk for extended litigation if EM implements its new interpretation of HLW and uses this definition to classify the SBW as non- HLW. Extended litigation may delay EM s plans to dispose of the SBW at its preferred disposal site. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Administrator of the Environmental Protection Agency, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology Our report examines (1) the extent to which the Department of Energy s (DOE) Office of Environmental Management s (EM) management of the Integrated Waste Treatment Unit (IWTU) reengineering project follows selected project management best practices; (2) challenges EM faces in the disposal of the sodium-bearing waste (SBW); and (3) challenges EM faces in the treatment and disposal of the calcine waste. To address these three objectives, we conducted a site visit to DOE s Idaho National Laboratory (INL) in December 2017. During the site visit, we obtained documentation and interviewed officials from EM, which is responsible for hazardous waste cleanup at INL through its Idaho Cleanup Project. We also interviewed representatives from Fluor Idaho, LLC, which is the private contractor that manages hazardous waste cleanup at INL for EM, including the cleanup of the SBW and calcine waste. In addition, we conducted a site visit to Hazen Research, Inc., a subcontractor to Fluor Idaho, to observe pilot testing facilities for the IWTU reengineering project and discuss the status of the project with an EM official from the Idaho Cleanup Project and representatives from Hazen Research, Inc., and Fluor Idaho. To assess the extent to which EM s management of the IWTU reengineering project meets selected project management best practices, we first identified areas deemed to be important to project management based on our previous work on DOE projects and leading practices from the Project Management Institute, which are generally recognized as leading practices for project management. Specifically, we reviewed the project management leading practices identified in the Project Management Institute s A Guide to the Project Management Body of Knowledge Sixth Edition. From this review, we selected project management practices related to developing cost and schedule estimates and conducting project monitoring through the use of earned value management (EVM) and independent reviews. We then conducted assessments of these best practices, as discussed below. Cost. To determine the extent to which the cost estimate for the IWTU reengineering project is reliable, we conducted an abridged analysis of the IWTU reengineering project s cost estimate, focusing on its comprehensiveness. Typically, in analyzing a cost estimate against best practices in GAO s Cost Estimating and Assessment Guide (cost guide), we examine four characteristics, each defined by multiple criteria: credible. For this review, we assessed the cost estimate for the IWTU reengineering project against the comprehensive characteristic, in part because EM officials told us that they had yet to develop a cost estimate for the program beyond phases one and two at the time of our review. Specifically, we reviewed the cost estimate for the operation of the IWTU and the IWTU reengineering project, which, at the time of our review, was only developed for phases one and two of the project. If a cost estimate is not comprehensive (that is, complete), then it cannot fully meet the well- documented, accurate, or credible best practice characteristics. For instance, if the cost estimate is missing some cost elements, then the documentation will be incomplete, the estimate will be inaccurate, and the result will not be credible because of the potential underestimating of costs and the absence of a full risk and uncertainty analysis. See appendix II for a summary assessment of the IWTU reengineering project s cost estimate compared to selected best practices. Schedule. To assess EM s schedule for the IWTU reengineering project, we conducted an abridged analysis of the IWTU reengineering project s schedule, focusing on comprehensiveness and the degree to which it is well-constructed. Typically, in analyzing a schedule estimate against best practices in GAO s Schedule Assessment Guide (schedule guide), we examine four characteristics, each defined by multiple criteria: controlled. For this review, we assessed the IWTU reengineering project schedule that EM provided in March 2018 against the well-constructed characteristic, in part because EM officials told us that they had yet to develop a schedule estimate for the totality of the reengineering project because of Fluor Idaho s phased approach. If a schedule estimate is not well-constructed, it will not be able to properly calculate dates and predict changes in the future. When activities are missing logic links, the schedule will not be able to automatically transmit these delays to future activities that depend on them. When this happens, the schedule will not allow a sufficient understanding of the program as a whole, and users of the schedule will not have confidence in the dates and the critical path. In addition, we evaluated the comprehensive characteristic because it contributed to our analysis of EM s EVM system, as described below. See appendix II for a summary assessment of the IWTU reengineering project s schedule estimate compared to selected best practices. EVM. In addition, we analyzed EM s use of EVM as a way to assess its monitoring of the IWTU reengineering project s cost and schedule. EVM measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for the period and with the actual cost of the work accomplished. It is an industry standard and is considered a best practice for conducting cost and schedule performance analysis for projects. Our EVM analysis focused on Fluor Idaho s EVM data for the IWTU reengineering project contained in cost performance reports from March 2017 to February 2018 and the project schedule that EM provided in March 2018. Specifically, we compared this project documentation with EVM best practices as identified in our cost guide. Our research has identified a number of best practices that are the basis of effective EVM and should result in reliable and valid data that can be used for making informed decisions. These best practices have been collapsed into three high-level characteristics of a reliable EVM system, which are establish a comprehensive EVM system, ensure that the data resulting from the EVM system are reliable, and ensure that the program management team is using EVM data for decision-making purposes. See appendix III for our summary assessment of the IWTU reengineering project s EVM data compared to best practices. EVM data are considered reliable if the overall assessment ratings for each of the three characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the EVM data cannot be considered reliable. Independent reviews. To assess the extent to which DOE has conducted independent reviews of the IWTU reengineering project, we examined DOE and EM policies to identify requirements for conducting reviews of operations activities. Specifically, we reviewed a 2016 DOE memorandum that established that DOE s Project Management Risk Committee (PMRC) would provide independent review of selected projects in the operational release phase, the PMRC s standard operating procedures, and EM s guidance for projects in the operational release milestone. We examined documentation from the PMRC s reviews of the IWTU reengineering project, including documentation that EM officials from the Idaho Cleanup Project prepared for these reviews and recommendations that the PMRC made to EM for the project. In addition, we spoke with officials from DOE s Office of Project Management, which serves as the secretariat of the PMRC; EM s Office of Acquisition & Project Management; and EM s Idaho Cleanup Project about independent reviews of projects in the operational release phase. To examine challenges EM faces in the disposal of the SBW, we reviewed federal laws, regulations, and DOE policies on radioactive waste management, including those described in DOE Order 435.1 on radioactive waste management and its implementation manual. In addition, we examined EM s October 2018 and June 2019 Federal Register notices, which provide DOE s new interpretation of the statutory definition of high-level radioactive waste (HLW). We also reviewed documentation related to EM s plans for disposing of the SBW at DOE s Waste Isolation Pilot Plant (WIPP) in New Mexico, such as Record of Decision documents for proposed actions that require development of environmental impact statements, and the hazardous waste facility permit for WIPP that the New Mexico Environment Department issued. We interviewed DOE officials from the Office of the General Counsel; officials from EM s Idaho Cleanup Project and Carlsbad Field Office, which is responsible for DOE s oversight of WIPP; and officials from EM s Office of Regulatory Compliance, Office of Nuclear Materials, and Office of Waste and Materials Management. We also interviewed officials from Idaho s Department of Environmental Quality and New Mexico s Environment Department, as well as representatives from two environmental advocacy groups in Idaho and New Mexico, to obtain their perspectives on the challenges facing EM s SBW disposal efforts. To examine challenges EM faces in the treatment and disposal of the calcine waste, we reviewed federal laws, regulations, and documents that DOE and EM s contractors for the Idaho Cleanup Project prepared related to the calcine waste cleanup mission. For example, we reviewed documents assessing treatment and disposal alternatives for calcine waste, including a 2016 analysis of alternatives report that EM prepared and a 2015 contractor-prepared report assessing the feasibility of the direct disposal of calcine waste. We interviewed officials from EM s Idaho Cleanup Project and Office of Nuclear Materials; EM s Chief Engineer; and representatives from EM s contractor, Fluor Idaho, about plans for treating and disposing of the calcine waste and the retrieval pilot project. In addition, we reviewed Environmental Protection Agency (EPA) Resource Conservation and Recovery Act, as amended (RCRA) regulations, guidance, and documents concerning land disposal requirements. We also interviewed officials from EPA s Office of Land and Emergency Management and Region 10 about EPA s responsibilities for implementing RCRA. Lastly, we interviewed officials from the Idaho Department of Environmental Quality about how EM s calcine waste treatment and disposal efforts address milestones in the Idaho Settlement Agreement. We conducted this performance audit from September 2017 to September 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Cost and Schedule Estimates Compared to Actual Costs and Schedule for the Integrated Waste Treatment Unit Reengineering Project Table 2 describes the initial cost and schedule estimates for the four phases of the Integrated Waste Treatment Unit reengineering project compared to actual expenditures and schedule as of February 2019. Table 3 details our assessment of the Office of Environmental Management s (EM) cost estimate for phases one and two of the Integrated Waste Treatment Unit (IWTU) reengineering project compared to selected best practices for cost estimating published in GAO s Cost Estimating and Assessment Guide (cost guide). For this review, we assessed the cost estimate for the IWTU reengineering project against the comprehensive characteristic, in part because EM officials told us that they had yet to develop a cost estimate for the program beyond phases one and two, at the time of our review of these documents. We assessed the comprehensive characteristic for the IWTU reengineering cost estimate because if a cost estimate is not comprehensive that is, complete then it cannot fully meet the other best practice characteristics. According to our analysis, EM s cost estimate for the IWTU reengineering project partially met best practices for a comprehensive cost estimate. Table 4 details our assessment of EM s schedule for the IWTU reengineering project compared to selected best practices for project schedules published in GAO s Schedule Assessment Guide (schedule guide). For this review, we assessed the schedule against the well- constructed characteristic, in part because EM officials told us that they had yet to develop a schedule for the totality of the reengineering project because of the contractor s phased approach. We assessed the well- constructed characteristic because, among other reasons, if a schedule is not well-constructed, it will not be able to properly calculate dates and predict changes in the future. In addition, we evaluated the comprehensive characteristic as it is needed to evaluate an earned value management system. According to our assessment, EM s schedule for the reengineering project partially met best practices related to the well- constructed characteristic and substantially met best practices related to the comprehensive characteristic. Appendix III: Assessment of EM s EVM Data for the IWTU Reengineering Project Compared with Best Practices Table 5 details our assessment of March 2017 to February 2018 data from the Department of Energy s (DOE) Office of Environmental Management s (EM) earned value management (EVM) system for the Integrated Waste Treatment Unit (IWTU) reengineering project. EVM measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for that period and with the actual cost of work accomplished. By using the metrics derived from these values to understand performance status and to estimate cost and time to complete, EVM can alert program managers to potential problems sooner than expenditures alone can. Our research has identified a number of best practices that are the basis of effective EVM and should result in reliable and valid EVM data that can be used for making informed decisions. Specifically, EM followed (i.e., substantially met) best practices to ensure that its EVM system is (1) comprehensive and (2) used by leadership for decision-making, but did not follow (i.e., partially met) best practices to ensure that the data resulting from the EVM system are reliable. Appendix IV: Comments from the Department of Energy Appendix V: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Casey L. Brown (Assistant Director), Emily Ryan (Analyst in Charge), Juan Collymore, Jennifer Echard, Richard P. Johnson, Jason Lee, Eli Lewine, Katrina Pekar- Carpenter, Karen Richey, Jeanette Soares, Sheryl Stein, Farrah M. Stone, Paul Sturm, and Sara Sullivan made key contributions to this report.

Why GAO Did This Study Decades of defense activities at DOE's Idaho National Laboratory produced two forms of waste that EM has managed as HLW: liquid SBW and granular calcine waste. Under an agreement with the state, DOE must treat the waste to prepare it for removal from Idaho by 2035. Construction on the IWTU, EM's facility to treat such waste, was completed in 2012, but initial testing of the SBW treatment process revealed design problems. EM has since been working to reengineer the IWTU. Total project construction and reengineering expenditures have reached nearly $1 billion as of February 2019. GAO was asked to review EM's efforts to treat and dispose of the SBW and calcine waste. This report examines (1) the extent to which EM's management of the IWTU follows selected project management best practices; (2) challenges EM faces in disposing of the SBW; and (3) challenges EM faces in treating and disposing of the calcine waste. GAO reviewed agency documents and IWTU project data from March 2017 through February 2018, analyzed EM project management efforts against selected project management best practices for cost and schedule, and interviewed DOE officials. What GAO Found The Department of Energy's (DOE) Office of Environmental Management (EM) has not fully followed selected project management best practices in managing the reengineering of the Integrated Waste Treatment Unit (IWTU), shown in the figure, to treat 900,000 gallons of liquid sodium-bearing waste (SBW) that must be solidified for disposal. EM's cost and schedule estimates for IWTU reengineering did not fully meet selected best practices for cost (i.e., did not account for all costs) and schedule estimates (e.g., did not have a valid critical path). For example, EM did not follow best practices for a comprehensive cost estimate because EM did not include both government and contractor costs over the entire project. As of February 2019, EM has experienced approximately $64 million in added costs and a more than 1-year delay in IWTU reengineering. Without fully following best practices for cost and schedule estimates, EM is at risk of future cost overruns and delays in meeting its target disposal milestones. Based on GAO's review of EM documents, EM faces challenges with its plans for SBW disposal at its preferred disposal site, the Waste Isolation Pilot Plant (WIPP), an underground repository for waste contaminated by nuclear elements, near Carlsbad, New Mexico. These challenges include a statutory prohibition on the disposal of high-level waste (HLW) at WIPP. Further, EM does not have a strategy or timeline to address these challenges or to identify an alternative disposal pathway. Without such a strategy or timeline, EM risks not meeting its commitments with Idaho to prepare the SBW for removal from the state by 2035. EM faces challenges implementing its selected technology to further treat 1.2 million gallons of granular calcine waste and selecting a potential waste disposal pathway. For example, DOE has identified challenges with retrofitting the IWTU for calcine waste treatment. As a result, EM is deferring further development of its plans to treat the calcine waste. EM officials said that the agency is making progress toward calcine waste disposal by testing options for removing the waste from its storage bins, a precursor to treating or packaging the waste for disposal. However, EM does not have a strategy or timeline for determining its next steps for the treatment and disposal of calcine waste. Such a strategy could help EM in seeking alternatives to its selected treatment technology and provide assurance that it will meet its commitments with Idaho for removing calcine waste from the state by the end of 2035. What GAO Recommends GAO is making five recommendations, including that DOE develop a strategy for the disposal of the waste. DOE generally agreed with all of these recommendations.

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<1. Background> <1.1. FBI s Use of Face Recognition Technology> For decades, fingerprint analysis was the most widely used biometric technology for positively identifying arrestees and linking them with any previous criminal record. However, beginning in 2010, the FBI began incrementally replacing the Integrated Automated Fingerprint Identification System (IAFIS) with Next Generation Identification (NGI). NGI was not only to include fingerprint data from IAFIS and biographic data, but also to provide new functionality and improve existing capabilities by incorporating advancements in biometrics, such as face recognition technology. As part of the fourth of six NGI increments, the FBI updated the Interstate Photo System (IPS) to provide a face recognition service that allows law enforcement agencies to search a database of criminal photos that accompanied fingerprint submissions using a photo of an unknown person called a probe photo. The FBI began a pilot of NGI-IPS in December 2011, and NGI-IPS became fully operational in April 2015. NGI-IPS users include the FBI and selected state and local law enforcement agencies, which can submit search requests to help identify an unknown person using, for example, a photo from a surveillance camera. When a state or local agency submits such a photo, NGI-IPS uses an automated process to return a list of candidate photos from the database. The number of photos returned ranges from 2 to 50 possible candidate photos from the database, depending on the user s specification. According to the FBI, in fiscal year 2018, NGI-IPS returned about 50,000 face recognition search results to law enforcement agency users, a decrease from about 90,000 search results in fiscal year 2017. Figure 1 describes the process for a search requested by state or local law enforcement. In addition to the NGI-IPS, the FBI has an internal unit called Facial Analysis, Comparison and Evaluation (FACE) Services that provides face recognition capabilities, among other things, to support active FBI investigations. FACE Services has access to NGI-IPS, and can also search or request to search databases owned by the departments of State and Defense and 21 states, which use their own face recognition systems. Figure 2 shows which states partnered with the FBI for FACE Services requests, as of May 2019, according to the FBI. Unlike NGI-IPS, which primarily contains photos obtained from criminal justice sources, these external systems primarily contain photos from state and federal government databases, such as driver s license photos and visa applicant photos. According to the FBI, the total number of face photos available in all searchable repositories for FACE Services is over 641 million. Biometric images specialists for FACE Services manually review any photos received from their external partners before returning a photo as an investigative lead to the requesting FBI agents. No more than two photos are returned as a lead after the specialist for FACE Services completes the review. However, according to FACE Services officials we met with during our May 2016 review, if biometric images specialists determine that none of the databases returned a likely match, they do not return any photos to the agents. According to the FBI, from August 2011 (when searches began) through April 2019, FACE Services received 153,636 photos of unknown persons (often called probe photos) from FBI headquarters, field offices, and overseas offices, which resulted in 390,186 searches of various databases in attempt to find photo matches of known individuals in these databases. <1.2. Privacy Laws and Responsibilities at DOJ> Federal agency collection and use of personal information, including face images, is governed primarily by two laws: the Privacy Act of 1974 and the privacy provisions of the E-Government Act of 2002. The Privacy Act places limitations on agencies collection, disclosure, and use of personal information maintained in systems of records. The Privacy Act requires that when agencies establish or make changes to a system of records, they must notify the public through a system of records notice (SORN) in the Federal Register. According to Office of Management and Budget (OMB) guidance, the purposes of the notice are to inform the public of the existence of systems of records; the kinds of information maintained; the kinds of individuals on whom information is maintained; the purposes for which they are used; and how individuals can exercise their rights under the Privacy Act. The E-Government Act of 2002 requires that agencies conduct Privacy Impact Assessments (PIAs) before developing or procuring information technology (or initiating a new collection of information) that collects, maintains, or disseminates personal information. The assessment helps agencies examine the risks and effects on individual privacy and evaluate protections and alternative processes for handling information to mitigate potential privacy risks. OMB guidance also requires agencies to perform and update PIAs as necessary where a system change creates new privacy risks, for example, when the adoption or alteration of business processes results in personal information in government databases being merged, centralized, matched with other databases or otherwise significantly manipulated. Within DOJ, preserving civil liberties and protecting privacy is a responsibility shared by departments and component agencies. As such, DOJ and the FBI have established oversight structures to help protect privacy and oversee compliance with statutory and policy requirements. For example, the FBI drafts privacy documentation for its face recognition capabilities, and DOJ offices review and approve key documents developed by the FBI such as PIAs and SORNs. <2. DOJ and FBI Have Taken Steps Since May 2016 to Better Ensure Privacy but Work Remains to Fully Address Prior Recommendations> <2.1. DOJ Has Taken Steps to More Quickly Publish Privacy Impact Assessments but Has Not Fully Implemented Its Revised Process> We reported in May 2016 that the FBI did not (1) update the NGI-IPS PIA in a timely manner when the system underwent significant changes, or (2) develop and publish a PIA for FACE Services before that unit began supporting FBI agents. However, DOJ and the FBI have since taken steps to review and publish PIAs more quickly. As discussed in our 2016 report, consistent with the E-Government Act and OMB guidance, DOJ developed guidance that requires initial PIAs to be completed at the beginning of development of information systems and any time there is a significant change to the information system in order to determine whether there are any resulting privacy issues. In accordance with this guidance, FBI published a PIA at the beginning of the development of NGI-IPS in 2008, as required. However, the FBI did not publish a new PIA or update the 2008 PIA before beginning to pilot NGI-IPS in December 2011 or as significant changes were made to the system through September 2015. During the pilot, the FBI used NGI- IPS to conduct over 20,000 searches to assist in investigations. Similarly, DOJ did not approve a PIA for FACE Services when it began supporting investigations in August 2011. As a new use of information technology involving the handling of personal information, it too required a PIA, according to the E-Government Act, as well as OMB and DOJ guidance. Figure 3 provides key dates in the implementation of these face recognition capabilities and the associated PIAs. DOJ approved the NGI-IPS PIA in September 2015 and the FACE Services PIA in May 2015 over 3 years after the NGI-IPS pilot began and FACE Services began supporting FBI agents with face recognition services. Among other factors, implementation of the NGI-IPS pilot constituted a significant change in the FBI s use of the technology that, consistent with the E-Government Act and OMB guidance required DOJ/FBI to update the PIA. Similarly, DOJ/FBI acknowledged that FACE Services began supporting FBI investigations in 2011, which involved storing photos in a new work log and also performing automated searches instead of manual searches. As a new use of information technology involving the handling of personal information, it too required a PIA. While DOJ and the FBI updated the internal drafts of these PIAs, the public remained unaware of the department s consideration for how the FBI uses personal information in the face recognition search process. Given the issues we identified, we recommended that DOJ assess the PIA development process to determine why PIAs were not published prior to using or updating face recognition capabilities. Although DOJ officials did not concur with this recommendation, they did agree that all DOJ processes may be reviewed for improvements and efficiencies. In November 2018, DOJ officials told us that they had reviewed the PIA development process and determined that one reason the FBI s face recognition PIAs were not completed more quickly was because the FBI and DOJ engaged in an extensive PIA revision process. As a result, DOJ reported that it implemented a pilot in 2018 to expedite the PIA approval process, which included developing a PIA approval template, conducting DOJ s review earlier in the process, and focusing the review solely on legal sufficiency instead of a more comprehensive review that included less significant editorial changes. According to DOJ, this new process has significantly reduced the time required between the completion of the PIA process by the FBI and the review by DOJ. Further, DOJ reported that it has applied the same process to other DOJ components since December 2018, and that the pilot is evolving into an operational process. We will continue to monitor DOJ s implementation of its review process changes. <2.2. DOJ Did Not Complete a SORN Addressing FBI s Face Recognition Capabilities in a Timely Manner and Has Not Implemented Corrective Actions> We reported in May 2016 that DOJ did not publish a SORN, as required by the Privacy Act, that addresses the collection and maintenance of photos accessed and used through the FBI s face recognition capabilities, in a timely manner. The DOJ published the SORN on May 5, 2016 after completion of our review even though those capabilities were in place since 2011. According to OMB guidance then in effect, the SORN must appear in the Federal Register before the agency begins to operate the system, e.g., collect and use the information. However, from 2011 through May 2016, the agency collected and maintained personal information for these capabilities without the required explanation of what information it was collecting or how it was used. For example, at the time of our review, the existing version of the SORN that covered FBI s face recognition capabilities was dated September 1999. According to DOJ officials, it did not address the collection and maintenance of photos accessed and used through NGI for the FBI s face recognition capabilities but rather discussed fingerprint searches. Given that DOJ did not publish the SORN in a timely manner, we recommended DOJ develop a process to determine why a SORN was not published for the FBI s face recognition capabilities prior to using NGI-IPS, and implement corrective actions to ensure SORNs are published before systems become operational. DOJ agreed, in part, with our recommendation and submitted the SORN for publication after we provided our draft report for comment. According to DOJ, it continues to review and update its pre-existing SORNs on an ongoing basis and is continually improving the scope and efficiency of its privacy processes. However, as of May 2019, DOJ had not taken actions to address our recommendation. Further, in April 2019, DOJ stated that with respect to transparency, a published PIA will provide much the same information that would be contained in a SORN and may provide it in a timelier manner. However, according to OMB guidance, the purpose of the SORN is to inform the public of the existence of systems of records; the kinds of information maintained; the kinds of individuals on whom information is maintained; the purposes for which they are used; and how individuals can exercise their rights under the Privacy Act. Further, PIAs and SORNs both contain information key to providing the public with information about the collection of their personal information, among other things. We continue to believe that by assessing the SORN development process and taking corrective actions to ensure timely development of future SORNs, DOJ would be better positioned to provide the public with a better understanding of how personal information is being used and protected by DOJ components. <2.3. FBI Has Conducted Audits to Oversee the Use of NGI-IPS and FACE Services> The Criminal Justice Information Services Division (CJIS), which operates FBI s face recognition capabilities, has an audit program to evaluate compliance with restrictions on access to CJIS systems and information by its users, such as the use of fingerprint records. However, at the time of our May 2016 review, it had not completed audits of the use of NGI-IPS or FACE Services searches of external databases. We reported that state and local users had been accessing NGI-IPS since December 2011 and had generated IPS transaction records since then that would enable CJIS to assess user compliance. In addition, we found that the FACE Services Unit had used external databases that included primarily civil photos to support FBI investigations since August 2011, but the FBI had not audited its use of those databases. Standards for Internal Control in the Federal Government calls for federal agencies to design and implement control activities to enforce management s directives and to monitor the effectiveness of those controls. In May 2016, we recommended that the FBI conduct audits to determine the extent to which users of NGI-IPS and biometric images specialists in FACE Services are conducting face image searches in accordance with CJIS policy requirements. DOJ partially concurred with our recommendation. Specifically, DOJ concurred with the portion of our recommendation related to the use of NGI-IPS. In March 2017, DOJ reported that the FBI began assessing NGI-IPS requirements in participating states in conjunction with its triennial National Identity Services audit, and by February 2018 had conducted eight NGI-IPS audits, which found no significant findings of noncompliance. In February 2018, DOJ provided us with copies of the final audit results for one state and its NGI-IPS audit reference guide. The FBI reported that it conducted an audit of FACE Services in September 2018. According to FBI documentation, the purpose of the audit was to determine the extent to which specialists in FACE Services conducted face image searches in accordance with FBI privacy laws and policies. The scope of the audit focused on determining adherence to policies which govern the appropriate use of NGI-IPS, including those for policy development as well as authorized requests and responses. The FBI reported that it finalized the audit report in April 2019, which concluded that the Face Services Unit is operating in accordance with privacy laws and policies. Further, the FBI stated in May 2019 that audits of FACE Services will continue on a triennial basis and that it conducts triennial audits of states that use NGI-IPS. As a result, DOJ has fully implemented our recommendation. <3. FBI Has Taken Limited Actions to Address Our Recommendations for Ensuring the Accuracy of Its Face Recognition Capabilities> <3.1. FBI Has Conducted Limited Assessments of the Accuracy of NGI-IPS Face Recognition Searches> In May 2016, we reported that prior to accepting and deploying NGI-IPS, the FBI conducted testing to evaluate how accurately face recognition searches returned matches to persons in the database. However, we found that the tests were limited because they did not include all possible candidate list sizes and did not specify how often incorrect matches were returned. According to the National Science and Technology Council and the National Institute of Standards and Technology at the time, the detection rate (how often the technology generates a match when the person is in the database) and the false positive rate (how often the technology incorrectly generates a match to a person in the database) are both necessary to assess the accuracy of a face recognition system. The FBI s detection rate requirement for face recognition searches at the time stated that when the person exists in the database, NGI-IPS shall return a match of this person at least 85 percent of the time. However, we found that the FBI only tested this requirement with a candidate list of 50 potential matches. In these tests, 86 percent of the time, a match to a person in the database was correctly returned. The FBI had not assessed accuracy when users requested a list of 2 to 49 matches. According to FBI, a smaller list would likely lower the accuracy of the searches as the smaller list may not contain the likely match that would be present in the larger list. Further, FBI officials stated during our May 2016 review that they had not assessed how often NGI-IPS face recognition searches erroneously match a person to the database (the false positive rate). If false positives are returned at a higher than acceptable rate, law enforcement users may waste time and resources pursuing unnecessary investigative leads. In addition, we concluded that by conducting this assessment the FBI would help ensure that it is sufficiently protecting the privacy and civil liberties of U.S. citizens enrolled in the database. Therefore, we recommended that the FBI conduct tests of NGI-IPS to verify that the system is sufficiently accurate for all allowable candidate list sizes and ensure that both the detection rate and the false positive rate are identified for such tests. In comments on our draft report in 2016, and reiterated during recommendation follow-up in May 2019, DOJ did not concur with this recommendation. DOJ officials stated that the FBI has performed accuracy testing to validate that the system meets the requirements for the detection rate, which fully satisfies requirements for the investigative lead service provided by NGI-IPS. As of May 2019, DOJ has not taken action to address the recommendation. We continue to believe that the recommended action is needed. Such action would allow the FBI to have more reasonable assurance that NGI- IPS provides leads that help enhance, rather than hinder, criminal investigations and that helps protect the privacy of citizens. As noted above, a key focus of our recommendation is the need to ensure that NGI-IPS is sufficiently accurate for all allowable candidate list sizes. As we reported, although the FBI tested the detection rate for a candidate list of 50 photos, they did not do such tests when NGI-IPS users request smaller candidate lists specifically between 2 and 50 photos. Further, according to the FBI Information Technology Life Cycle Management Directive, testing needs to confirm the system meets all user requirements. Because the accuracy of NGI-IPS s face recognition searches when returning fewer than 50 photos in a candidate list is unknown, the FBI is limited in understanding whether the results are accurate enough to meet NGI-IPS users needs. In comments on our May 2016 report, DOJ officials also stated that searches of NGI-IPS produce a gallery of likely candidates to be used as investigative leads, not for positive identification. As a result, according to DOJ officials, NGI-IPS cannot produce false positives and there is no false positive rate for the system. We disagree with DOJ. According to the National Institute of Standards and Technology, the detection rate and the false positive rate are both necessary to assess the accuracy of a face recognition system. Generally, face recognition systems can be configured to allow for a greater or lesser number of matches. A greater number of matches would generally increase the detection rate, but would also increase the false positive rate. Similarly, a lesser number of matches would decrease the false positive rate, but would also decrease the detection rate. Reporting a detection rate of 86 percent without reporting the accompanying false positive rate presents an incomplete view of the system s accuracy. <3.2. FBI Agreed to Conduct Annual Operational Reviews of NGI-IPS but Implementation Is Incomplete> We reported in May 2016 that FBI, DOJ, and OMB guidance all required annual reviews of operational information technology systems to assess their abilities to continue to meet cost and performance goals. For example, the FBI s Information Technology Life Cycle Management Directive required an annual operational review to ensure that the fielded system is continuing to support its intended mission, among other things. In May 2016, we reported that the FBI had not assessed the accuracy of face recognition searches of NGI-IPS in its operational setting the setting in which enrolled photos, rather than a test database of photos are used to conduct a search for investigative leads. According to FBI officials, at the time of our May 2016 review, the database of photos used in its tests was representative of the photos in NGI-IPS, and ongoing testing in a simulated environment was adequate. However, according to the National Institute of Standards and Technology, as the size of a photo database increases, the accuracy of face recognition searches performed on that database can decrease due to lookalike faces. At the time of our review, FBI s test database contained 926,000 photos while NGI-IPS contained about 30 million photos. We concluded that by conducting an operational review of these systems, FBI officials would obtain information regarding what factors affect the accuracy of the face recognition searches, such as the quality of the photos in the database, and if NGI-IPS is meeting federal, state, and local law enforcement needs. As a result, we recommended the FBI conduct an operational review of NGI-IPS, at least annually, that includes an assessment of the accuracy of face recognition searches and take actions, as necessary, to improve the system. In May 2016, DOJ concurred with this recommendation and has taken steps to seek input from its users. For example, the FBI submitted a staff paper through the fall 2016 Advisory Policy Board Process to solicit feedback from its users. Specifically, officials said the paper requested feedback on whether the face recognition searches of the NGI-IPS are meeting their needs, and input regarding search accuracy. According to FBI officials, no users expressed concern with any aspect of the NGI-IPS meeting their needs, including accuracy. DOJ reported that it repeated this process in the fall of 2017. Although FBI s action of providing working groups with a paper presenting our recommendation is a positive step, FBI s actions do not fully meet the recommendation. FBI s paper was presented as informational, and did not result in any formal responses from users. We disagree with FBI s conclusion that receiving no responses on the informational paper fulfills the operational review recommendation, which includes determining that NGI-IPS is meeting user s needs. In addition, in May 2019, the FBI stated that it will be working with the National Institute of Standards and Technology on annual operational testing and that such testing meets the intention of this recommendation. However, the proposed testing, while promising, will not occur in an operational environment. As such, we continue to believe the FBI should conduct an operational review of NGI- IPS at least annually, as we recommended. <3.3. FBI Has Not Assessed the Accuracy of External Partners Face Recognition Systems Used by FACE Services> In May 2016 we reported that FBI officials had not assessed the accuracy of face recognition systems operated by external partners. Specifically, before agreeing to conduct searches on, or receive search results from, these systems, the FBI did not ensure the accuracy of these systems was sufficient for use by FACE Services. Standards for Internal Control in the Federal Government calls for agencies to design and implement components of operations to ensure they meet the agencies mission, goals, and objectives, which, in this case, is to identify missing persons, wanted persons, suspects, or criminals for active FBI investigations. As a result, we recommended the FBI take steps to determine whether each external face recognition system used by FACE Services is sufficiently accurate for the FBI s use and whether results from those systems should be used to support FBI investigations. In comments on our draft report in 2016, and reiterated during subsequent recommendation follow-up, DOJ officials did not concur with this recommendation. DOJ officials stated that the FBI has no authority to set or enforce accuracy standards of face recognition technology operated by external agencies. In addition, DOJ officials stated that the FBI has implemented multiple layers of manual review that mitigate risks associated with the use of automated face recognition technology. Further, DOJ officials stated there is value in searching all available external databases, regardless of their level of accuracy. We acknowledge that the FBI cannot and should not set accuracy standards for the face recognition systems used by external partners. We also agree that the use of external face recognition systems by the FACE Services Unit could add value to FBI investigations. However, we disagree with DOJ and continue to believe that the FBI should assess the quality of the data it is using from state and federal partners. We also disagree with the DOJ assertion that manual review of automated search results is sufficient. Even with a manual review process, the FBI could miss investigative leads if a partner does not have a sufficiently accurate system. The FBI has entered into agreements with state and federal partners to conduct face recognition searches using hundreds of millions of photos. Without assessments of the results from its state and federal partners, the FBI is making decisions to enter into agreements based on assumptions that the search results may provide valuable investigative leads. For example, the FBI s accuracy requirements for criminal investigative purposes may be different than a state s accuracy requirements for preventing driver s license fraud. By relying on its external partners face recognition systems, the FBI is using these systems as a component of its routine operations and is therefore responsible for ensuring the systems will help meet the FBI s mission, goals and objectives. Until FBI officials can assure themselves that the data they receive from external partners are reasonably accurate and reliable, it is unclear whether such agreements are beneficial to the FBI, whether the investment of public resources is justified, and whether photos of innocent people are unnecessarily included as investigative leads. Chairman Cummings, Ranking Member Jordan, and Members of the Committee, this concludes my prepared statement. I would be happy to respond to any questions you may have at this time. <4. GAO Contact and Staff Acknowledgments> For questions about this statement, please contact Gretta Goodwin at (202) 512-8777 or GoodwinG@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Dawn Locke (Assistant Director), Jason Jackson (Analyst-In- Charge), Jennifer Beddor, Ann Halbert-Brooks, Eric Hauswirth, Paul Hobart, Richard Hung, Susanna Kuebler, Kay Kuhlman, Tom Lombardi, and Dina Shorafa. Key contributors for the previous work that this testimony is based on are listed in the previously issued product. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study Technology advancements have increased the overall accuracy of automated face recognition over the past few decades. This technology has helped law enforcement agencies identify criminals in their investigations. However, there are questions about the accuracy of the technology and the protection of privacy and civil liberties when face recognition technologies are used to identify people for investigations. This statement describes the extent to which the FBI (1) ensures adherence to laws and policies related to privacy regarding its use of face recognition technology, and (2) ensures its face recognition capabilities are sufficiently accurate. This statement is based on GAO's May 2016 report regarding the FBI's use of face recognition technology (GAO-16-267) and includes agency updates to GAO's recommendations. To conduct its prior work, GAO reviewed federal privacy laws, and DOJ and FBI policies and operating manuals. GAO interviewed officials from the FBI and the departments of Defense and State, which coordinate with the FBI on face recognition. GAO also interviewed two state agencies that partner with the FBI to use multiple face recognition capabilities. For updates, GAO reviewed FBI data, as well as materials provided by DOJ and the FBI on the status of GAO's recommendations. What GAO Found In May 2016, GAO found that the the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) could improve transparency and oversight to better safeguard privacy and had limited information on accuracy of its face recognition technology. GAO made six recommendations to address these issues. As of May 2019, DOJ and the FBI had taken some actions to address three recommendations—one of which the FBI has fully implemented—but has not taken any actions on the other three. Privacy . In its May 2016 report, GAO found that DOJ did not complete or publish key privacy documents for FBI's face recognition systems in a timely manner and made two recommendations to DOJ regarding its processes for developing these documents. These included privacy impact assessments (PIA), which analyze how personal information is collected, stored, shared, and managed in federal systems, and system of records notices, which inform the public about, among other things, the existence of the systems and the types of data collected. DOJ has taken actions to expedite the development process of the PIA. However, DOJ has yet to take action with respect to the development process for SORNs. GAO continues to believe both recommendations are valid and, if implemented, would help keep the public informed about how personal information is being collected, used and protected by DOJ components. GAO also recommended the FBI conduct audits to determine if users of FBI's face recognition systems are conducting face image searches in accordance with DOJ policy requirements, which the FBI has done. Accuracy . GAO also made three recommendations to help the FBI better ensure the accuracy of its face recognition capabilities. First, GAO found that the FBI conducted limited assessments of the accuracy of face recognition searches prior to accepting and deploying its face recognition system. The face recognition system automatically generates a list of photos containing the requested number of best matched photos. The FBI assessed accuracy when users requested a list of 50 possible matches, but did not test other list sizes. GAO recommended accuracy testing on different list sizes. Second, GAO found that FBI had not assessed the accuracy of face recognition systems operated by external partners, such as state or federal agencies, and recommended it take steps to determine whether external partner systems are sufficiently accurate for FBI's use. The FBI has not taken action to address these recommendations. GAO continues to believe that by verifying the accuracy of both systems—its system, and the systems of external partners—the FBI could help ensure that the systems provide leads that enhance criminal investigations. Third, GAO found that the FBI did not conduct an annual review to determine if the accuracy of face recognition searches was meeting user needs, and recommended it do so. In 2016 and 2017 the FBI submitted a paper to solicit feedback from system users. However, this did not result in formal responses from users and did not constitute a review of the system. GAO continues to believe that conducting such a review would help provide important information about potential factors affecting accuracy of the system. What GAO Recommends In its May 2016 report, GAO made three recommendations related to privacy, one of which has been implemented. GAO also made three recommendations related to accuracy that the FBI is still working to address.

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<1. Background> Since 2008, both the number of pedestrian fatalities and the share of pedestrian fatalities as a percentage of overall highway fatalities have increased (see fig. 1). In 2008, pedestrian fatalities represented about 12 percent of overall highway fatalities, while in 2018 they represented about 17 percent. In addition to fatalities, the estimated number of pedestrians injured in crashes has increased from about 71,000 in 2008 to about 79,800 in 2018. A range of factors can influence pedestrian fatalities including exposure of pedestrians to crashes, roadway characteristics, and driver and pedestrian behavior. According to DOT officials, there is little nationwide information about pedestrian exposure to potential crashes and that data may be more available on the state or local level. Some national data, however, shows that there may have been some change in people walking. For example, the U.S. Census Bureau s American Community Survey estimated that in 2018, 4 million people reported walking to work compared with an estimated 3.8 million people in 2010. Regarding roadways, in 2018 the National Transportation Safety Board (NTSB) reported that most pedestrian fatalities occur in urban areas on principal arterial roads that carry high volumes of traffic, traveling at the highest speeds. In 2015, we noted that behavior such as distracted driving, walking, and cycling may contribute to pedestrian and cyclist fatalities. When drivers and pedestrians use cell phones or are otherwise distracted, they may be less aware of their surroundings and more likely to be involved in a crash. Finally, NHTSA data shows that most pedestrian fatalities occurred after dark and at places other than intersections. Specifically, in 2018, of the 6,300 reported fatalities, over 4,700 pedestrians (about 75 percent) were killed after dark and about 4,600 pedestrians (about 73 percent) were killed at non-intersection locations. See appendix II for additional information on pedestrian fatalities from 2008 through 2018. Automakers have developed vehicle features intended to avoid pedestrian crashes and mitigate the extent of injury to pedestrians. Crash avoidance features (also known as active safety features) rely on cameras, radar, and other devices to detect a pedestrian and then act to alert a driver to take action, or automatically apply a vehicle s brakes to slow or stop the vehicle to avoid striking a pedestrian (see fig. 2). One pedestrian crash avoidance system is referred to as pedestrian automatic emergency braking, which uses a camera, radar, or a combination, to automatically apply brakes to avoid a collision. Crash mitigation features (also known as passive safety features) generally involve the use of pedestrian-friendly vehicle components that are designed to reduce the severity of injuries should a pedestrian be hit. Passive safety features can include energy absorbing bumper material, hoods that provide space between the hood and the hard components in the engine compartment, and contoured vehicle front-ends intended to reduce harm to pedestrians (see fig. 3). In executing its mission, NHTSA administers NCAP and issues federal motor vehicle safety standards (FMVSS) and the federal bumper standard, among other things. In general, NCAP tests supplement safety standards established in law or regulation. NCAP. Created in 1978, this program tests new vehicles to determine how well they protect drivers and passengers during a crash (front and side) and how well vehicles resist rollovers. NHTSA tests and rates vehicles using a five-star safety rating system with five stars being the highest safety rating and one star the lowest. NHTSA communicates the results of its vehicle tests through window labels on new vehicles and on its website. In 2010, NHTSA also began recommending various safety technologies for consumers to consider when purchasing vehicles. Recommended technologies include such things as forward collision warning (an alert that warns drivers to brake or steer to avoid a crash if they are too close to a car in front of them); lane departure warning (an alert that warns drivers of unintentional lane shifts); and automatic emergency braking, which can automatically activate a vehicle s brakes if a driver takes no action to avoid an imminent crash with a preceding vehicle. NHTSA has not yet included pedestrian automatic emergency braking systems as recommended technologies. Recommended technologies are not included in star ratings, but rather are features NHTSA believes consumers may wish to look for in new vehicles. Pedestrian safety tests are not currently part of NCAP. FMVSS. These are minimum performance standards established in regulation for new motor vehicles and items of motor vehicle equipment. According to NHTSA officials, FMVSS have test procedures and performance criteria with minimum thresholds for motor vehicles and motor vehicle equipment, such as minimum light intensity requirements for headlamps. Bumper standard. In addition, while not in the FMVSS, NHTSA s bumper standard prescribes performance requirements in regulation for passenger cars in low-speed front-end and rear collisions. According to NHTSA officials, the bumper standard is intended to prevent damage to the car body and safety related equipment at speeds equivalent to a 5 miles-per-hour (mph) crash into a parked vehicle of the same weight. The standard applies to front and rear bumpers on passenger cars, but not to other multipurpose passenger vehicles, such as SUVs, minivans, or pickup trucks. The United States is also involved with pedestrian safety internationally. In June 1998, the United States signed an international agreement administered by the United Nations concerning the establishment of global technical regulations for motor and other wheeled vehicles. The purpose of the agreement was to establish a global process for jointly developing technical regulations regarding such things as safety, environmental protection, and energy efficiency of vehicles. As part of this agreement, in 2008, Global Technical Regulation No. 9 was established to improve pedestrian safety by requiring vehicle hoods and bumpers to absorb energy more efficiently when impacted in a vehicle-to-pedestrian collision. This international standard has two sets of performance criteria: head impact requirements that ensure vehicle hoods provide protection to a pedestrian s head when impacted; and leg protection requirements for the front bumper that would require bumpers to subject pedestrians to lower impact forces. According to NHTSA, as a signatory to the 1998 agreement, the United States is obligated to consider adopting global technical regulations, but is not obligated to adopt them. NHTSA officials told us the agency has not yet initiated the rulemaking process for Global Technical Regulation No. 9. Although pedestrian safety testing is not currently a part of the U.S. NCAP, it is a part of similarly established new car assessment programs in other countries. For example, since 2016 both the European New Car Assessment Programme (Euro NCAP) and a program in Japan (known as the Japan New Car Assessment Program (JNCAP)) have tested vehicle pedestrian crash avoidance systems using a variety of scenarios and vehicle speeds. Euro NCAP tests include an adult dummy walking or running perpendicular to a test vehicle and walking parallel to a vehicle. Tests are also conducted with a child dummy running out from parked cars (see fig. 4). Euro NCAP tests are also conducted in daylight and at night. In the United States, two nongovernmental organizations have also conducted pedestrian safety testing. IIHS began a program to test pedestrian crash avoidance systems on 2018 and 2019 vehicles, and in 2020 began using the results to help determine its Top Safety Pick awards. The American Automobile Association (AAA) also recently conducted tests of crash avoidance systems. Moreover, crash mitigation tests that measure the potential for head and leg injuries resulting from pedestrian-motor vehicle crashes have been in place for many years in Europe and Japan. Euro NCAP began head and leg testing in 1997 and Japan began pedestrian head protection testing in 2003 and pedestrian leg protection testing in 2011. In general, these tests launch projectiles designed to simulate a person s legs or head into various locations on a vehicle s hood and bumper to assess the effectiveness in limiting pedestrian injury (see fig. 5). <2. Vehicle Age, Body Type, and Speed Are Associated with Pedestrian Fatalities, But Gaps Remain in NHTSA s Pedestrian Injury Data> We found that several vehicle characteristics including the age and body type of the vehicle and the speed at which the vehicle was being driven at the time of the crash are associated with the increase in pedestrian fatalities from 2008 through 2018. However, NHTSA lacks complete data on the relationship between vehicle characteristics and pedestrian injuries, including detailed information on injury type and severity. Although NHTSA initiated a pilot program to improve its data collection protocol for pedestrian injuries, NHTSA lacks a plan for this program to evaluate its results and determine whether and how it should be expanded. <2.1. The Number of Reported Pedestrian Fatalities Increased for Crashes Involving Older Vehicles, SUVs, and Vehicles Traveling at Higher Speeds> Through FARS, NHTSA annually collects and analyzes data on all crashes involving pedestrian fatalities, including vehicle-related characteristics. Based on these data and relevant research, we analyzed the relationship between pedestrian fatalities and the age, body type, and speed of vehicles. Our analysis of FARS data shows that from 2008 through 2018, the number of pedestrian fatalities increased more for crashes involving vehicles that were: 11 years old or older (123 percent increase) compared with newer vehicles (9 percent increase); SUVs (68 percent increase) compared with other light trucks (25 percent increase), and passenger cars (47 percent increase); and traveling at reported speeds 31 mph and above (45 percent increase), compared to vehicles traveling at lower speeds (28 percent increase). <2.1.1. Vehicle Age> The number of pedestrians struck and killed by vehicles 11 years old or older (older vehicles) increased more relative to the number of pedestrians struck and killed by vehicles 10 years old or newer (newer vehicles). In 2008, 1,139 pedestrian fatalities involved older vehicles, which represented about a quarter (26 percent) of reported pedestrian fatalities (see fig. 6). By 2018, that number more than doubled to 2,537 pedestrian fatalities, or 40 percent of reported pedestrian fatalities. Over that same time period, the number of pedestrian fatalities involving newer vehicles also increased from 2,800 in 2008 to 3,044 in 2018. However, this increase was less than fatalities involving older vehicles, and the overall share of pedestrian fatalities involving newer vehicles decreased from 63 to 48 percent over that period. The rise in the number of older vehicles involved in pedestrian fatalities may reflect the rise in the average age of vehicles in operation. According to data from DOT s Bureau of Transportation Statistics, the average age of all vehicles in operation in the United States increased by about 1.5 years from 10.1 years old in 2008 to 11.7 years old in 2018. In comparison, the average age of passenger vehicles that struck and killed pedestrians increased by roughly 2 years from 8.1 years in 2008 to 10 years in 2018. Another possible contributing factor to the increased share of pedestrian fatalities resulting from crashes with older vehicles may be the prevalence of safety features in newer vehicles compared with older vehicles. As discussed below, vehicle manufacturers are offering new vehicles with pedestrian safety features such as pedestrian crash avoidance and crash mitigation systems, which may reduce pedestrian injuries and fatalities. <2.1.2. Vehicle Body Type> The number of pedestrian fatalities where passenger cars, SUVs, or other light trucks were reported as striking vehicles all increased from 2008 to 2018 (see table 1). However, the number of SUVs involved in fatal pedestrian crashes increased by a higher percentage than passenger cars and other light trucks. As table 1 shows, pedestrian fatalities involving SUVs increased by about 68 percent, while pedestrian fatalities involving passenger cars increased by 47 percent and light trucks and vans increased by 25 percent. Additionally, although the number of SUVs involved in pedestrian fatalities increased the most in this timeframe, passenger cars still accounted for the largest share of fatalities. Data on the growth of SUVs within the U.S. vehicle fleet and academic research identify potential contributing factors as to why the number of SUVs involved in pedestrian fatalities increased between 2008 and 2018: Increasing SUV market share. SUVs represent a growing share of the total U.S. vehicle fleet. According to the Highway Loss Data Institute, the share of new vehicles in the United States that were SUVs grew from 30 percent in model year 2008 to 48 percent in model year 2018. In addition, 11 of the 13 auto manufacturers we interviewed stated that SUV sales, either market-wide or at their company, increased relative to passenger car sales in the United States since 2008. Increased risk of injuries based on vehicle size and weight. Research suggests that if a pedestrian is struck by a vehicle with greater mass the crash is more likely to result in serious injuries or a fatality than if the pedestrian is struck by a lower-mass vehicle. For example, one study we reviewed that cited work from five other studies found that the chief determinants for the severity of injuries in motor vehicle collisions are vehicle size and weight. According to one NHTSA-funded study, which used information from NHTSA s Pedestrian Crash Data Study, researchers found that the probability of death for pedestrians struck by light trucks (including SUVs) was 3.4 times higher than for pedestrians struck by passenger cars. <2.1.3. Vehicle Speed> Between 2008 and 2018, the number of pedestrian fatalities involving higher speeds (31 mph and above) at the time of the crash increased more sharply than the number involving lower speeds (30 mph and below). Although vehicle speed was missing or not reported for 62 percent of pedestrian fatalities (as discussed below), our analysis of FARS data showed that when speed data are recorded, the number of pedestrian fatalities involving vehicles reportedly travelling at higher speeds increased from 1,315 to 1,912 (45 percent) between 2008 and 2018 (see fig. 7). The number of pedestrian fatalities involving vehicles reportedly traveling at lower speeds also increased, but at a smaller percentage (28 percent) than vehicles at higher-speed. During this time period, about 79 percent of pedestrian fatalities involved vehicles travelling 31 mph and above, and about 21 percent involved vehicles traveling at lower speeds. Multiple studies have found that when vehicles travel at higher speeds and strike pedestrians, they are more likely to kill or severely injure the pedestrian. For example, the NTSB reported in 2018 that the relationship between speed and the severity of injuries is consistent and direct higher crash speeds result in injuries that are more severe. The NTSB added that the effect of speed is especially critical for pedestrians because they lack protection. In addition, according to a 2019 report from the National Cooperative Highway Research Program, a pedestrian s risk of fatality is 90 percent when struck by vehicles travelling between 54 and 63 mph compared with a 10 percent risk of fatality between 24 and 33 mph. We also found that between 2008 and 2018, the speed of the striking vehicle was not reported for about 62 percent of pedestrian fatalities. This omission is likely because it is difficult for police officers to determine a vehicle s speed after a crash occurs. Further, some organizations we spoke with told us that low speed collisions were typically underreported. According to NHTSA officials, the speed recorded is generally up to the discretion of the responding police officer. <2.2. NHTSA Lacks Complete Data on the Relationship between Vehicle Characteristics and Pedestrian Injuries> NHTSA officials and other stakeholders we interviewed identified limitations in NHTSA s data on the relationship between vehicle characteristics and pedestrian injuries. These include (1) incomplete and inconsistent injury designations, (2) crash and vehicle information not linked to medical data, and (3) outdated pedestrian crash investigation data. Incomplete and inconsistent injury information. Within CRSS, NHTSA relies on information provided in police reports to determine national estimates of injured pedestrians. According to NHTSA officials, data from the police reports are typically after-the-fact descriptions of events and NHTSA conducts little, or no, follow up investigations of these reports. As a result, CRSS data may not include the cause of crashes or pedestrian injuries, and for some crashes it may be missing detailed information on specific characteristics of the striking vehicle. In addition, there may be inconsistencies in pedestrian injury information. NHTSA s injury severity data rely on reporting from states and localities, which may define injury severity differently, year-to-year. As we have reported, NHTSA standardized the injury severity definitions nationally in April 2019; however, it will take time for states to adopt this standard. Crash and vehicle data are not linked to medical records. According to NTSB and some researchers we spoke with, the five point injury severity scale used on police crash reports does not effectively capture injury severity or actual injury outcomes because NHTSA does not link crash data with medical and hospital records. Without crash and vehicle information linked to medical records, researchers cannot crosscheck injury severity designations with actual injury outcomes or identify specific injury types. NHTSA previously sponsored a program to help link crash data with injury data contained in medical records, but federal funding for the program was discontinued in 2013. Outdated pedestrian crash investigation data. NHTSA last collected detailed data on pedestrian crash and injury characteristics from 1994 to 1998. The Pedestrian Crash Data Study collected information from over 500 pedestrian crashes, including data on pedestrian injury types, severity, and potential causation. The study also reported the vehicle s type and the part of the vehicle that caused the injury, such as the front bumper. In its 2018 report, NTSB stated that while this study was the most complete set of pedestrian crash data available in the United States, the data are over 20 years old. NTSB recommended that NHTSA develop a detailed and current pedestrian crash data set for local and state analysis and to model and simulate pedestrian collision avoidance systems. As of February 2020, however, NHTSA had not fully implemented the recommendation. Some automakers and equipment suppliers we spoke with noted that improved real world injury data would help them better develop pedestrian safety features. NHTSA has recognized that it needs to collect more detailed and complete data on pedestrian injuries. For example, in a 2011 report to Congress on the agency s data gaps, NHTSA noted that internal stakeholders (those within NHTSA) requested an updated Pedestrian Crash Data Study with crashes involving late-model-year vehicles and detailed injury data on the body region impacted rather than the vehicle s point of contact. Further, in its 2016 to 2020 strategic plan, NHTSA stated that it would work to improve the quality, timeliness and relevance of safety data collected. <2.3. NHTSA Has Begun a Pilot Program to Improve Its Data Collection Protocol for Pedestrian Injuries, but Lacks a Plan to Evaluate Results> In 2018, NHTSA initiated a pilot program to evaluate existing and new protocols for collecting pedestrian crash and injury data as part of its Crash Injury Research and Engineering Network (CIREN). The purpose of this pilot program is to develop a data collection protocol and collect preliminary data for pedestrian-motor vehicle crashes, including analysis on injury causation. Further, NHTSA stated that it intends to use this protocol and data as the foundation for subsequent pedestrian crash studies such as research related to injury trends and testing tools. NHTSA officials also told us that the pilot will help update and build upon the data collection and analysis protocols for pedestrian-motor vehicle crashes used in the 1990s in the Pedestrian Crash Data Study. According to NHTSA officials, the pilot will collect data on nine cases from two hospitals. A third hospital will provide engineering support. NHTSA officials stated that they limited the pilot study to nine cases so they would be able to act quickly on the pilot to determine if a full project was worth pursuing and to avoid delays. According to NHTSA officials, they expect initial results to be available by fall 2020. We have reported that a well-developed and documented pilot program can help ensure that agency assessments produce information needed to make effective program and policy decisions. Well-designed pilot programs use five leading practices including: 1. establishing clear, appropriate, and measurable objectives; 2. articulating an assessment methodology and data gathering strategy; 3. developing a data analysis and evaluation plan to track pilot 4. identifying criteria for determining whether and how to scale the pilot and integrate it into overall efforts; and 5. ensuring two-way stakeholder communication through the pilot program. Through our review of the CIREN pedestrian pilot program documentation, we determined that NHTSA met most of the criteria for a well-developed pilot program, but not all. Specifically, NHTSA documented clear, appropriate, and measureable project objectives; identified an assessment methodology and data gathering strategy; developed a data analysis plan; and communicated with stakeholders. NHTSA, however, did not establish an evaluation plan that includes criteria to determine if the pilot program s data collection and analysis protocol should or could be continued or expanded, once the data have been collected from the nine cases. Although NHTSA officials reported that they had a plan to review and evaluate individual cases, NHTSA does not have an evaluation plan for the pilot program that includes criteria or standards for identifying lessons learned or determining whether the new data collection and analysis procedures would satisfy data needs related to pedestrian s injuries. NHTSA officials told us that they did not develop an evaluation plan or criteria for determining the success or scalability of the pedestrian pilot program because they were not required to create one. They also said they did not have enough information to tell if the pilot program should be integrated into overall efforts, although they expect the tools developed by the pilot to be incorporated into later efforts to increase the number of pedestrian crashes reviewed under the CIREN program. <3. Automakers Reported That Various Pedestrian Safety Features Are Commonly Available in New Vehicle Models and That All Features Have Benefits and Challenges> <3.1. Most Automakers Reported Offering Pedestrian Crash Avoidance or Mitigation Safety Features> Pedestrian crash avoidance and crash mitigation safety features are commonly available on many 2019 model year vehicles offered in the United States, according to the 13 automakers we interviewed. As previously discussed, crash avoidance features rely on cameras or radar or both to detect a pedestrian and take action to avoid a crash. Crash mitigation generally involves use of pedestrian-friendly vehicle components (such as energy absorbing bumper components or hoods) that are designed to reduce the severity of injuries should a pedestrian be hit. The 13 automakers we interviewed responded that they, collectively, offered 262 model year 2019 vehicles for sale in the United States. Of those vehicle models, almost 60 percent included pedestrian automatic emergency braking as either a standard or an optional feature (see fig. 8). About 62 percent of their model year 2019 vehicles had some type of standard pedestrian crash mitigation feature. In total, 12 of 13 automakers that we interviewed responded that they offered one or more 2019 model year vehicles with pedestrian automatic emergency braking as either a standard or optional feature; similarly, 12 of 13 automakers told us they offered crash mitigation features in at least one of their 2019 model year vehicles. Some stakeholders we interviewed told us that a combination of crash avoidance and crash mitigation features can be effective in minimizing pedestrian injury. For example, NHTSA officials told us that crash avoidance features, such as pedestrian automatic emergency braking can slow a vehicle to a speed where it will be less damaging to a pedestrian once struck, and if the vehicle also has crash mitigation features the impact of the crash can be further mitigated. We found that almost half of 2019 vehicle models had some combination of both pedestrian automatic emergency braking and crash mitigation features. For example, about 47 percent of 2019 vehicle models had pedestrian automatic emergency braking as either standard or optional equipment along with crash mitigation features, such as softer hoods. However, 24 percent of vehicle models had neither of these (see fig. 9). Officials from the 13 automakers we interviewed identified a variety of factors that influenced their decisions to offer vehicles with pedestrian safety features in the United States. These include a desire to achieve high safety ratings for their vehicles, as well as the following: New car assessment programs: New car assessment programs in the United States and other countries also influence why automakers may offer pedestrian safety features. For example, officials from nine of 10 automakers that responded to this question in our interview replied that Euro NCAP was a major factor to them in providing pedestrian safety features, while seven of 10 automakers responded that JNCAP was a major factor. In contrast, three of 11 automakers responded that the U.S. NCAP was a major factor in their decisions to offer vehicles with pedestrian safety features. As previously discussed, the United States, unlike the European Union and Japan, does not incorporate pedestrian safety tests into its NCAP. Independent safety testing: Independent safety testing was also a factor in why automakers may offer pedestrian safety features on vehicles. For example, officials from five automakers said that they considered IIHS safety ratings to be a major factor in their company s decision to offer pedestrian safety features on vehicles sold in the United States. As previously discussed, IIHS began testing pedestrian crash avoidance systems on 2018 and 2019 vehicles. These tests are known as pedestrian automatic emergency braking tests and in 2020 IIHS began using the results to help determine their Top Safety Pick awards. Officials from two automakers said a company s goal is to earn an IIHS top safety-pick rating for each of their models. Cost: Cost appeared to be less of a factor influencing whether pedestrian safety features were offered on vehicles. Officials from seven of eight automakers who responded to this question replied that costs either were a minor factor, or did not apply, in their decisions to offer vehicles with pedestrian safety features. However, officials from four automakers told us that, in general, while customers want safer vehicles, automakers have to consider what safety features could be included without increasing the overall cost. Further, one automaker s representative said that as more manufacturers and customers are buying crash avoidance systems the costs are decreasing. The future availability of crash avoidance features may depend on several factors. Specifically, in 2016, 20 automakers voluntarily committed to making automatic emergency braking systems standard in vehicles sold in the United States by 2022. Officials from three automakers said that they planned to incorporate pedestrian automatic emergency braking into their vehicles automatic emergency braking systems as part of this commitment. Another factor is customer demand. One automaker said that the number of models that include pedestrian safety features in the future would depend on consumer demand or changes in regulation. Officials from another automaker said their customers often ask for features they see in Europe and ask why such features are available there but not in the United States. <3.2. Auto Industry Officials Cited Various Benefits and Challenges of Commonly Available Pedestrian Safety Features> The auto industry officials we interviewed identified benefits and challenges with commonly available pedestrian safety features. Benefits of crash avoidance systems include the potential of eliminating or reducing car-to-pedestrian accidents. For example, officials from six automakers said that crash avoidance features were more effective than crash mitigation features because the purpose of crash avoidance features is to prevent the collision from occurring in the first place. Almost half of the automakers we interviewed (six of 13), however, reported that a primary challenge with a camera-based pedestrian automatic emergency braking system was the camera s ability to work in low lighting or poor weather. Recently issued research has raised questions about the overall effectiveness of crash avoidance systems. In October 2019, AAA reported that based on its own assessment, some vehicles pedestrian safety systems were inconsistent at either slowing down or stopping a vehicle to avoid hitting a pedestrian. Specifically, the association reported that none of the crash avoidance systems on the four vehicles they tested worked in dark conditions. Auto industry officials also identified benefits and challenges with pedestrian crash mitigation features. For example, 12 of 13 automakers reported that crash mitigation features have the overall benefit of reducing the risk or severity of pedestrian injuries. Officials from eight automakers, however, said that the current federal bumper standard created challenges to offering softer, more pedestrian-friendly bumpers in the United States. Officials from the eight automakers said they offered softer bumpers in Europe or elsewhere where there is no similar bumper standard but do not offer softer bumpers in the United States. NHTSA officials told us the current bumper standard is primarily a cost savings standard in that it is intended to reduce repair costs and not necessarily to offer safety protection for vehicle occupants. NHTSA officials told us trade-offs are required to establish a bumper standard that addresses pedestrian safety, yet minimizes bumper damage and repair costs. NHTSA officials told us they are in the process of reevaluating the bumper damageability standard, as part of a Notice of Proposed Rulemaking, which they expect to publish in 2020. Appendix III discusses the benefits and challenges of commonly available pedestrian safety features. <4. NHTSA Has Proposed Pedestrian Safety Tests for NCAP, but Lacks a Clear Process for Updating the Program and Has Yet to Make or Communicate a Decision> <4.1. NHTSA Has Conducted Research and Proposed Pedestrian Safety Tests over the Last 10 Years> NHTSA has considered pedestrian safety for many years by conducting research, considering implementation of global regulations for pedestrian crash mitigation tests, and proposing pedestrian crash avoidance and mitigation tests for NCAP (see fig. 10). NHTSA s last substantial update of NCAP was in July 2008 (with changes effective for model year 2011 vehicles). This update established additional crash tests and technical standards to protect vehicle occupants, but did not include pedestrian safety tests. <4.1.1. Since NCAP Was Last Updated, NHTSA Contributed to Developing Global Pedestrian Regulations and Conducted Research> In the past 10 years, NHTSA has considered but has not yet initiated a rulemaking process related to international standards for crash mitigation tests, among other actions. For example, in 2008, the United States along with other countries approved a United Nation s international standard for pedestrian crash mitigation tests. This international standard, if implemented in the United States in a domestic regulation, would require U.S. vehicles to meet minimum performance requirements in pedestrian crash mitigation tests. The United States approved the international standard in 2008; however, NHTSA has yet to initiate a rulemaking to implement it either as part of the FMVSS or adopt it as a testing protocol through NCAP. According to NHTSA officials, implementation of the standard would require NHTSA to initiate a regulatory proceeding. Although the United States formally agreed to the standard more than 10 years ago, NHTSA officials told us that the rulemaking initiative is classified as a long-term action and that there is no timeline for such a rulemaking to implement pedestrian crash mitigation requirements. NHTSA has also conducted a range of research on pedestrian crash avoidance and mitigation tests. Specifically, NHTSA has published, contributed to, or sponsored over 55 studies and presentations on pedestrian safety issues since 2008, and NHTSA officials provided information stating that NHTSA has spent over $8.4 million to research pedestrian safety, including pedestrian automatic emergency braking and passive safety features from 2008 through 2019. In addition, officials stated that NHTSA has conducted a number of additional studies related to pedestrian safety, studies that NHTSA is currently reviewing for final publication, though officials did not provide expected publication dates. NHTSA officials told us this research serves as a body of work that supports and facilitates agency decisions and policies with respect to pedestrian safety. NHTSA s pedestrian safety research has focused on several key issues, including developing objective test protocols and reliable test instruments for inclusion in NCAP and assessing the potential safety benefits. NHTSA officials told us there are three important elements associated with any safety tests (including pedestrian safety tests). These elements are (1) creating test protocols that measure a vehicle s safety performance objectively, (2) validating test instruments that measure human injury, and (3) estimating the potential safety benefit of the tests. NHTSA s pedestrian safety research includes work related to all three of these elements, as follows: Objective Test Protocols. One NHTSA study developed objective test protocols to evaluate the effectiveness of pedestrian crash avoidance systems based on analyses of crash scenarios from real- world crash data. Another NHTSA study applied pedestrian crash mitigation test protocols used by Euro NCAP to the U.S. vehicle fleet. NHTSA found that the European protocols could be used to assess the pedestrian safety performance of vehicles in the United States, but that the performance of different U.S. vehicle types could vary. Specifically, NHTSA found that global platform vehicles (i.e., models that include a U.S. and European variant of the same vehicle) offered more pedestrian safety than vehicles that are only marketed in the United States. Valid Test Instruments. NHTSA has been a key contributor in the development of pedestrian test instruments. For example, NHTSA has presented information on mannequins for evaluating the repeatability and accuracy of pedestrian crash avoidance systems, concluding that mannequins should be durable, realistic, and comparable in size and movement to humans. In addition, NHTSA found there are instruments that produce repeatable and reproducible measurements of pedestrian head, upper leg, and lower leg injuries on tests. Potential Safety Benefits. NHTSA has studied the potential benefits of pedestrian crash avoidance, and estimated that these technologies could reduce the number of annual vehicle-pedestrian crashes by between 620 and 5,000, and reduce the number of annual fatal vehicle-pedestrian crashes by between 110 and 810. NHTSA has also reported that Europe and Japan have responded to the high proportion of pedestrian fatalities compared to all traffic fatalities by including pedestrian protection in their respective NCAPs and requiring pedestrian protection through regulation. According to NHTSA, these actions have likely contributed to a downward trend in pedestrian fatalities in Europe and Japan. Further, an international study found that including pedestrian safety testing in consumer testing programs has real world benefits by reducing pedestrian fatalities and injuries. For example, a European study concluded that vehicles that score well in Euro NCAP pedestrian crash mitigation tests are less likely to severely injure pedestrians. As previously noted, Euro NCAP and JNCAP have included pedestrian crash mitigation tests since 1997 and 2003, respectively, and both Euro NCAP and JNCAP incorporated pedestrian crash avoidance tests in 2016. <4.1.2. NHTSA Proposed Pedestrian Safety Tests in 2015 and Has Since Requested Comments> In December 2015, NHTSA proposed pedestrian crash avoidance and mitigation safety tests for NCAP by publishing a Request for Comments notice in the Federal Register. In the 2015 Request for Comments, NHTSA indicated that including these tests in NCAP could lead to a decrease in vehicle-pedestrian crashes and resulting pedestrian injuries and fatalities. In this request, NHTSA also reported that it believed the greatest gains in highway safety in coming years would result from widespread application of crash avoidance technologies and that its proposed safety tests for crash avoidance technologies, including pedestrian detection and automatic emergency braking, met NHTSA s four prerequisites for updating NCAP. Those four prerequisites include that: a safety need is known or capable of being estimated; vehicle and equipment designs exist (or are anticipated in prototype design) that are capable of mitigating the safety need; a safety benefit is estimated based on the anticipated performance of the existing or prototype design; and a performance-based, objective test procedure exists to measure the ability of the vehicle technology to mitigate the safety issue. With regard to crash mitigation tests, NHTSA reported that it intended to use the Euro NCAP test procedures rather than those used in Japan because the European fleet make-up, including vehicle sizes and classes, is more similar to the U.S. fleet. NHTSA also reported in its 2015 Request for Comments that including pedestrian crash mitigation tests in NCAP is necessary to stimulate improvements in pedestrian crashworthiness in new vehicles sold in the United States. NHTSA, however, did not state in its 2015 Request for Comments whether the proposed crash mitigation tests met NHTSA s prerequisites for updating NCAP, as it had for the crash avoidance tests. The proposed changes in the 2015 Request for Comment were to take effect for model year 2019 vehicles. In response to the 2015 Request for Comment, NHTSA officials told us they received 290 comments, 31 of which addressed pedestrian safety. According to the officials, the comments received were generally supportive of including pedestrian safety testing in NCAP, and commenters proposed that the U.S. tests should be consistent, or harmonized, with the tests already conducted by Euro NCAP. NHTSA officials also noted that some commenters expressed concern with test tools and proposed test scenarios. Since the 2015 proposal to include pedestrian tests in NCAP, NHTSA has continued to solicit updated information in additional Requests for Comments. Most recently, in October 2019 NHTSA announced it would seek comment on NCAP updates in 2020, and in November 2019, NHTSA requested comments on draft research test procedures for forward and rear pedestrian crash avoidance, among other technologies. However, NHTSA stated that its draft test procedures were developed for research purposes only, and the fact that it was soliciting comments on these procedures was not an indication that it would then, or at any time in the future, initiate a rulemaking related to that technology or include that technology in NCAP. <4.2. NHTSA Lacks a Clear Process for Updating NCAP and Has Not Made or Communicated a Decision for Including Pedestrian Safety in NCAP to Stakeholders> <4.2.1. Process for Updating NCAP> NHTSA officials told us there are many actions that go into their decision- making on whether to update NCAP and that this decision-making process can take years. These actions include such things as reviewing data, ensuring the reliability and repeatability of proposed tests by validating protocols at multiple independent test laboratories, and conducting market research to obtain consumer input. In addition, NHTSA officials told us that it also uses its four prerequisites for updating NCAP, and while these prerequisites are not required by law, they represent good governance practices and are in consumers best interest. However, since NCAP is considered a consumer testing information program and not a regulation, there are no particular requirements for when or how final decisions would be made as to whether pedestrian safety should or should not be included in NCAP. NHTSA officials told us that ultimately the NHTSA Administrator decides whether to go forward with changes to NCAP. Although NHTSA officials told us NCAP is not a regulation, they said NHTSA generally follows the processes in the Administrative Procedure Act for informal rulemaking to update NCAP. This process includes a notice, comment, and decision process in the Federal Register for transparency. NHTSA, however, has not used this process to communicate to stakeholders the additional steps that it must take before it can make its decision on NCAP testing. In addition, although NHTSA requested and received numerous comments on including pedestrian safety tests in NCAP in 2015, as of April 2020, it has yet to respond to those comments. Leading practices for program management emphasize the importance of milestones and decision points, documentation, and clearly communicating to external stakeholders. The Project Management Institute, Inc., The Standard for Program Management stresses the importance of program management plans that align with organizational goals and objectives. Elements of such plans are to provide a roadmap that identifies such things as milestones and decision points to guide programs forward. In addition, Standards for Internal Control in the Federal Government, state that entities should externally communicate the necessary quality information to achieve the entity s objectives. In particular, entities should communicate to external stakeholders significant matters related to risks or changes. These standards also state that documentation is necessary for design, implementation, and operating effectiveness. Compared to these leading practices, NHTSA s process does not provide documentation of the process, decision points, or milestones to guide the program. For example, NHTSA officials could not provide us with documentation as to how it determined that the pedestrian crash avoidance tests proposed in 2015 met the four prerequisites, or how the proposed crash mitigation tests compared to the prerequisites. Other NCAPs have used various methods for documenting their process for updating their testing. For example, Euro NCAP uses a roadmap to communicate to stakeholders the planned changes for NCAP tests, the timeline of steps toward the changes, and when those changes will be effective. Officials from Euro NCAP told us the test and assessment protocols are developed in conjunction with working groups made up of automakers, equipment suppliers, test facilities, and Euro NCAP member organizations. Further, officials told us the working groups and roadmaps provide automakers with the opportunity to provide real-time input and obtain information to support their investment decisions. The lack of a documented overall process for updating NCAP affects NHTSA s ability to achieve NCAP s goals to provide manufacturers an incentive to improve the safety performance of new vehicles and to assist consumers with their vehicle purchasing decisions. Specifically, without a transparent process for NHTSA s decision-making on NCAP, automakers lack information on NHTSA s progress in evaluating proposed changes such as those offered in the 2015 Request for Comment and the timing of the implementation of any specific testing procedures. This is particularly important because automakers need quality information to make investments to support the development and deployment of new technologies and equipment in their product lines to meet testing requirements. For example, representatives from one automaker told us that vehicle design is a 6 to 8 year product cycle and that if NHTSA decides to implement certain tests in the middle of that cycle, it would be difficult and costly to make changes. Without a clearly documented process for making changes to NCAP, including established criteria and milestones for decisions, automakers and the public lack clarity on NHTSA s plans for improving vehicle safety to inform investment and purchasing decisions. <4.2.2. Decision on Pedestrian Safety Testing in NCAP> NHTSA has yet to make or communicate a decision as to whether it intends to include pedestrian safety tests in NCAP. As discussed above, NHTSA has conducted extensive research and requested comments on pedestrian crash avoidance and mitigation tests in 2013 and 2015. Although NHTSA reported in 2015 that these tests could lead to a decrease in vehicle-pedestrian crashes and resulting pedestrian injuries and fatalities, it has yet to make or communicate a decision about the future of NCAP in relation to pedestrian safety to stakeholders. Nine of 13 automakers we interviewed told us that a lack of communication from NHTSA on its plan for addressing pedestrian safety issues has presented a challenge to them, often because they require long lead times to develop, test, and launch new technologies. Leading practices for program management also stress the importance of communication with stakeholders and that effective stakeholder communications are key to executing program endeavors, addressing risks, and, ultimately, delivering benefits. Specifically: The Project Management Institute, Inc., The Standard for Program Management stresses the importance of managing external communications, stating that communication provides critical links for successful decision making. It also stresses the importance of providing decision-making stakeholders with adequate information to make the right decisions at the right time in order to move programs forward. Standards for Internal Control in the Federal Government states that entities should identify, analyze, and respond to risks related to achieving the defined objectives and should externally communicate the necessary quality information to achieve the entity s objectives. As discussed above, these standards also state that management should externally communicate quality information to external stakeholders significant matters related to risks or changes. Further, the statute underlying NCAP requires NHTSA to communicate certain vehicle safety information to the public. Specifically, DOT is to provide the public with information on crash avoidance, crashworthiness, and damage susceptibility. Such information is to be provided in a simple and understandable form to allow comparison among vehicles to assist a consumer in buying a new car. NHTSA officials told us that it has not made or communicated a decision as to whether it will include pedestrian safety testing in NCAP because administration priorities have shifted since publication of the 2015 Request for Comments. Specifically, NHTSA officials told us that the agency drafted technical specifications and testing protocols for pedestrian safety tests for NCAP and posted those tests to its public web site in January 2017. After the administration changed, however, those specifications were withdrawn and not published in the Federal Register. NHTSA officials told us that, since that time, the agency has sought to conduct additional review before final decisions could be made. Although the policy decision as to whether to include pedestrian safety tests in NCAP ultimately resides within NHTSA s discretion, NHTSA s lack of a decision and its related rationale limits NHTSA s ability to address emerging safety risks and to meet its strategic objectives. Specifically, in the Department of Transportation s Enterprise Risk Profile for 2019, NHTSA recognized that increases in roadway fatalities in general and pedestrian fatalities in particular represent one of the top strategic risk areas for the Department. The document states that to meet its objectives, NHTSA must focus on areas where there have been increases in road deaths, including pedestrian fatalities, and advance crash avoidance and mitigation technology to prevent crashes from occurring. NHTSA also recognized the importance of using a data-driven and systematic approach that is timely and complete when making decisions. In the absence of a decision on whether to include pedestrian safety testing in NCAP, and the rationale for that decision, stakeholders lack clarity on whether NHTSA is using all of the policy tools at its disposal to address emerging safety risks and to achieve its strategic objectives. <5. Conclusions> The design of vehicles and the safety features they offer can play an important role in reducing the frequency and severity of pedestrian crashes. NHTSA s pedestrian pilot program is an important step toward addressing data gaps on the relationship between vehicle characteristics and pedestrian injuries. Without an evaluation plan that includes criteria for assessing the scalability of the pilot program, however, NHTSA lacks the tools necessary to assess whether and how the pilot should be expanded into a more robust effort to inform NHTSA s understanding of pedestrian injury mitigation efforts. Although NHTSA has recognized that the increase in pedestrian fatalities presents a risk to the safety of the nation s roadways, it is not well positioned to address this risk through NCAP because NHTSA does not have a clear process for making changes to the program. Documenting and communicating the process for updating NCAP, with clear criteria and decision points, would enhance NHTSA s accountability to key stakeholders including Congress, automakers, and consumers and help NHTSA communicate the important policy decision as to whether to include pedestrian safety tests in NCAP. Making and communicating a decision regarding pedestrian safety testing would give automakers clarity on whether NHTSA intends to establish performance standards and tests to evaluate the pedestrian safety features that are commonly available on new vehicle models. Communicating a decision and the rationale for that decision would provide transparency and accountability to the public. <6. Recommendations> We are making the following three recommendations to NHTSA. The Administrator of NHTSA should document an evaluation plan for the Crash Injury Research and Engineering Network pedestrian pilot program that includes criteria for determining whether and how to scale the pilot program to ensure that the piloted data-collection and analysis procedures will address NHTSA s data needs related to pedestrian injuries and vehicle characteristics. (Recommendation 1) The Administrator of NHTSA should document the overall process for making changes to NCAP, including established criteria and milestones for decisions, and share this process with external stakeholders. (Recommendation 2) The Administrator of NHTSA should decide whether to include pedestrian safety tests in NCAP and NHTSA should communicate this decision and rationale to relevant stakeholders and the public. (Recommendation 3) <7. Agency Comments and Our Evaluation> We provided a draft of this report to the Department of Transportation for review and comment. The department provided a written response, which is reprinted in appendix IV, and technical comments that we incorporated as appropriate in the report. The department concurred with all three of our recommendations. It described various activities NHTSA has underway related to pedestrian safety, including the CIREN study, a special study initiated this year to gather detailed data on a selection of fatal pedestrian crashes, and continuing research on pedestrian crash test procedures. Regarding Recommendation 2, the department stated that it has made its procedures to change NCAP transparent and inclusive of the public. Specifically, the department stated it has published and requested comment on its proposals in the Federal Register, as we described in this report. However, the department agreed that documenting the overall process on its website would generate increased public awareness of NCAP as a consumer safety tool. While such a step could increase public awareness of NCAP, we continue to believe that any steps taken to document the overall process for making changes to NCAP should also include established criteria and milestones for decisions to enhance NHTSA s accountability to Congress, automakers, and consumers. We are sending copies of this report to the appropriate congressional committees, the Secretary of Transportation, and the Administrator of the National Highway Traffic Safety Administration. In addition, we will make copies available to others upon request, and the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834, or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report: (1) examines what is known about the relationship between motor vehicle characteristics and pedestrian injuries and fatalities, (2) describes approaches automakers have taken to address pedestrians safety and discusses stakeholders perspectives on these approaches, and (3) evaluates actions the National Highway Traffic Safety Administration (NHTSA) has taken to assess whether pedestrian safety testing should be included in its New Car Assessment Program (NCAP). For all of our objectives we reviewed pertinent federal statutes and regulations and applicable program documents. Our work covered the 2008 through 2018 timeframe, with 2018 being the most recent data available at the time of our analysis. We focused on motor vehicles as opposed to infrastructure (e.g., roadway design, highway lighting) or driver/pedestrian behavior. Although infrastructure and behavior may also contribute to pedestrian fatalities and injuries, the scope of this report was to assess motor vehicles and their role in pedestrian safety. We defined motor vehicles as passenger cars, sport utility vehicles, and light trucks and vans that were offered for sale in the United States. We excluded commercial vehicles, motorcycles, and buses. The intent was to include those vehicles that a typical consumer would purchase and the pedestrian safety features that may or may not be offered on such vehicles. Our scope also included gaining an understanding of pedestrian safety testing activities in Europe (European New Car Assessment Programme (Euro NCAP)) and Japan (Japan New Car Assessment Program (JNCAP)). We selected these programs since pedestrian safety testing is part of their NCAPs and some auto industry stakeholders identified them as being in the forefront of this type of testing. Both Europe and Japan began testing crash avoidance systems as part of their NCAPs in 2016. We interviewed officials with Euro NCAP, received a written response to questions from JNCAP, and obtained information on pedestrian safety testing from both organizations. To examine what is known about the relationship between vehicle characteristics and pedestrian injuries and fatalities, we analyzed data from three NHTSA databases for the period of 2008 through 2018: (1) Fatality Analysis Reporting System (FARS); (2) Crash Report Sampling Systems (CRSS); and (3) National Automotive Sampling System/General Estimates System (NASS/GES). To ensure the accuracy of our analysis we reviewed agency technical documentation related to these databases and ensured that our figures matched publicly available injury and fatality data contained in NHTSA publications such as its annual Traffic Safety Fact Sheets. FARS data are derived from a census of all fatal motor vehicle traffic crashes within the 50 states, Puerto Rico, and the District of Columbia and provide uniformly coded, national data on police reported fatalities. We analyzed FARS data to determine the total number of pedestrian fatalities each year as well as the number of pedestrian fatalities by vehicle age, vehicle body type, and vehicle travelling speed (speed just prior to the crash). These variables were selected based on our interviews of NHTSA officials and a review of relevant research about the relationship between pedestrian fatalities and motor vehicle characteristics. We also analyzed FARS data on the number of pedestrian fatalities by environmental characteristics such as type of roadway, light condition, and relationship to intersection, selecting these characteristics based on our interviews and research. CRSS is a sample of police reported motor vehicle crashes involving all types of motor vehicles, pedestrians, and cyclists that is used to develop national estimates of the number of injuries associated with motor vehicle crashes, among other things. The CRSS police crash report sample is selected in multiple stages to produce a nationally representative probability sample, and the target annual sample size is 50,000 police accident reports. We analyzed CRSS data from 2016 through 2018, the only years CRSS data were available, to better understand the estimated total number of pedestrian crashes as well as the estimated number of pedestrian crashes by vehicle age, vehicle body type, vehicle speed, and level of pedestrian injury severity. Similar to our analysis of FARS data, these variables were selected based on our interviews with NHTSA officials and a review of relevant research about the relationship between motor vehicle characteristics and pedestrian crashes. NASS/GES preceded CRSS and obtained its data from a nationally representative probability sample of police accident reports. We analyzed NASS/GES data from 2008 through 2015, the most recent years available within the database, to better understand historical trend data on the variables we analyzed in CRSS. Although NHTSA collected similar variables in CRSS and NASS/GES, differences in the sampling methodologies of each may contribute to differences in the estimated number of pedestrian crashes between 2008 through 2015 and 2016 through 2018 timeframes. We used agency technical documentation for CRSS and NASS/GES as well as guidance from NHTSA statisticians to estimate the sampling error associated with our estimates derived from CRSS and NASS/GES data. We express confidence levels of estimates derived from CRSS and NASS/GES data at the 95 percent confidence interval. This level means that we are 95 percent confident that the actual population values are within this interval. Additionally, for our analysis, we used CRSS and NASS/GES variables that included imputed values for items missing data on the estimated number of pedestrian crashes by vehicle age, vehicle body type, and pedestrian injury severity. We reviewed and assessed NHTSA technical documentation for their statistical imputation methodology and determined it was sufficiently reliable for us to make use of the vehicle age, body type, and injury severity variables with imputed data. In addition to analyzing NHTSA databases, we analyzed data from the Highway Loss Data Institute (HLDI), an organization affiliated with the Insurance Institute for Highway Safety (IIHS), to better understand how the U.S. vehicle fleet has changed, specifically between 2008 and 2018. HLDI collected and decoded vehicle identification numbers (VINs) for each model year between 1983 and 2018. For HLDI s analysis, it used VINs from its member companies, among other sources, and information encoded in the VIN to determine the body styles for these VINs. According to HLDI, passenger cars include regular two-door models, regular four-door models, station wagons, minivans, sports models and luxury models, while SUVs are vehicles with conventional front-end constructions and large passenger and cargo areas which can be built on either heavy-duty chassis capable of off-road use or passenger car platforms. HLDI definitions for vehicle body type classifications differ from those used by NHTSA. According to HLDI officials, however, the classifications are comparable. For our analysis, we used these data to calculate the proportion of vehicles that were passenger cars, light trucks, or SUVs from 2008 through 2018. We also conducted interviews with federal government and non- governmental organizations about the relationship between vehicle related characteristics and pedestrian injuries and fatalities, as well as issues related to NHTSA s pedestrian safety data and potential data gaps and limitations. To discuss NHTSA s pedestrian safety data, we spoke with NHTSA officials from the Data Reporting and Information Division, Mathematical Analysis Division, and Vehicle Research and Test Center. We also spoke with officials from the National Transportation Safety Board, which conducts independent accident investigations and advocates for safety improvements, including those related to pedestrian safety and motor vehicles. Non-governmental organizations we spoke with included IIHS and major auto industry trade associations, such as the Alliance of Automobile Manufacturers, Association of Global Automakers, the Motor and Equipment Manufacturers Association, and the Automotive Safety Council. We also spoke with vehicle safety advocates, such as the Governors Highway Safety Association. These organizations were selected based on their relationship to the auto industry, referrals from other interviewees, and recent publications on pedestrian-motor vehicle safety issues. We also identified and reviewed studies either published or referenced by these organizations to better understand research related to pedestrian injuries and fatalities and motor vehicle characteristics. Where appropriate, we conducted a methodological review of these studies. Further, we spoke with academic researchers from six research centers across four universities with expertise in human-vehicle interaction and pedestrian-motor vehicle safety, including injury biomechanics and auto industry data analysis. These researchers were selected based on referrals from other interviewees and reviews of their organization s websites to ensure that their research would be informative for our purposes. Although these organizations had, or have, relationships with NHTSA or the auto industry, we included them based on their expertise with issues related to our work. Based on these criteria we interviewed officials at the University of Virginia (Center for Applied Biomechanics); the Ohio State University (Center for Automotive Research; Injury Biomechanics Research Center); the University of North Carolina (Highway Safety Research Center), and the University of Michigan (University of Michigan Transportation Research Institute; International Center for Automotive Medicine). We conducted interviews with these researchers to better understand general information on the relationship between vehicle-related characteristics and pedestrian injuries and fatalities, uses and limitations of NHTSA data, and potential areas for further research. Results of our interviews are not generalizable to the universe of non-governmental organizations or researchers studying pedestrian-motor vehicle safety. We also spoke with automakers and equipment suppliers about pedestrian safety and data needs. The automakers and equipment suppliers were the same as those contacted about how automakers are addressing pedestrian safety (discussed below). Finally, we reviewed documents and interviewed NHTSA officials about the Crash Injury Research and Engineering Network (CIREN) and the associated CIREN pedestrian pilot program NHTSA recently initiated. This pilot will assess data collection approaches and methodologies for pedestrian injuries resulting from motor vehicle crashes. Specifically, we reviewed CIREN contract and methodology documents such as the 2016 CIREN Request for Proposal, 2018 CIREN Pedestrian Pilot Study Request for Proposal, Task Orders for CIREN centers participating in the pedestrian pilot study, CIREN Pedestrian Crash Process and Coding Manual, and the Pedestrian Crash Inclusion Criteria. We also interviewed NHTSA officials responsible for managing the CIREN program and the pedestrian pilot study. We assessed this program using criteria for designing successful pilot programs developed during prior GAO work. To describe the approaches automakers have taken to address pedestrian-motor vehicle safety and discuss stakeholder perspectives on these approaches, we contacted automakers that sell new vehicles in the United States. Specifically, NHTSA provided us with a list of 17 automakers that participated in the 2018 New Car Assessment Program. NHTSA officials told us they do not necessarily include automakers with low sales volumes in NCAP testing. As a result, to better ensure that we had a complete list of automakers that sell vehicles in the United States we compared the names on NHTSA s listing to the membership lists of the Alliance for Automobile Manufacturers and the Association of Global Automakers two major trade associations of the auto industry. Officials told us that between the two organizations we would account for most, if not all, of the automakers that sell new vehicles in the United States. Finally, we compared our list with 2018 market share data from Ward s Automotive to identify the automakers with the highest U.S. sales. Based on our analysis, we identified 17 automakers to include in our work. However, during our contacts with automakers, we determined that one of the 17 automakers Porsche was part of the Volkswagen Group. Thus, our final review resulted in a total of 16 automakers to contact as part of our study (see table 2). Thirteen of the 16 automakers responded to our request for information. We developed a semi-structured interview instrument to collect information from the automakers. This instrument focused on the approaches that automakers took to address pedestrian-motor vehicle safety. The semi-structured interview instrument was peer reviewed by an independent survey specialist and pretested with two automakers before we began collecting data. Based upon on their responses, we revised and clarified the semi-structured interview instrument. In total, 13 of 16 automakers completed and submitted the semi-structured interview instrument. Those 13 automakers represented approximately 70 percent of new vehicle sales in the United States for 2018. The interview instrument asked automakers to identify pedestrian safety features on their 2019 model year vehicles, as these vehicles would have the most recent pedestrian safety features available at the time of our work. Although 12 of the 13 automakers did not respond in full to all the questions on the semi-structured interview instrument, we obtained additional information through telephone and in-person interviews conducted from May 2019 through October 2019. The results of these interviews are not generalizable to the universe of automakers that may sell vehicles in the United States. Upon completion of all the interviews, a GAO methodologist compiled the individual responses from each of the 13 automakers into a database. We used this database to perform a qualitative content analysis to identify common themes and the frequency with which the automakers identified certain issues related to pedestrian safety. A GAO analyst independently verified the themes and certain other information we received from the automakers to ensure accuracy and completeness. We also used semi-structured interview instruments to obtain information on stakeholders perspectives on the approaches automakers have taken to pedestrian safety. For purposes of this report, we define stakeholders as automakers, auto equipment suppliers, and auto industry trade associations. These organizations develop or deploy pedestrian safety technology in motor vehicles, or, in the case of the trade associations, are knowledgeable about the legal and regulatory issues related to pedestrian safety and the auto industry. In addition to interviewing 13 automakers, we interviewed officials from five auto equipment suppliers and four auto industry trade associations (see table 3). The five auto equipment suppliers included in our work were identified with the assistance of the Motor and Equipment Manufacturers Association, a trade association for auto industry suppliers. The organization provided us the names of seven equipment suppliers, five of which agreed to participate in our semi- structured interviews. In general, these equipment suppliers develop or produce equipment used in motor vehicle crash avoidance or crash mitigation systems. The semi-structured interview instrument asked questions about such things as crash avoidance and crash mitigation technology and the benefits and challenges of this technology. We did not assess the effectiveness of these features. Additionally, we interviewed officials from four auto industry trade associations. We conducted telephone and in-person interviews with these stakeholders from March 2019 through September 2019. In addition to automakers, equipment suppliers, and auto industry trade associations, we also interviewed NHTSA and IIHS about crash avoidance and crash mitigation technology and reviewed applicable federal regulations related to pedestrian safety. These include federal headlight and bumper standards. We also reviewed an October 2018 Notice of Proposed Rulemaking in which NHTSA agreed to evaluate proposed amendments to current federal motor vehicle headlight requirements. We discussed with NHTSA the federal headlight and bumper standards and how these relate to pedestrian safety, as well as any potential changes to these standards to better accommodate pedestrian safety. Lastly, we reviewed an October 2019 IIHS press release and an October 2019 American Automobile Association study discussing the results of pedestrian crash avoidance tests each organization performed. To assess NHTSA s actions related to pedestrian safety and NCAP, we reviewed applicable federal laws and regulations related to vehicle safety as well as documents published in the Federal Register, such as Requests for Comments, soliciting comments on proposed NCAP changes related to pedestrian safety. NHTSA provided a high-level summary of comments received from Requests for Comments issued in 2015 and 2018 that we reviewed. We reviewed selected comments and supporting documents submitted to NHTSA as part of the docket in support of the Requests for Comment, such as those provided by auto industry trade associations, automakers, and auto equipment suppliers. We also reviewed program documents discussing how NHTSA assesses new car safety, performs NCAP safety tests, and reports the results to the public. Further, we reviewed over 55 studies and presentations on the agency s work related to pedestrian safety. NHTSA highlighted 22 of these reports and presentations as being representative of the body of research that supported and facilitated agency decisions and policies with respect to pedestrian safety, including the 2015 and 2018 Requests for Comments. We reviewed the 22 reports and presentations and determined that 14 met our inclusion criteria, in that the reports and presentations were focused on potential pedestrian safety tests and their applicability to the U.S. vehicle fleet, the use of various test instruments, and the potential safety effects associated with technologies intended to avoid and mitigate crashes. Where appropriate, we conducted a methodological review of these studies. In addition, NHTSA officials provided additional studies after our interviews, which we also reviewed. To better understand pedestrian safety testing and issues related to incorporating such testing into NCAP, we visited NHTSA s Vehicle Research and Test Center in East Liberty, Ohio. We interviewed officials there about NHTSA pedestrian safety research and how it supported NHTSA s proposed pedestrian safety tests for NCAP. We also discussed the applicability of pedestrian safety tests to the U.S. vehicle fleet, including tests used by Euro NCAP. During our visit, we observed examples of a pedestrian crash mitigation test for lower leg injury and a rear-facing pedestrian crash avoidance test. We reviewed NHTSA s budget documentation on pedestrian safety research from fiscal year 2008 to 2019, the most recent year for which data were available. We also visited and discussed pedestrian safety issues with officials of IIHS Vehicle Research Center in Ruckersville, Virginia. We observed a forward-facing pedestrian crash avoidance test. Further, we interviewed NHTSA officials about such things as the process for making changes to NCAP and activities associated with this process, documentation of this process, how NCAP changes are communicated to stakeholders, and NHTSA plans for determining whether to incorporate pedestrian safety tests in NCAP. Finally, we interviewed automakers, auto industry equipment suppliers, and IIHS about incorporating pedestrian safety tests into NCAP. To understand how other NCAPs address pedestrian safety, we interviewed officials from Euro NCAP and received written responses from JNCAP to a set of questions we sent them. We also reviewed supporting documents from both Euro NCAP and JNCAP on pedestrian crash avoidance and mitigation tests they perform and how such tests are scored when determining star ratings. Further, we discussed with Euro NCAP how it works with the auto industry to test vehicles and to develop future changes to Euro NCAP, including the Euro NCAP roadmap. We also reviewed selected international studies related to the real-world benefits of pedestrian safety testing performed by Euro NCAP. We determined those studies to be sufficiently reliable for our purposes. To assess how NHTSA s process for making changes to NCAP compares to leading practices, we reviewed the Project Management Institute, Inc., The Standard for Program Management, and GAO s Standards for Internal Control in the Federal Government. The Project Management Institute s standards are utilized worldwide and provide guidance on how to manage various aspects of projects, programs, and portfolios. In particular, according to The Standard for Program Management, this standard provides guidance that is generally recognized to support good program-management practices for most programs, most of the time. We conducted our work from February 2019 to April 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Additional Data on Pedestrian Crashes in the United States, 2008 through 2018 This appendix contains additional information on pedestrian fatalities and the estimated number of pedestrians injured from 2008 through 2018. <8. Pedestrian Fatalities> Although we included much of our pedestrian fatality analysis in the report, this appendix includes data on the number of pedestrian fatalities involving particular light conditions and relationships to intersections environmental factors relevant to pedestrian crashes as well as data on vehicle body types (see fig. 11, 12, and 13). We used data from the National Highway Traffic Safety Administration s (NHTSA) Fatality Analysis Reporting System (FARS) to compile information on pedestrian fatalities. <9. Pedestrian Injuries> The following figures show information about the estimated number of pedestrians injured from 2008 through 2018 (see figs. 14, 15, 16, 17, and 18). These figures show pedestrians injured by age of the striking vehicle, body type of vehicle, reported speed of the vehicles, and estimated number of pedestrians with serious or fatal injuries. We used data from NHTSA s Crash Report Sampling System (CRSS) for years 2016 through 2018, and National Automotive Sampling System/General Estimates Survey (NASS/GES) for years 2008 through 2015 to compile information on pedestrians injured. Within CRSS and NASS/GES databases, we specifically analyzed data on pedestrians injured by vehicle related characteristics such as the age, body type, and speed of vehicles that struck and injured pedestrians, as well as the estimated number of severe and fatal pedestrians injured. Appendix III: Benefits and Challenges of Pedestrian-Motor-Vehicle Safety Features As part of our analysis on how automakers are addressing pedestrian safety through crash avoidance and crash mitigation technologies, we obtained the views of 13 automakers and five auto equipment suppliers. As discussed below, auto industry officials provided their views on the benefits and challenges of commonly available crash avoidance and crash mitigation technologies. <10. Crash Avoidance Benefits and Challenges> Automaker and auto equipment supplier officials identified various benefits and challenges with pedestrian crash avoidance features. For example, 12 of 13 automakers reported and two of five auto equipment suppliers said that crash avoidance features have the overall potential benefit of eliminating or reducing car-to-pedestrian accidents. The Highway Loss Data Institute reported in 2017 that one automaker s pedestrian automatic emergency braking system reduced pedestrian- related bodily injury liability claims by 35 percent compared to other vehicles manufactured by that automaker. In addition, the automaker itself found that, in Japan, its vehicles equipped with the system experienced 60 percent fewer accidents with injury compared to its vehicles without the system. Officials from automakers and auto equipment suppliers we interviewed also identified challenges with pedestrian crash avoidance technologies. Specifically, stakeholders cited some distinctions between the performance of camera-based and radar-based pedestrian automatic emergency breaking systems. Almost half of the automakers we interviewed (six of 13) reported that a primary challenge with a camera- based pedestrian automatic emergency braking system was the camera s ability to work in low lighting and poor weather. As previously noted in this report, about 75 percent of all reported pedestrian fatalities occurred in 2018 after dark. In contrast, several automakers stated that radar based pedestrian detection systems are not dependent on light to function, but that they are less effective at identifying pedestrians than camera-based systems. Officials from another automaker said manufacturers have attempted to offset the challenges of cameras and radar by developing fusion systems (combination of camera and radar). These officials said, however, these systems add complexity and processing time to the technology because the system must manage two separate functions that must be processed together to identify a pedestrian. Officials from automakers said that a challenge affecting both camera- and radar-based systems was limiting the occurrence of false positives, or the activation of these systems when they are not required. Recently issued research has raised questions about the overall effectiveness of crash avoidance systems. In October 2019, the American Automobile Association (AAA) reported that, based on its own assessment, some vehicles pedestrian safety systems were inconsistent at either slowing down or stopping a vehicle to avoid hitting a pedestrian. For example, AAA reported that dark conditions could affect the effectiveness of available pedestrian detection systems and that none of the crash avoidance systems on the four vehicles they tested worked in dark conditions. Automaker officials told us that the performance of crash avoidance systems could be improved through updates to current vehicle headlight standards. Specifically, officials from four automakers indicated that the National Highway Traffic Safety Administration (NHTSA) should update federal standards for headlights to permit the use of adaptive driving beam headlights on new vehicles. Adaptive driving beam headlights are currently in use in European and other countries, and are different from the combination high- and low-beam systems used in the United States. In general, adaptive driving beam headlights use advanced sensors and computing technology to shape the headlamp beams to provide enhanced illumination of unoccupied portions of the road and avoid glaring other vehicles. In October 2018, NHTSA published a Notice of Proposed Rulemaking in which it tentatively concluded that federal standards for headlights do not permit adaptive driving beam systems because those systems would not comply with some of the standards. NHTSA, however, has said adaptive driving beam headlights have the potential to create significant safety benefits in avoiding collisions with pedestrians, cyclists, animals, and roadside objects by providing additional front-end illumination. Five automakers we interviewed said that they offer adaptive driving beam headlamps as a crash avoidance technology on their vehicles sold in other countries. In its October 2018 Notice of Proposed Rulemaking, NHTSA sought public comment on amending federal standards to allow the use of adaptive driving beam systems in response to a petition from an automaker. NHTSA officials said that it is in the process of developing a final rule but did not have a period for when it would be issued. Another challenge for crash avoidance systems is the federal standard for bumpers. As previously discussed in this report, this standard requires that vehicles, including their bumpers, meet specified damage criteria when bumpers are hit at 2.5 miles-per-hour (mph). Officials from five automakers said that this standard presented challenges with the placement of crash avoidance sensors. On some vehicles, crash avoidance sensors are placed in the same area where the vehicles are tested for compliance with the bumper standard. As a result, the test could damage or destroy the crash avoidance sensor. Two automaker officials told us that they have addressed this challenge by relocating the sensors to another part of the vehicle to avoid conflicts with the bumper standard. NHTSA officials told us they are in the process of reevaluating the bumper damageability standard, including the placement of sensors, as part of a Notice of Proposed Rulemaking, which they expect to publish in early 2020. <11. Crash Mitigation Benefits and Challenges> Officials from automakers and auto equipment suppliers we interviewed identified benefits and challenges for pedestrian crash mitigation features. For example, 12 of 13 automakers reported and one of five auto equipment suppliers said that pedestrian crash mitigation features have the overall benefit of reducing the risk or severity of pedestrian injuries. Officials from four automakers, however, said that crash mitigation features do not protect pedestrians from the secondary impact of an accident, such as the residual injuries from hitting the pavement. Additionally, officials from six automakers said that crash avoidance features were more effective than crash mitigation features because the purpose of crash avoidance features is to prevent the collision from occurring in the first place. Similar to crash avoidance, the federal bumper standard may also affect crash mitigation systems. Officials from eight automakers said that the bumper standard created challenges to offering additional crash mitigation features in the United States, such as softer, more pedestrian friendly bumpers. Officials from the eight automakers said they offered softer bumpers in Europe or elsewhere where there is no similar bumper standard but do not offer softer bumpers in the United States. Some stakeholders told us the current bumper standard runs counter to pedestrian safety, and softer bumpers would help mitigate the severity of pedestrian injuries. Similarly, NHTSA officials told us the current bumper standard is primarily a cost savings standard in that it is intended to reduce repair costs and not necessarily to offer safety protection for vehicle occupants. NHTSA officials told us that establishing a bumper standard that addresses pedestrian safety, yet minimizes bumper damage and repair costs requires tradeoffs. The officials told us as part of the Notice of Proposed Rulemaking it is reviewing the broader damageability requirement. Appendix IV: Comments from the U.S. Department of Transportation Appendix V: GAO Contact and Staff Acknowledgments <12. GAO Contact Staff Acknowledgements> Andrew Von Ah, Director, (202) 512- 2834 or vonaha@gao.gov In addition to the contact named above, Matt Barranca (Assistant Director), Richard Jorgenson (Analyst-in-Charge), Carl Barden, Namita Bhatia-Sabharwal, Melissa Bodeau, Breanne Cave, Michelle Everett, Susan Fleming, Geoff Hamilton, Hannah Laufe, Regina Morrison, Joshua Ormond, Terry Richardson, and Michael Steinberg made significant contributions to this report.

Why GAO Did This Study In 2018, about 6,300 pedestrians—17 per day—died in collisions with motor vehicles in the United States, up from about 4,400 in 2008. Many factors influence pedestrian fatalities, including driver and pedestrian behavior. Vehicle characteristics are also a factor. NHTSA tests and rates new vehicles for safety and reports the results to the public through its NCAP. Currently, pedestrian safety tests are not included in NCAP. This report examines: (1) what is known about the relationship between vehicle characteristics and pedestrian fatalities and injuries, (2) approaches automakers have taken to address pedestrian safety, and (3) actions NHTSA has taken to assess whether pedestrian safety tests should be included in NCAP. GAO analyzed data on pedestrian fatalities and injuries from 2008 through 2018 (the most recent available data); reviewed NHTSA reports; and interviewed NHTSA officials. GAO also obtained information about pedestrian safety features from 13 automakers that represented about 70 percent of new vehicle sales in the United States in 2018, and compared NHTSA's actions with leading program management practices. What GAO Found National Highway Traffic Safety Administration (NHTSA) data show that certain vehicle characteristics related to age, body type, and the speed of the vehicle at the time of the crash are associated with increases in pedestrian fatalities from 2008 to 2018. Specifically, the number of pedestrian fatalities during this time period increased more for crashes involving vehicles that were: 11 years old or older compared to newer vehicles, sport utility vehicles compared to other passenger vehicles, and traveling over 30 miles per hour compared to vehicles traveling at lower speeds. GAO also found that NHTSA does not consistently collect detailed data on the type and severity of pedestrian injuries, but began a pilot program in 2018 to improve its data collection efforts. NHTSA, however, lacks an evaluation plan with criteria to assess whether to expand the pilot program, as called for in leading practices. As a result, NHTSA lacks information to determine how and whether it should expand the pilot to meet the agency's data needs. Automakers offer a range of approaches to address pedestrian safety. For example, pedestrian crash avoidance technologies use cameras or radar to detect an imminent crash with a pedestrian and engage a vehicle's brakes to avoid a crash. GAO found that about 60 percent of the model year 2019 vehicles offered in the United States by 13 automakers had pedestrian crash avoidance technologies as standard or optional equipment. In 2015 NHTSA proposed pedestrian safety tests for its New Car Assessment Program (NCAP), but NHTSA has not decided whether it will include such tests in the program. NHTSA has reported that crash avoidance technologies could lead to a decrease in pedestrian fatalities. Nine automakers that GAO interviewed reported that NHTSA's lack of communication about pedestrian safety tests creates challenges for new product development. NHTSA has also not documented a clear process for updating NCAP with milestones for decisions. NHTSA officials said that updating NCAP involves many actions and can take years. However, absent a final decision on whether to include pedestrian safety tests in NCAP and a documented process for making such decisions, the public lacks clarity on NHTSA's efforts to address safety risks. What GAO Recommends GAO is recommending that NHTSA (1) develop an evaluation plan with criteria for expanding its pilot program, (2) make and communicate a decision about whether to include pedestrian safety tests in NCAP, and (3) document the process for making changes to NCAP. The Department of Transportation concurred with our recommendations.

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<1. DOE s Estimated Environmental Liability Was $494 Billion in Fiscal Year 2018 and May Continue to Grow> In its fiscal year 2018 financial statement, DOE reported an estimated environmental liability of $494 billion. The majority of this liability was for cleanup work overseen by EM. We reported in January 2019 that in recent years, EM s environmental liability has grown annually at a level that has outpaced the department s annual spending on cleanup activities, and its liability may continue to grow. <1.1. DOE Estimated Its Environmental Liability Was $494 Billion in Fiscal Year 2018> In its fiscal year 2018 financial statement, DOE reported its estimated environmental liability at $494 billion. In the financial statement, EM accounted for $377 billion (over 75 percent) of DOE s total liability. In developing its environmental liability estimate, EM estimates the costs of storing, treating, or disposing of a variety of waste types. Storing and treating radioactive tank waste account for the largest portion of EM s costs. For example, in January 2019 we reported that, in fiscal year 2017 (the most recent year for which these data were available at the time of our review), EM s responsibilities to store and treat radioactive waste stored in underground tanks accounted for nearly half of EM s total environmental liability, and its responsibilities for addressing contaminated facilities and remediating soil and groundwater contamination accounted for about one-quarter. Figure 2 shows the percentage and dollar amount of EM s environmental liability by cleanup activity for fiscal year 2017. In January 2019, we also found that, of the 16 sites across the United States at which EM has cleanup responsibilities, two sites accounted for more than 70 percent of EM s environmental liability in fiscal year 2017: the Hanford site and the Savannah River site (see fig. 3). These sites also include the majority of EM s radioactive tank waste and the majority of radioactive contamination, which is particularly costly and complicated to treat. The Hanford site has 177 tanks containing 55 million gallons of waste, and the Savannah River site has 43 tanks containing 36 million gallons of waste. <1.2. EM s Environmental Liability May Continue to Grow> We reported in January 2019 that in recent years, EM s environmental liability has grown annually at a level that has outpaced the department s annual spending on cleanup activities. This growth has occurred at the same time as the number of contaminated sites has decreased. In fiscal years 2011 through 2018, EM spent over $48 billion, primarily to address radioactive tank waste as well as treat and dispose of other nuclear and hazardous materials. Nonetheless, since 2011, EM s environmental liability grew by $214 billion, from $163 billion to $377 billion, according to our analysis of DOE financial data and documents (see fig. 4). EM s environmental liability may continue to grow because its currently estimated environmental liability does not include the costs of all cleanup activities for which the agency will likely be responsible in the future and because the cost of addressing some of EM s largest projects is still underestimated. First, not all of the cleanup activities EM must undertake are captured in the current liability because, according to federal accounting standards, only work that is probable and reasonably estimable is required to be reported in an agency s liability. For example, EM has not yet developed a cleanup plan or cost estimate for the Nevada National Security site and, as a result, the cost of future cleanup of this site was not included in EM s reported environmental liability. The nearly 1,400-square-mile site has been used for hundreds of nuclear weapons tests since 1951. These activities have resulted in more than 45 million cubic feet of radioactive waste at the site, but the costs for the cleanup of this waste are excluded from EM s annually reported environmental liability. Second, the current cost associated with some of EM s cleanup efforts may be underestimated. For example, as of April 2018, EM and its contractor had still not negotiated a cost for completing the WTP DOE s largest and most complex construction project. Further, although EM typically spends about $6 billion per year on cleanup activities, a large amount of its cleanup budget does not support actual cleanup activities. Instead, this funding goes toward recurring activities necessary to maintain the sites rather than toward reducing the environmental liability. EM refers to these activities as minimum safety work. According to EM officials, examples of such work include physical security, health and radiation protection, or critical facility and infrastructure maintenance for safe conditions. These officials said that minimum safety work constitutes 30 to 60 percent of individual sites budgets, for a total of at least $2.7 billion of EM s fiscal year 2018 budget, as we reported in February 2019. The Assistant Secretary for EM noted in September 2018 that much of DOE s environmental liability is associated with managing minimum safety work and that significant potential cost savings could result from reducing minimum safety work. Accordingly, she stated that EM planned an initiative in fiscal year 2019 to examine how EM can reduce this work. EM has undertaken several ad hoc studies and initiatives to address the growing costs in its cleanup program. However, EM has not conducted a formal root cause analysis to identify the causes for the growth in its environmental liabilities. Specifically, EM headquarters officials we interviewed said they were aware of the increases to the environmental liability from year to year, as well as the areas in which the liability changed; however, they said they had not done a detailed analysis of the root causes of the growth. A leading practice for program management is monitoring and controlling the program, which includes conducting root cause analyses and developing corrective action plans. However, in February 2019, we found that EM s cleanup policy does not follow this leading practice because it does not include any such requirements. We recommended that EM review and revise its policy to include program management leading practices in its requirements, including for monitoring and controlling the program. DOE agreed with our recommendation and stated that it plans to revise its policy. <2. EM Has Not Resolved Management Challenges in Its Cleanup Program> EM has not resolved long standing management challenges that affect its cleanup program and contracts. In March 2019, we issued our 2019 High- Risk Series, which included updates related to DOE s environmental liability and its contract management. While officials at EM have taken some steps toward management improvements aimed at reducing its environmental liabilities, we found that EM has not demonstrated progress toward resolving these challenges. We have identified several unresolved issues including the following: EM does not have a program-wide cleanup strategy. We reported in January 2019 that EM relies primarily on individual sites to locally negotiate cleanup activities and establish priorities. Our analysis of DOE documents identified instances of decisions involving billions of dollars where such an approach did not always balance overall risks and costs. For example, we reiterated what we found in May 2017 that two EM sites had plans to treat similar radioactive tank waste differently, and the estimated costs for treating the waste at one site Hanford may be tens of billions more than those at the other site Savannah River. In addition, EM sites generally do not consider other sites risks and priorities when making cleanup decisions. We reported in January 2019 that this approach is not consistent with recommendations we and others have made over the last 2 decades that EM develop national priorities to balance risks and costs across and within its sites. Moreover, EM has not developed a program- wide strategy that sets such priorities and describes how EM will address its greatest risks. Instead, according to agency officials, it continues to prioritize and fund cleanup activities by individual site. We recommended in January 2019 that EM develop a program-wide strategy that outlines how EM will direct available resources to address human health and environmental risks across and within sites. DOE agreed with our recommendation and has since said it is working toward this goal. EM manages most of its cleanup work as operations activities, under less stringent requirements than capital asset projects. In February 2019, we reported that EM manages its cleanup work under different requirements, depending on whether it classifies the work as a capital asset project or an operations activity. EM currently manages most of its work as operations activities. In its fiscal year 2019 budget, operations activities accounted for 77 percent of EM s budget (about $5.5 billion), and capital asset projects accounted for 18 percent (about $1.3 billion). Operations activities have less stringent requirements. For example, unlike capital asset projects, operations activities are not required to go through a thorough upfront planning process to determine the scope of work to be completed. In addition, under EM cleanup requirements, operations activities are not subject to independent oversight by entities outside EM. As a result, DOE management does not have information on how EM manages operations activities and cannot hold EM accountable for cost- effective and timely completion of this cleanup work. Since 2015, experts in DOE s Office of Project Management have raised concerns that some operations activities, such as cleanup of radioactive tank waste, should be classified as capital asset projects. In February 2019, we recommended that EM work with DOE s Office of Project Management which is responsible for providing DOE-wide leadership and assistance pertaining to project management to establish requirements for classifying cleanup work as capital asset projects or operations activities and then work together to asses EM s ongoing operations activities to determine if they should be reclassified as capital asset projects based on the newly established requirements. DOE generally agreed with our recommendations and committed to review and revise its requirements as appropriate. EM s cleanup policy does not follow program and project management leading practices. In February 2019, we also found that EM s 2017 cleanup policy, which outlines procedures that govern the EM program and its operations activities, does not follow most selected leading practices for program and project management. Specifically, we found that EM s 2017 cleanup policy does not follow any of 9 selected program management leading practices related to scope, cost, schedule performance, and independent reviews. For example, the policy does not require the program management leading practice of monitoring and controlling the program, including conducting root cause analyses and developing corrective action plans. Further, EM s 2017 cleanup policy follows only 3 of 12 selected project management leading practices related to these areas. For example, EM s 2017 cleanup policy does not require any independent reviews of its operations activities by anybody outside of EM. We recommended that DOE review and revise EM s cleanup policy to include program and project management leading practices related to scope, cost, schedule performance, and independent reviews. DOE agreed with our recommendations. In addition, broader DOE management challenges affect EM and have implications for EM s ability to effectively manage its cleanup work and begin reducing its environmental liability. EM, like DOE, executes its program activities primarily through the use of contracts. We have reported that about 90 percent of DOE s budget is spent on contractors that manage the laboratories and carry out DOE s programs. DOE s contract management, however, is one of the areas we have identified as posing a high risk of fraud, waste, abuse, and mismanagement because of DOE s record of inadequate management and oversight of contractors. As a result, DOE s contract and project management has been on our High Risk List since 1990. Most recently, we found in March 2019 that DOE did not always ensure that contractors audited subcontractors incurred costs as required in their contracts. We identified more than $3.4 billion in subcontract costs incurred over a 10-year period that had not been audited as required, and some subcontracts remained unaudited or unassessed for more than 6 years. Completing audits in a timely manner is important because of a 6-year statute of limitations to recover unallowable costs that could be identified through such audits. We recommended that DOE develop procedures that require local offices to monitor contractors to ensure timely completion of required subcontract audits. DOE partially concurred with this recommendation and stated that it plans to review existing requirements and guidance and to consider the extent to which it requires monitoring of contractors progress in completing required subcontract audits. As we noted in the March 2019 report, we believe that DOE s plans to further examine the issues raised in our report is a positive step toward resolving the issues; however, we continue to believe that the actions called for in our recommendations remain valid and that DOE could more efficiently resolve the issues by proceeding to implement those actions. <3. EM Has Not Reported Required Information about the Status of Its Cleanup> Accurate and reliable information on the status and progress in a program is essential for effective management and to ensure key stakeholders are provided the information they need to fulfill their oversight, advisory, and other essential roles. However, EM s performance measures for operations activities do not provide a clear picture of overall performance, and EM has not followed best practices in implementing its performance reporting systems. In addition, EM has historically not provided all of the statutorily required information about the status of its cleanup effort, and the information EM has reported has been incomplete or inaccurate. Finally, in its recent budget materials, EM did not include the funding it says it needs to meet its schedule cleanup milestones. <3.1. EM s Cleanup Performance Measures Do Not Provide a Clear Picture of Overall Performance> In February 2019, we found that EM s performance measures for operations activities which constitute most of its cleanup activities do not provide a clear picture of overall performance. According to EM documentation and officials, EM uses three tools to measure the overall performance of operations activities: earned value management (EVM), performance metrics, and cleanup milestones. We found problems with EM s use of each of these tools. Figure 5 summarizes our findings on these three performance measures and how they affect EM s ability to effectively manage the cleanup effort. First, we found in February 2019 that EM does not always ensure that its EVM data are comprehensive or reliable. EVM measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for the period and with the actual cost of the work accomplished. EM relies primarily on EVM data to measure the overall performance of its operations activities. EM relies on contractors EVM systems to measure the performance of its contractors operations activities. We reviewed all 20 EM contracts covering operations activities and found that EM requires its contractors to maintain EVM systems for 17 of all 20 contracts. We also found that EM paid its contractors to maintain these systems and provide EVM reports to EM. However, we found that EM has not followed best practices to ensure that these systems are (1) comprehensive, (2) provide reliable data, and (3) are used by EM leadership for decision-making which are the three characteristics of a reliable EVM system. For example, only about half of the EVM systems met the best practices for conducting integrated baseline reviews and performing ongoing surveillance. Among those, many of the reviews were not rigorous enough to ensure that the performance measurement baseline captured all of the work. We found that EM officials were not performing thorough surveillance reviews to ensure that EVM systems were in alignment with EVM guidelines and that the data being reported by the EVM systems were reliable. In addition, the EVM data for contracts covering operations activities contained numerous, unexplained anomalies in all the months we reviewed, including missing or negative values for some of the completed work to date. Even though EM requires most of its contractors for operations activities to maintain EVM systems and pays them for doing so, EM s 2017 cleanup policy generally does not require that EVM systems be maintained and used in a way that follow EVM best practices. The use of EVM as a management tool is considered an industry standard and a best practice for conducting cost and schedule performance analysis for projects. EVM data can alert project managers to potential problems sooner than expenditures alone can. Because EM does not follow best practices in administering its EVM systems, EM leadership may not have access to reliable performance data to make informed decisions in managing billions of dollars worth of cleanup work every year and to provide to Congress and other stakeholders. We recommended that EM update its cleanup policy to require that EVM systems be maintained and used in a way that follows EVM best practices. DOE agreed with this recommendation, and said it would implement it. Second, we found that EM s performance metrics do not link performance to cost. EM collects performance metrics from the sites monthly to measure progress toward completing the scope of work for the contract and against a goal set at the beginning of each year. We found in February 2019 that EM s performance metrics do not link that work to the cost of completing it. For example, EM reported that it eliminated 72,000 gallons of radioactive liquid waste out of a target of 342,000 gallons for fiscal year 2017 at the Savannah River site and disposed of 1,734 cubic meters of low-level waste out of a target of 360 cubic meters at the Idaho site. However, in neither case did EM indicate how much that work cost to accomplish, such as whether those costs were above or below what had been planned. Because EM s metrics do not link performance to cost, the performance information EM has provided to Congress does not indicate whether EM received good value from the contractor since it does not show how much that work cost to accomplish. We recommended that EM integrate EVM data into EM s performance metrics for operations activities. DOE agreed with this recommendation and said it would implement it. Finally, we found in February 2019 that sites regularly renegotiate cleanup milestones they are at risk of missing, and EM does not track data on the history of postponed milestones or the reasons why milestones were postponed. As a result, milestones have limited value as a means of tracking cleanup progress since EM does not track the original (or any previously revised) milestone dates, which could provide some data to measure the progress of cleanup activities. We recommended that EM track and report original milestones dates as well as changes to its cleanup milestones. DOE agreed with our recommendation and said it is already tracking this information at the site level. In response, we reiterated the importance of tracking these changes and reporting that information at the headquarters level to help inform Congress. <3.2. EM Has Inconsistently Reported on Cleanup Status and Its Information May Be Misleading> We reported in January 2019 that EM has not submitted congressionally mandated reports on its cleanup program and the information EM has reported has been incomplete or inaccurate. These reports are intended to provide Congress with information on the progress, challenges, and expected future costs of the EM cleanup program. Under the fiscal year 2011 National Defense Authorization Act, EM must annually develop and report to Congress a Future-Years Defense Environmental Management Plan that reflects estimated expenditures and proposed appropriations included in the DOE budget for defense environmental cleanup activities. It must do so at or about the same time that it submits its budget request. The plan is to cover the fiscal year for which the budget is submitted and at least the 4 succeeding fiscal years. The plan is required to describe the cleanup activities to be carried out during the period specified by the plan, estimated expenditures and proposed appropriations necessary to support them, and each milestone in an enforceable agreement governing the cleanup activity. For each milestone, EM is to identify whether the milestone will be met and, if not, explain why not and provide the date by which EM expects to meet it. EM submitted the required plan in fiscal year 2012 but did not submit plans from fiscal year 2013 through fiscal year 2016, as we found in January 2019, or in fiscal year 2018. EM s most recent Future-Years Defense Environmental Management Plan, which DOE submitted to Congress in August 2017, included little of the information required by the fiscal year 2011 National Defense Authorization Act . Table 1 shows our assessment of the information EM provided in its 2017 Future-Years Defense Environmental Management Plan against the reporting requirements. We also found in February 2019 that the forecast completion dates for milestones listed in the 2012 and 2017 plans may not present an accurate picture of the status of the milestones and EM s cleanup efforts. For example, in the 2012 plan, DOE reported that only four out of 218 milestones were at risk of missing their planned completion date, while the rest were on schedule. When comparing these milestones to the 2017 plan, we found that at least 14 of them had been postponed. Similarly, the 2017 plan listed only one milestone out of 154 as forecast to miss its due date. However, because EM does not have a historical record of the changes made to the milestones, it is unclear how many of these milestones were recently revised or actually represented their original due dates because the report does not include this information. Because DOE is not consistently and comprehensively submitting complete information about the status of its cleanup, Congress and other stakeholders may not have access to reliable information to make informed decisions about billions of dollars of cleanup work. We recommended that DOE submit in EM s annually required Future-Years Defense Environmental Management Plan all mandated requirements, as well as information on annual growth in environmental liability estimates by site, the key factors causing that growth, and an explanation of significant differences between environmental liability estimates and life cycle cost estimates. DOE agreed with our recommendation and has since said it is working toward this goal. <3.3. EM s Recent Budget Materials Have Not Reflected the Funding EM Anticipates Is Needed to Meet Its Future Cleanup Responsibilities> In addition to the Future-Years Defense Environmental Management Plan, DOE is to submit a budget request each fiscal year to Congress along with an explanation of what EM cleanup activities the funding will accomplish. However, in January 2019 we found that the information EM provided to Congress in its fiscal years 2016, 2017, and 2018 budget requests did not reflect the funding some senior DOE officials said EM needs to meet its scheduled cleanup milestones. We reported that in a 2015 presentation on cleanup priorities, EM s Deputy Assistant Secretary noted that EM s anticipated long-term funding needs for the full costs of cleanup far exceeded the office s annual budget requests and noted that in fiscal years 2016, 2017, and 2018, EM anticipated that it needed nearly $8 billion annually to meet scheduled milestones called for in compliance agreements. However, DOE s budget requests for those fiscal years were $5.8 billion, $6.1 billion, and $6.5 billion, respectively a shortfall of at least $1.5 billion per year. The Deputy Assistant Secretary also noted that if EM continued to receive about $6 billion per year in the coming 2 decades, it would face a funding shortfall of about $28 billion. He also said that the time frame for EM s cleanup mission would likely be extended for years, thereby increasing cleanup costs and raising the environmental liability. Similarly, we reported that in a 2017 site cleanup meeting, EM s Associate Principle Deputy Assistant Secretary for Field Operations said that in order for EM to meet all of the cleanup requirements reflected in agreements with federal and state regulators, EM would need a much larger budget than was requested in fiscal year 2018. For example, this official said that EM s Hanford site, which received about $2.5 billion in fiscal year 2018, needed more than $4 billion per year to meet scheduled milestones to construct and operate the WTP one of many cleanup activities at the site for the duration of its planned mission. The official added that EM s annual budget will not cover all needs, particularly because infrastructure maintenance, repair, and replacement needs are growing and extending the completion of cleanup further into the future. We recommended that DOE disclose the funding EM needs to meet all of its scheduled milestones. DOE agreed with this recommendation and said it plans to request the funding needed to meet its cleanup agreements. Chair DeGette, Ranking Member Guthrie, and Members of the Subcommittee, this concludes my prepared remarks. I would be happy to respond to any questions that you may have at this time. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact David C. Trimble, Director, Natural Resources and Environment, at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. GAO staff who made key contributions to this testimony are Amanda Kolling (Assistant Director), Chad Clady, Kelly Friedman, Cristian Ion, Jeff Larson, Cynthia Norris, Dan Royer, and Kiki Theodoropoulos. Related GAO Products Department of Energy Contracting: Actions Needed to Strengthen Subcontract Oversight. GAO-19-107. Washington, D.C.: March 12, 2019. High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas. GAO-19-157SP. Washington, D.C.: March 6, 2019. Nuclear Waste Cleanup: DOE Could Improve Program and Project Management by Better Classifying Work and Following Leading Practices. GAO-19-223. Washington, D.C.: February 19, 2019. Nuclear Waste: DOE Should Take Actions to Improve Oversight of Cleanup Milestones. GAO-19-207. Washington, D.C.: February 14, 2019. Department of Energy: Program-Wide Strategy and Better Reporting Needed to Address Growing Environmental Cleanup Liability. GAO-19-28. Washington, D.C.: January 29, 2019. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study EM's cleanup responsibilities include remediating contaminated soil and groundwater, deactivating and decommissioning contaminated facilities, and treating millions of gallons of radioactive waste that resulted from nuclear weapons produced during World War II and the Cold War. GAO has reported on a wide range of challenges facing EM, including management challenges and the office's increasing environmental liability. In 2017, GAO added the U.S. government's environmental liability to the list of program areas that are at high risk for fraud, waste, abuse, and mismanagement or in need of transformation. DOE is responsible for over 80 percent of the federal government's environmental liability. This testimony discusses (1) the status of DOE's environmental liability, (2) management challenges at EM, and (3) EM's reporting on its cleanup efforts. It is based on five GAO reports issued from January to March 2019, updated with information from DOE's recent Fiscal Year 2018 Agency Financial Report and 2020 budget request. What GAO Found In fiscal year 2018, the Department of Energy's (DOE) estimated environmental liability—that is, its estimated probable costs of future environmental cleanup—was $494 billion. Of this amount, DOE's Office of Environmental Management (EM)—which is responsible for most of DOE's cleanup activities—accounted for $377 billion. EM's portion of the liability reflects cleanup estimates for 16 sites across the United States. Two of these, the Hanford site in Washington and Savannah River site in South Carolina, have most of EM's nuclear waste stored in tanks, which is particularly costly and complicated to treat. EM's environmental liability grew by $214 billion in fiscal years 2011 through 2018, even though EM spent over $48 billion on cleanup. GAO found that this liability may continue to grow for several reasons: EM's environmental liability does not include the costs of all future cleanup responsibilities. For example, as of April 2018, DOE and its contractor had not negotiated a cost for completing a large waste treatment facility, called the Waste Treatment and Immobilization Plant, at the Hanford site. About 30 to 60 percent of EM's cleanup budget goes toward recurring activities necessary to maintain the sites—such as physical security and infrastructure maintenance—rather than toward reducing EM's environmental liability. EM officials have not analyzed the root causes of the cost growth. GAO found that EM has not resolved long-standing management challenges. First, EM does not have a program-wide cleanup strategy and relies primarily on individual sites to locally negotiate cleanup activities and establish priorities, which does not always balance overall risks and costs. For example, the Hanford and Savannah River sites plan to treat similar radioactive tank waste differently, with Hanford's efforts possibly costing tens of billions more than Savannah River's. In addition, EM manages most of its cleanup work as operations activities, under less stringent requirements than other environmental remediation projects. For example, operations activities are not subject to independent oversight outside EM, and therefore DOE cannot hold EM accountable for its performance. GAO also found that EM has not consistently reported to Congress on its cleanup efforts as required, and the information EM has reported has been incomplete or inaccurate. Under the National Defense Authorization Act for Fiscal Year 2011, EM must annually report estimated costs and detailed funding needs for future cleanup activities. EM's fiscal year 2017 submission to Congress was only the second one since fiscal year 2011, and it did not include a detailed list of upcoming activities or funding needed to meet those activities. Finally, GAO found that information provided in EM's fiscal year 2016 to 2018 budget requests did not reflect the funding some DOE officials said it needs to meet its milestones. Budget requests for those years were for at least $1.5 billion less than the $8 billion a senior EM official said EM anticipated was needed annually to meet milestones called for in legally enforceable agreements. What GAO Recommends Since January 2019, GAO has made 20 recommendations to DOE to address the growing environmental liability and management challenges and will continue to monitor DOE's implementation of these recommendations. DOE has generally agreed with all but one of these recommendations and has noted plans to implement many of the recommendations.

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<1. Background> <1.1. Federal Authorities> Interior has oversight responsibility for the development of federal oil and gas resources located under more than 260 million surface onshore acres, 700 million subsurface onshore acres, and 1.7 billion offshore acres in the waters of the Outer Continental Shelf. In this capacity, Interior is authorized to lease federal oil and gas resources and to collect the royalties associated with their production. BOEM has leasing authority in offshore waters, including the U.S. Gulf of Mexico. BOEM schedules lease sales on a 5-year planning basis. In January 2017, the Secretary of the Interior finalized BOEM s 2017-2022 Outer Continental Shelf Oil and Gas Leasing Proposed Final Program, which included information for 10 planned lease sales in the Gulf of Mexico. BOEM has traditionally held two lease sales per year in the Gulf of Mexico region one for the Central Planning Area and one for the Western Planning Area. However, beginning with Lease Sale 249 in August 2017, BOEM transitioned to offering all available tracts in the Gulf of Mexico at each of its twice-yearly lease sales. OCSLA, as amended, directs BOEM to establish minimum bid levels, rental fees, royalty rates, and other related fees to assure receipt of fair market value to the U.S. government for lands leased on the Outer Continental Shelf and the rights conveyed by the federal government. OCSLA directs BOEM to manage the leasing program in a manner that considers economic, social, and environmental value, including the potential impact of oil and gas exploration on other resource values of the Outer Continental Shelf. Subject to the requirement to assure receipt of fair market value, BOEM has the authority to change certain lease terms within the oil and gas fiscal system. Specifically, BOEM has broad authority to change bid terms for offshore leases, including the royalty rate, the bonus bid structure, minimum bid amounts, lease duration, and rental terms within parameters defined in OCSLA. Prior to each lease sale, BOEM publishes a Final Notice of Sale that contains the specific conditions and terms applicable to any leases sold at the lease sale, including rental rates, minimum bid amounts, and royalty rates, each of which may vary by water depth. In some cases, lease terms have been defined in law. For example, in 1995, Congress passed the Outer Continental Shelf Deep Water Royalty Relief Act, which waived or reduced the amount of royalties that companies would otherwise be obligated to pay on the initial volumes of production from certain deep water tracts leased from 1996 through 2000. In implementing the act for leases sold in 1996, 1997, and 2000, BOEM specified that royalty relief would be applicable only if oil and gas prices were below certain levels, known as price thresholds, with the intention of protecting the government s royalty interests if oil and gas prices increased significantly. BOEM did not include these same price thresholds for leases it issued in 1998 and 1999. <1.2. Revenues from Oil and Gas Development> Figures 1 and 2 below show federal revenue from offshore oil and gas leases from 2006 through 2018. Annually and in aggregate, royalties constitute a majority of revenue from offshore oil and gas leases, followed by bonus bids. <1.3. Industry Considerations in Oil and Gas Development> Industry develops oil and gas resources on federal lands within the context of broader energy markets. Conditions in those markets including commodity prices, competition, and technological developments can change rapidly. For example, the price of oil on the open market has been volatile, ranging from about $39 to $136 per barrel (in 2018 dollars) over the last decade. In addition, companies must weigh potential offshore oil and gas investments against other potential oil and gas investment options domestically and overseas. For example, some companies have expanded the sphere of their development activities to waters off Mexico, areas which now compete for investment against the remaining oil resources in the Gulf of Mexico. Furthermore, technological innovations such as developments in seismic imaging and in drilling technology have affected where companies are able to locate and develop resources in subsea areas. <1.4. BOEM s Bid Evaluation Process> According to bureau documentation, BOEM is to evaluate the adequacy of bids in two phases of analysis economic viability assessments and tract valuations that incorporate departmental economic and geologic models. BOEM s bid evaluations are intended to ensure that the bureau awards leases only when the associated bid amount represents at least fair market value to the federal government. <1.4.1. Phase I: Economic Viability Assessment> According to bureau documentation, after each lease sale, BOEM evaluates the economic viability of tracts receiving bids to determine if they require additional analysis before BOEM decides whether to accept or reject the bids. To make these initial assessments, BOEM first develops thresholds of the minimum quantity of oil or gas that must be present to generate revenue that would offset exploration and development costs known as the break-even threshold at the given water depth, among other factors. Then, for each tract that receives a bid, BOEM estimates a range of how much oil or gas may be on the tract known as the tract s resource potential using geological and geophysical data. This process incorporates collecting and analyzing the most recently available seismic exploration and well data and any information gathered from drilling in that geographical area. BOEM is then to categorize tracts as viable or nonviable by comparing the bureau s estimated resource potential against the relevant break-even threshold. Nonviable tracts are those for which BOEM s resource estimates are below the break-even threshold, meaning they are not likely to have enough oil and gas to be profitably explored, developed, and produced. For tracts that BOEM concludes are nonviable, BOEM accepts the highest bid received as long as that bid is higher than the minimum acceptable bid amount. Conversely, viable tracts are those that exceed BOEM s economic viability threshold and that BOEM considers as having the potential to be profitably explored, developed, and produced. BOEM subjects these tracts to further economic analysis in its next phase, tract valuation. <1.4.2. Phase II: Tract Valuation> According to bureau documentation, for tracts determined to be economically viable, BOEM is then to conduct a more detailed economic analysis to determine if the high bids represent fair market value. Specifically, BOEM develops an acceptable bid threshold by modeling the likely monetary value of production from a tract less the costs to explore and develop it, including industry profit and payments to the government. BOEM s Fair Market Value Review Committee oversees the development of tract-specific parameters production potential, probability of geologic success, economic projections, and development costs and timeframes that the bureau uses in its proprietary discounted cash flow analysis model. A discounted cash flow analysis is a valuation method used to estimate the present value of an investment in this case a tract of land based on estimated future cash flows. As inputs to its model, BOEM uses the oil and gas resource estimates it developed in its economic viability assessments to estimate how much oil and gas could be extracted from each tract, and it analyzes seismic and well data to determine the likelihood of discovering oil and gas. BOEM also develops economic projections for future oil and gas prices as well as projections for exploration and development costs and time frames for each tract, based on historical cost data, drilling equipment, technological innovation, and other factors. BOEM inputs these parameters into its proprietary discounted cash flow model to generate a distribution of potential tract values. BOEM uses the average of these potential values as representative of the present value of the tract. BOEM also develops an estimate of each tract s value at the next scheduled lease sale known as the delayed value. The delayed value for the next sale is computed as the present value associated with the delay in leasing under the projected economic, engineering, and geological conditions for example, by accounting for depletion of resources due to extraction from a nearby tract that shares access to the reservoir. Based on its valuations, the bureau establishes acceptable bid thresholds for the tracts. The acceptable bid threshold for each tract is the higher of: (1) the lesser of the present value and the delayed value or (2) the minimum bid per acre in instances in which BOEM s present and delayed valuations are below the minimum bid per acre. If the high bid exceeds the acceptable bid threshold, BOEM concludes that the bid represents fair market value and accepts it and awards a lease. Conversely, if the high bid does not exceed the acceptable bid threshold, BOEM rejects the bid as inadequate and the tract is made available for lease at the next lease sale. <2. Changes in Oil Prices and Royalty Rates Are Key Drivers of Changes in Bonus Bids> According to our empirical analysis of BOEM data and interviews with BOEM officials and industry representatives, changes in the price of oil and changes in royalty rates drive changes in the amount industry bids for offshore oil and gas leases. Specifically, the current and expected future price of oil are key factors determining bonus bid amounts, in the context of industry s assessment of the expected presence of hydrocarbon reserves for a given tract, the likelihood of success in developing those reserves, and the uncertainties in geological and seismic information. Specifically, our econometric model suggests a strong positive correspondence between higher oil prices and higher bonus bids; that is, when oil prices are higher, bonus bids tend be higher and, conversely, when oil prices are lower, bonus bids tend to be lower. For example, from 2006 through 2008, oil prices rapidly rose to historic highs. This period corresponded with an increase in average bonus bids in deep water from an average of about $275 per acre in 2006 to an average of about $800 per acre in 2008. Figure 3 shows the relationship between oil prices and per acre average bonus bids. The results of our analysis are consistent with input from BOEM officials and industry representatives who told us that the price of oil is a key factor in industry bidding decisions. Specifically, these officials and representatives explained that they use the current price of oil as a baseline for expectations regarding future prices of oil that is, the price at which industry can sell the oil it produces. Therefore, high current oil prices lead to higher projections of future oil prices, thereby driving up bids. Likewise, they told us that industry bidding activity increases in high- price environments because production from existing wells provides financial resources companies can use to invest in acquiring additional leases. Moreover, according to these officials and representatives, higher oil prices make some tracts economically viable to develop that had been viewed as unprofitable at lower prices. According to our analysis of BOEM data, changes in federal royalty rates also drive changes in the amount industry bids on offshore leases. Our econometric model indicates that increases in royalty rates lead to decreased bonus bids and, conversely, decreases in royalty rates lead to increased bonus bids. According to our model, during the royalty relief period from 1996 through 2000, when royalty rates were effectively zero, bonus bids increased between 34 percent and 60 percent over what bonus bids would have been expected to be had the royalty rate remained at the pre-1996 rate of 12.5 percent. Specifically, we found that industry bid approximately 34 percent higher for leases sold in 1996, 1997, and 2000, when leases contained no royalty obligation until oil prices rose above a certain threshold. Similarly, industry bid approximately 60 percent higher for leases sold in 1998 and 1999, when leases carried no royalties for the life of the lease. However, changes in oil prices can work to counter the effect of royalty rate changes on bonus bids. For example, between 2006 and 2008, royalty rates in water depths greater than 400 meters increased from 12.5 percent to 18.75 percent. Based on our model, this royalty rate increase would have a significant downward effect on bonus bids. However, the rapid increase in oil prices during this period resulted in the net effect of an increase in bonus bids for these tracts by more than 150 percent. Our findings are consistent with the views of BOEM officials and industry representatives, who told us that lower royalty rates increase industry bidding because lower royalties result in higher industry tract valuations. Specifically, the smaller financial commitments to the government associated with lower royalty rates increases the projected value of any oil or gas produced. BOEM officials and industry representatives told us that, in turn, the increased projected value of these tracts would lead to increases in the dollar value of individual bids as well as the number of bids submitted. For example, they cited the royalty relief period of 1996 through 2000 as responsible for a significant increase in bidding activity during that time. However, while decreases in royalty rates lead to higher bonus bids, they may still lead to lower overall federal offshore oil and gas revenues. Specifically, our model estimates and BOEM data show that eliminating royalties for tracts leased between 1996 and 2000 would have increased overall bonus bids for those tracts by at most about $1.98 billion over what they would have been had royalty rates remained at their pre-1996 rate of 12.5 percent. However, forgone royalty revenue was more than nine times greater. Specifically, Interior data show approximately $18.0 billion in forgone royalty payments on these leases through the end of 2018. Because most of these leases are still in production, this estimate does not represent the final total of forgone royalty payments. <3. BOEM Regularly Assesses Potential Changes to Fiscal Terms but Has Made Limited Progress in Developing a Progressive Royalty Structure> BOEM regularly assesses potential changes to fiscal terms in annual and supplementary lease sale-specific analyses. Additionally, BOEM has advertised its development of a progressive, priced-based royalty system for 6 years but has made little demonstrable progress toward developing this system. <3.1. BOEM Regularly Assesses Potential Changes to the Fiscal Terms> Based on our review of planning documents for lease sales held from March 2016 through August 2018, BOEM regularly assesses potential changes to fiscal terms in annual and supplementary lease sale-specific analyses. BOEM s annual analyses consider various factors that can affect the fiscal system, and its lease sale-specific analyses build on those factors to inform fiscal terms for individual sales. <3.1.1. BOEM Conducts an Annual Analysis That Informs Fiscal Term Options> BOEM conducts an annual analysis of various factors affecting the offshore fiscal system that informs its development of fiscal term options for all lease sales to be held in the subsequent year. According to our review of BOEM documentation and interviews with bureau officials, factors BOEM considers include the following: Resource potential. BOEM estimates the likely amount of undiscovered recoverable oil and gas resources remaining in the region based on the bureau s most recent national assessment. Market conditions. BOEM assesses trends in oil and gas prices as well as forecasts from the Department of Energy s Energy Information Administration, the World Bank, and the Office of Management and Budget. BOEM uses these assessments to estimate, under existing fiscal terms, results for the lease sales covered by the analysis including the amount of bonus bids collected and the number of tracts sold as well as resulting production and net economic value under various price scenarios. Leasing, drilling, development, and production activity. BOEM reviews industry activity over the previous several years, including leases purchased, companies participating in lease sales, exploration and development drilling, new facility installations, and oil and gas production trends. Industry news. BOEM considers industry perception of its fiscal terms by evaluating industry estimates of break-even thresholds (oil and gas market prices at which production from a given area is cost- effective at current costs of production) and announcements of new discoveries, projects, and production. International considerations. BOEM reviews the fiscal terms of international jurisdictions to assess how they compare with the U.S. system. Within this context, BOEM considers potential changes to its fiscal terms by estimating their effects on outcomes including leasing activity, production, and revenue at various oil and gas prices. For example, in its annual analysis for its August 2017 and March 2018 lease sales, BOEM analyzed the potential effect of five royalty rate changes from the 18.75 percent rate that had been in place since 2008. Two of the potential changes were targeted to specific types of production or water depths and three would apply to all production. For the targeted changes, BOEM considered (1) a lower natural gas royalty and (2) a lower shallow water royalty both at the statutory minimum of 12.5 percent. The other potential changes were to lower royalty rates on all production to (1) 12.5 percent, (2) 15 percent, and (3) 16.67 percent. For each of these scenarios, BOEM modeled effects on overall production and revenue at various market prices. <3.1.2. BOEM Conducts Lease Sale- Specific Analysis and Makes Recommendations> Based on our review of BOEM lease planning documents, BOEM conducts additional lease sale-specific analysis before finalizing the fiscal terms for each sale. For example, BOEM considered changes to each of the fiscal terms for its August 2018 lease sale minimum bid, rental rates, and royalty rate but recommended that they not change from the previous sale. Specifically: Minimum bid. BOEM evaluated lowering the minimum bid for tracts in water depths of greater than 400 meters to account for the effects of decreases in (1) oil prices since BOEM raised the minimum bid to $100 in 2011 and (2) corporate tax rates per the Tax Cuts and Jobs Act of 2017. BOEM found that, because of these changes, a $100 per acre minimum bid in 2018 was roughly equivalent to a $170 per acre minimum bid in 2011 and that maintaining the $100 per acre minimum bid in 2018 could reduce the number of tracts sold. However, BOEM assessed that industry has recently shown a preference for holding less acreage, evidenced by relinquishments and bidding on fewer blocks. Therefore, BOEM determined that lowering the minimum bid might not have the desired effect of increasing tracts leased; instead, it could lead to the same number of blocks being sold but with lower total bonus bid revenue. Rental rate. BOEM evaluated adjusting the rental rate to account for inflation since the last adjustment in 2009. It also evaluated increasing the rental rate in water depths greater than 400 meters to $20 per acre to provide additional financial incentive to explore leases. However, BOEM did not recommend this option since it reported that it expected the effects to be minor. Royalty rate. BOEM evaluated the effect of lowering the royalty rate to 12.5 percent for two scenarios: (1) tracts with water depths between 200 and 400 meters and (2) all tracts. BOEM recommended leaving the royalty rate at 18.75 percent for all tracts deeper than 200 meters. In doing so, the bureau cited little effect for lowering the rate for tracts with water depths between 200 to 400 meters it projected less than a 0.1 percent increase in production and less than 0.1 percent decrease in revenue. BOEM also cited more substantial projected drops in overall revenue of 17 to 19 percent, paired with modest increases in production (1 to 2 percent increase in oil production and 2 to 5 percent increase in gas production) for lowering the royalty rate for all tracts. BOEM also found that these losses to the federal government could be even more substantial if oil prices rise in the future. BOEM officials told us that, in general, they prefer to make minor iterative changes to fiscal terms in order to better gauge their effects that is, they find it easier to measure the effects of a change to one term at a time rather than the effects of reconfiguring multiple terms as well as provide predictability for industry. In keeping with this approach, BOEM has made one change to its royalty rate since 2012 (see table 1 for details on the recent history of lease terms in the Gulf of Mexico). Specifically, in advance of its August 2017 lease sale, BOEM announced a reduction in royalty rate for tracts with water depths of less than 200 meters from 18.75 percent to the statutory minimum of 12.5 percent. According to BOEM documentation, the driving factor for this decision was that shallow water in the Gulf of Mexico has been largely explored, leaving generally marginal tracts that either are largely depleted of resources or more gas prone. In turn, the goal in reducing the royalty rate was to incentivize additional industry interest in these more marginal shallow water tracts. <3.2. BOEM Has Made Little Headway in Developing a Progressive Royalty System> BOEM has publicized the development of a progressive royalty system since 2013 but has made little demonstrable headway toward developing such a system. Specifically, in its budget justifications for fiscal years 2014 through 2017, BOEM stated it was developing a package of legislative and administrative proposals to, among other things, improve the return to the federal government from the sale of these federal resources. Among these proposed reforms was a price-based tiered royalty rate to replace the fixed royalty rate structure that BOEM has used since 1983. Under a price-based royalty system, the royalty rate would depend on prevailing commodity prices, with lower prices having lower royalty rates. According to BOEM documents, the current flat-rate royalty system is regressive that is, a fixed rate that does not adapt to market conditions or the relative success of a lease but a price-based royalty would share more revenue risk with the lessee and reduce the regressive nature of the system. A more progressive system would provide an increased incentive to lessees to develop resources during times of low oil and gas prices through lower royalty rates, while also ensuring that the federal government receives a greater return for offshore resources when prices are high. BOEM officials we interviewed told us that this type of adaptive system could be more efficient and provide higher returns relative to the existing fixed-rate system. That is, if properly designed, a priced-based system could increase return to the federal government in high-price environments while incentivizing continued industry investment when prices are low. According to BOEM documentation, a progressive, price-based royalty rate could have the additional benefit of future-proofing the royalty system because it would adjust the rate for whatever prices prevail in the future and provide a stable, predictable market for industry. We reported in September 2008 that the regressive nature of the offshore fiscal system, among other factors, caused it to be unstable over time and added risk to oil and gas investments that may reduce the total amount industry is willing to pay for the rights to explore and develop federal leases. BOEM officials told us such a system that automatically adjusts could reduce the need for frequent revisiting and continual annual and lease sale-specific evaluations because it would automatically adapt to certain market conditions. According to these officials, a stable, long-lived system would also reduce political pressure to restructure it or rely on legislation such as the Deep Water Royalty Relief Act in the future. Additionally, long-term stability in the royalty system could benefit industry, according to a 2007 study. Specifically, industry may consider fiscal system stability more important than the attractiveness of fiscal terms, as the appeal of low government revenue incorporating bids, rents, and royalties is limited if there is a high probability the terms will change. In the context of the offshore fiscal system, this means that some companies might prefer a flexible rate that lowers their royalty obligations in low-price environments so long as BOEM clearly defines the specific market conditions under which royalty rates would increase or decrease. BOEM has continued to publicize its efforts to develop a price-based royalty system though it did not complete them as follows: July 2017: BOEM announced in a note to stakeholders that it was continuing to analyze a price-based royalty system and would subsequently engage stakeholders on this concept; however, it did not do so. January 2018: BOEM released the 2019-2024 National Outer Continental Shelf Leasing Draft Proposed Program, which states that the bureau was studying a priced-based royalty structure as an alternative to the existing fixed royalty rate. February 2018: BOEM s memorandum documenting lease term decisions for its March 2018 lease sale stated that the bureau was evaluating a potential future option for a price-based mechanism that would lower royalty rates at current oil prices while increasing rates above the current 18.75 percent royalty rate as price conditions warrant. Spring 2018: In the Lease Term Reassessment Report covering its August 2018 and March 2019 lease sales, BOEM indicated that the statutory floor of 12.5 percent might not be low enough to encourage new exploration and development, particularly for smaller fields for which a lower royalty would have a reduced financial benefit and effect on early cost recovery than for larger fields. As a result, BOEM was considering incorporating into its price-based royalty the suspension of royalty collection for a certain initial volume of oil or gas produced to effectively lower the royalty rate below the statutory minimum and incentivize the development of smaller, marginal fields. However, BOEM has demonstrated little tangible progress in the 6 years since it began publicizing the development of a more progressive royalty system. BOEM officials told us that the general concept for a price-based royalty is robust, but the bureau has not determined optimal parameters for sharing risk when prices are low in return for a higher return when prices are higher. BOEM drafted a Federal Register notice and accompanying procedures for implementing a price-based royalty system that the bureau intended to publish to obtain public comment. These draft procedures include different permutations of royalty rates and price thresholds. However, BOEM officials told us that feedback from within the bureau included enough concerns about workability that the draft notice and procedures were not published and the draft no longer reflects bureau leadership s position on the issue. According to BOEM officials, the main challenges to a price-based system are determining optimal rates and price thresholds for escalating royalties and quantifying the benefits to the government at lower price levels when government revenue would be lower than under the current regressive system. BOEM officials also cited additional challenges, including establishing price inflation parameters and developing mechanisms for assessing and collecting royalty payments on a sliding scale. After the development of the draft Federal Register notice and procedures, according to BOEM officials, they continued to work on a price-based royalty model. However, they did not provide us documentation of any progress made. BOEM officials told us that the concept is too immature to consider testing implementation on a pilot project basis and that there is not a time frame for when any decisions will be made, including whether to proceed with developing the system. According to federal standards for internal control, agency management should define objectives clearly to enable the identification of risks and define risk tolerances. This involves clearly defining what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. Developing a documented plan for assessing whether and how to implement a progressive royalty structure that defines these aspects would help position BOEM to better understand (1) the potential benefits such a structure could offer in terms of improving fair return to the taxpayer while fostering diligent offshore oil and gas development and (2) how to implement such a structure if it elects to do so. <4. BOEM s Tract Valuation Process Might Not Fully Assure Receipt of Fair Market Value> BOEM s tract valuation process might not fully assure receipt of fair market value, according to our analysis of BOEM tract valuation data and documentation. BOEM s valuations for tracts were generally low relative to industry bids, largely due to the cumulative effect of three aspects of its bid valuation process: (1) the bureau forecasts conservatively to account for uncertainties, (2) the bureau forecasts unreasonably high levels of depreciation, and (3) BOEM selectively further lowers many valuations from its model to justify accepting bids it otherwise would reject. In addition, BOEM conducts limited self-evaluations of its tract valuation process and does not have a systematic mechanism to address deficiencies, such as those described above. <4.1. BOEM s Valuations Were Generally Low Compared to Industry Bids> BOEM s valuations for tracts it determined to be economically viable were generally low relative to industry bids. Specifically, from March 2000 through June 2018, BOEM s acceptable bid threshold for the 2,035 tracts on which it conducted valuations was, on average, about one-third of industry s high bid (about $2.26 million to $6.43 million, respectively, as shown in table 2). BOEM accepted the high bid on about 85 percent of tracts it determined to be viable (1,721 of 2,035), for a total of about $12.8 billion in bid revenue, and it rejected about 15 percent of high bids (314 of 2,035) totaling about $287 million. BOEM s bid rejections generally resulted in higher bids for the same tracts in subsequent lease sales, significantly increasing bid revenue for these tracts and indicating that industry viewed those tracts as more valuable than the original rejected bid. Specifically, for the 314 bids worth about $287 million that BOEM rejected, BOEM subsequently accepted bids for almost 70 percent of the tracts (161 of 236) for about $667 million more than twice (about 230 percent) the aggregate rejected value for those tracts. BOEM s acceptable bid thresholds were generally low relative to industry bids due to three compounding aspects of its valuation process: (1) BOEM conservatively forecasts the key parameters used in its valuation model, (2) BOEM forecasts unreasonably high levels of depreciation between lease sales, which further lowers acceptable bid thresholds, and (3) BOEM alters many valuations valuations that are already low due to the two preceding aspects of its process downward further in order to justify accepting bids. <4.1.1. BOEM Conservatively Forecasts Key Parameters Used in Its Model> BOEM officials told us that they forecast conservatively to account for uncertainties, which systemically lowers its tract valuations. Specifically, they told us that they face significant uncertainties associated with the key parameters that contribute to BOEM s valuations: resource potential, probability of geologic success, price of oil and gas, and cost and scheduling estimates. They told us that they forecast each of these parameters conservatively that is, being cautious against overestimating any factor that might unreasonably inflate the bureau s valuation so as to not reject bids that might represent fair market value. BOEM s conservative approach is evidenced by its reluctance to reject bids of significant value. Specifically, from March 2000 through June 2018, BOEM rejected three bids of more than $5 million dollars the highest was for approximately $11.2 million while accepting 570 bids of more than $5 million. BOEM officials told us that this conservative approach represents fair market value because the objective of the bureau s tract valuation process is to lease tracts and collect associated revenues except when BOEM determines a tract is worth significantly more than the highest bid received. That is, they told us that the bureau is more inclined to accept bids and collect revenue and facilitate exploration and development via the award of leases rather than reject bids. Moreover, they told us that this approach also provides the bureau with greater justification for rejecting the bids when it does so, which they said can drive up subsequent bids for the same tracts. <4.1.2. BOEM Forecasts Unreasonably High Levels of Depreciation> BOEM forecasts unreasonably high levels of depreciation as compared to the government s recommended discount rate, which further depresses acceptable bid thresholds that were already based on conservative forecasting. As discussed previously, BOEM s acceptable bid threshold is generally determined by the lesser of BOEM s present valuation and its delayed valuation. For the 1,412 tracts with a positive present valuation assessed from March 2000 through June 2018, BOEM forecast a median loss in value on these tracts would be about 23 percent (about $494,000) by the time of the next sale opportunity for those tracts. BOEM officials told us that expected lower future values are generally due to discounting the eventual collection of revenue. Specifically, BOEM officials explained that the bureau s model considers the delayed collection of revenue bonus bids and royalties when developing its delayed values. However, because tracts that received a rejected bid would be available for sale during the next year or, more recently, 6 months on average the period of discounting is very short. Discounting seems an unreasonable explanation of BOEM s forecasted depreciation rates for two additional reasons. First, BOEM s forecasted depreciation rates do not align with industry bidding patterns for tracts that were leased more than once where the lease for a tract either expired or the leaseholder relinquished it and the tract was therefore available at a subsequent lease sale. Specifically, for the 61 tracts that were leased more than once from March 2000 through June 2018, bids actually increased slightly over time (bids increased at a real average annual rate of 0.2 percent, or about $6,700). Second, since oil prices are generally forecast to rise, the underlying oil and gas resource values would be expected to increase over time rather than decrease, suggesting a smaller difference between present and delayed values should be observed than is reflected in BOEM s tract valuations. Additionally, BOEM s forecasted depreciation has increased even though tracts are now available twice as frequently. Until August 2017, BOEM held annual lease sales for each of two lease areas so that tracts were available once per year. On average during this time, BOEM forecast that the median loss in value for tracts with positive present valuations would be approximately 23 percent (about $481,000) of their value in the year between lease sales (see table 3). BOEM has since made tracts available twice per year. Having less time between lease sales should decrease the amount of forecasted depreciation, as there is less time for discounting. Yet the average difference between present and delayed value increased for biannual lease sales to about 27 percent (or about $1.03 million per tract) for tracts with a positive present valuation. BOEM s depreciation for biannual lease sales is equivalent to an annual rate of approximately 47 percent (or about $1.78 million annually per tract), which is nearly seven times the Office of Management and Budget s annual recommended discount rate of 7 percent. That BOEM s forecasted depreciation has increased since moving to biannual lease sales is also at odds with the concept of how discounting should affect tract valuations, as shorter periods of time are generally associated with lower depreciation than longer periods of time. Under federal standards for internal control, management should use quality information to achieve the entity s objective. Yet, according to our analysis of BOEM data, the bureau s unreasonably large forecasts of depreciation have increasingly been the deciding factor in decisions to accept bids. Cumulatively, BOEM s high forecasted level of depreciation resulted in the bureau accepting 205 bids for about $672 million that it would have rejected if its present valuations had been used as the acceptable bid threshold. Based on the return BOEM has realized on rejected bids, had BOEM rejected these 205 bids, it might have subsequently collected more than $873 million in additional bid revenue for these tracts, which would represent an increase in overall bid revenue of about 6.8 percent for tracts BOEM determined to be viable. BOEM officials told us that they were unaware that their model forecasts such high rates of depreciation and that the issue warrants further examination. However, BOEM officials did not indicate they had any plans to conduct such an examination. Though BOEM is not required to follow government auditing standards, these standards highlight that it can be beneficial to consult an independent third party to assess issues that are highly technical as a safeguard to eliminate threats to independence or reduce them to an acceptable level. As BOEM developed and has used its delayed valuations for at least 20 years, outside perspectives and expertise could be beneficial. Enlisting an independent third party to examine the extent to which the bureau s use of delayed valuations assures receipt of fair market value, and making changes such as terminating the use of delayed valuations as acceptable bid threshold criteria or amending its model s assumptions to develop more justifiable depreciation rates as appropriate, would help BOEM mitigate risks of continuing to accept bids based on poor information on tracts future values. <4.1.3. BOEM Further Lowered Many Valuations to Justify Bid Acceptance> Our analysis of BOEM data as well as BOEM testimony indicate that the bureau changed its forecasting parameters, thereby lowering many valuations and acceptable bid thresholds which were already systematically low due to its conservative forecasting and excessive depreciation in order to justify accepting bids. BOEM officials told us that when bids are slightly below the bureau s initial valuations and therefore would be rejected per BOEM s procedures for ensuring receipt of fair market value BOEM reviews and adjusts its forecasting parameters then reruns its model in order to produce new valuations, which they told us can and which the data indicate generally do result in lower valuations that justify accepting the bids. BOEM officials told us that they would rather accept bids offered by industry as well as any associated rental and royalty revenue than reject them and potentially never recoup the forgone bid revenue. We observed BOEM s bias, or statistical anomalies, indicating BOEM lowered a portion of its valuations in order to accept bids in our analysis of BOEM tract valuation data from March 2000 through June 2018. Specifically, we found that BOEM never valued a tract as being worth slightly more than industry s high bid (that is, instances in which BOEM s valuation is between 100 and 125 percent of the high bid). In contrast, BOEM valued tracts at slightly less than the industry high bid (that is, instances in which the high bid is between 100 and 125 percent of BOEM s valuation) about 10 percent of the time (117 of the 1,198 bids subjected to valuation for which the acceptable bid threshold was above the minimum bid level). This anomalous absence of any instances in which BOEM valued tracts slightly more than industry is consistent with BOEM officials statements that the bureau further lowered its initial valuations when these valuations were only slightly higher than bids. BOEM officials suggested that any pattern of adjusting valuations would be limited to lower-value bids whereby smaller dollar-value changes would represent greater percentage changes. However, the data do not support this, as we found that BOEM s bias toward lowering valuations does not appear to be limited to those slightly above industry s high bid, but is nearly systematic for valuations up to double industry s high bid across all bid levels. Figures 4 and 5 show the distribution of BOEM s valuations compared with industry s high bids, with green data points reflecting accepted bids and blue data points reflecting rejected bids. In particular, the middle two bars in figure 4 and the areas between the dotted lines on figure 5 represent instances in which the relationship between BOEM s valuation and industry s high bid and vice versa were relatively close (that is, BOEM s valuation was up to double industry s bid for rejected bids, and industry s bid was up to double BOEM s valuation for accepted bids). Within this range, BOEM s tendency to lower bid valuations to justify acceptance is clear due to the relative abundance of acceptances (359) and the relative scarcity of rejections (27) a pattern of more than 13 acceptances for every rejection that is anomalous within the data. This disparity would be even greater if we had included in our analysis the 802 bids BOEM accepted because its valuations were below the minimum bid level which is then used as the acceptable bid threshold. BOEM officials told us that they occasionally change valuations to address the uncertainty inherent in the factors that comprise BOEM s tract valuation process, though doing so in order to justify bid acceptance is inconsistent with BOEM s fair market value procedures. Specifically, officials told us that the point valuation developed by its discounted cash flow model is not representative of the broadness of the distribution of potential values though it does represent the average of the distribution. Additionally, these officials told us that the process is iterative the bureau adjusts its forecasts multiple times before deciding on final valuations. Furthermore, officials said that valuations that are above, but near, the high bids are subject to more iterations. Moreover, BOEM officials told us that all forecasting parameters and valuations, including those that are revisited more frequently, are evaluated and approved through its Fair Market Value Review Committee, which is broadly responsible for ensuring consistency in the application of the bureau s tract valuation process. Adjusting valuations comports with what BOEM officials told us is their conservative approach and promotes accepting bids unless the bureau has a high level of certainty that the tract is worth more than the high bid. However, BOEM officials told us they were not aware that their adjustments had effectively reduced the acceptable bid thresholds of nearly all valuations that were initially up to double industry s high bid. Given that BOEM already starts with a conservative approach to valuation, which is compounded by its model generally forecasting high levels of depreciation, this practice of introducing more conservative assumptions in cases when initial valuations are above bids is not consistent with the bureau s fair market value procedures prescribed in federal regulations, BOEM s Bureau Manual for ensuring fair market value, and in BOEM s bid adequacy procedures. These procedures call for BOEM to use the outputs of its discounted cash flow model as the thresholds for determining whether to accept bids. In situations where BOEM determines that its valuation results are not consistent with programmatic goals, BOEM s procedures allow for the bureau to develop alternative bid evaluation protocols for a given lease sale, but BOEM has not done so. BOEM s procedures do not explicitly allow for valuations to be adjusted based on how close they are to industry bids, nor is there an allowance for adjusting valuations in an ad hoc fashion for uncertainty. The practice of adjusting valuations this way undermines receipt of fair market value by holding industry to a lower and potentially inconsistent standard for purchasing leasing rights than those outlined in BOEM s valuation procedures. The practice of lowering valuations also results in the potential loss of hundreds of millions of dollars in revenue. We do not know how many accepted bids would have been rejected based on their initial valuations because BOEM s data do not indicate which valuations were further lowered. However, if BOEM had rejected 26 percent of the bids that were up to double its valuations which appears reasonable to interpolate based on the distribution of the other bid-to-valuation relationships the bureau potentially could have subsequently collected approximately $567 million additional dollars in bid revenue for tracts it determined to be viable (an increase of about 3.9 percent). Without taking steps to ensure that BOEM s bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids, the bureau risks continuing to undermine the receipt of fair market value for the sale of public resources. <4.2. BOEM Conducts Limited Self-Evaluations of Its Tract Valuation Process> BOEM conducts evaluations of some aspects of its tract valuation process but does not comprehensively evaluate the accuracy of its forecasting, the assumptions of its model, and their combined effect on assuring receipt of fair market value. Specifically, since 2004, BOEM has routinely conducted lookback studies, self-evaluations to identify opportunities to refine or improve BOEM tract evaluations and decisions. In these lookback studies, BOEM evaluates its performance by comparing the quantity of discovered hydrocarbon resources with BOEM s pre-drill estimates of resource potential. However, the scope of BOEM s lookback studies is limited, which reduces the studies effectiveness in helping the bureau improve its valuation process. We identified four main limitations, based on our review of the studies and interviews with BOEM officials, as follows: Resource discoveries are not updated. The lookback studies are not necessarily representative of the total resources on a tract because BOEM compares the forecast against the results of only the first exploratory well and does not update its studies with the results of further exploration. Therefore, BOEM officials told us, the studies are a snapshot in time and are not representative of the total resource that may ultimately be discovered and developed on a tract. Consequently, the studies provide limited insight regarding the total quantity of the resource discovered relative to pre-drill forecasts and identify the causes of any significant differences. BOEM does not assess certain factors. BOEM does not formally assess other forecasted factors that are important in its valuations, such as likelihood of success or cost and schedule estimates, or the underlying assumptions and workings of its discounted cash flow model. BOEM officials told us that the bureau periodically updates its cost and schedule estimates based on available data and that it makes adjustments to its model, but that these processes are generally ad hoc and not consistently documented. As previously discussed, BOEM s model has produced unreasonably high projected levels of depreciation between lease sales suggesting that BOEM could modify the model or its assumptions to be more consistent and accurate. For example, BOEM has not assessed how depreciation rates implied in its delayed valuations compare with actual depreciation observed in tracts that have been leased multiple times. BOEM does not systematically use the studies to improve processes. BOEM s lookback studies do not include a systematic process for identifying and documenting steps the bureau plans to take to improve the bid valuation process. BOEM does not use these studies findings to systematically inform or document changes to policies, procedures, or processes related to BOEM s tract evaluations. For example, BOEM officials told us that the lookback database and the studies are used as training aids, the data are not comprehensive, the studies are used as spot checks and to provide lessons learned, and these studies are not a comprehensive effort to assess BOEM s valuation process (as BOEM conducts no such comprehensive effort). In its written comments on this report, Interior indicated that BOEM uses the results of its lookback studies to improve aspects of its valuation process. However, Interior did not provide documentation to support this claim. Data do not reflect initial valuations. BOEM s ability to measure the accuracy of its tract valuation process both its forecasting and the performance of its model is hindered because some of its data do not reflect the bureau s initial valuations but rather the adjusted valuations it used to justify bid acceptance. Specifically, BOEM is unable to observe the effect on revenues and sales bids when its initial valuations which were already low due to conservative forecasting and generally high depreciation indicated that bids should be rejected when bids are only slightly less than BOEM s valuation. By altering the valuations to justify acceptance, BOEM is unable to assess how industry would have responded to those rejections in subsequent lease sales. What we observed indicates that BOEM bid rejections for tracts it values as less than double the high bid lead to almost the same average return in future sales as do rejections in which BOEM s valuation is many multiples of the bid. By taking steps to ensure that BOEM s bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids, BOEM could better evaluate how its valuations relate to actual outcomes, which would better inform the bureau as to the validity of its forecasting, modeling assumptions, and the extent to which it is assuring receipt of fair market value. According to standards for internal control in the federal government, management should establish and operate monitoring activities to monitor the internal control system and evaluate the results as well as remediate identified internal control deficiencies on a timely basis. Without implementing a systematic process for comprehensively evaluating its tract valuations, such as by expanding the scope of the bureau s lookback studies effort and remediating any identified deficiencies, the bureau does not have reasonable assurance that its tract valuation process is working as intended, and that opportunities to refine or improve the bureau s valuation process are identified and pursued to better assure the receipt of fair market value for the federal government for offshore oil and gas leases. Such a systematic process could provide BOEM a better understanding of how well the bureau is able to forecast key factors against actual results. <5. Conclusions> BOEM has policies and practices intended to ensure the bureau receives fair market value for the hundreds of millions of dollars of offshore oil and gas leases sold each year. This includes a process to assess fiscal terms in advance of lease sales that has informed periodic changes to fiscal terms over the years. However, we found that BOEM has made limited progress in considering more fundamental changes. The bureau has publicized the development of a progressive royalty structure since 2013 that may better share the risks and rewards of offshore energy activities, but has made limited headway in developing one despite significant potential benefits of such a system. The bureau has not defined what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. Developing a documented plan for determining whether and how to develop a progressive royalty structure that defines these aspects would help position BOEM to better understand (1) the potential benefits such a structure offers in terms of improving fair return to the taxpayer while fostering diligent offshore oil and gas development and (2) how to implement such a structure if it elects to do so. After lease sales, BOEM has repeatedly rejected industry bids when they were lower than the bureau s assessments of a tract s value, generating significant additional revenue at subsequent lease sales. However, BOEM s valuation process might not fully assure receipt of fair market value for sale of offshore oil and gas leases because it systematically reduces the thresholds for accepting bids even though rejecting them could lead to significantly increased revenue. We found that BOEM does so by using a conservative approach to estimating tract values, forecasting unreasonably high levels of depreciation in its delayed valuations, and further lowering valuations in order to justify accepting bids it otherwise would have rejected. Enlisting an independent third party to examine the tradeoffs and benefits of the bureau s continued use of delayed valuations, and making changes such as terminating the use of delayed valuations as acceptable bid threshold criteria or amending its model s assumptions to develop more justifiable depreciation rates as appropriate, would help BOEM mitigate risks of continuing to accept bids based on poor information on tracts future values. Furthermore, BOEM generally lowers its valuations and thereby accepts bids as long as the bid is at least half of BOEM s initial valuation, which is inconsistent with bureau procedures for ensuring receipt of fair market value. Without taking steps to ensure that BOEM s bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids, the bureau risks continuing to undermine the receipt of fair market value for the sale of public resources. Cumulatively, we calculate that taking these steps could result in BOEM collecting approximately 10.7 percent more in bid revenue for offshore tracts it determines to be economically viable, which would reflect hundreds of millions of dollars in additional bid revenue over the next decade. BOEM s ability to assure receipt of fair market value is further hindered because it does not systematically assess its own performance and take steps to improve it. For example, BOEM does not (1) assess how its forecasts of key factors (e.g., reserves discovered, likelihood of success, and oil prices) compared to actual results, (2) assess the assumptions and accuracy of its discounted cash flow model results, such as how well the model accounts for depreciation, and (3) collect information about deviations between BOEM s initial and final valuations that could provide management insights into the frequency and implication of lowering valuations. Without implementing a systematic process for comprehensively evaluating its tract valuations, such as by expanding the scope of the bureau s lookback studies effort and remediating any identified deficiencies, the bureau does not have reasonable assurance that its tract valuation process is working as intended, and that opportunities to refine or improve the bureau s valuation process are identified and pursued to better assure the receipt of fair market value for the federal government for offshore oil and gas leases. <6. Recommendations for Executive Action> We are making the following four recommendations to BOEM: The BOEM director should develop a documented plan for determining whether and how to develop a progressive royalty structure that clearly defines what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. (Recommendation 1) The BOEM director should enlist an independent third party to examine the extent to which the bureau s use of delayed valuations assures the receipt of fair market value, and make changes such as terminating the use of delayed valuations or amending its model s assumptions as appropriate. (Recommendation 2) The BOEM director should take steps to ensure that BOEM s bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids. (Recommendation 3) The BOEM director should implement a systematic process for comprehensively evaluating its tract valuations, such as by expanding the scope of the bureau s lookback studies effort, and remediating any identified deficiencies. (Recommendation 4) <7. Agency Comments and Our Evaluation> We provided a draft of this report to Interior for its review and comment. In its written comments, reproduced in appendix II, Interior agreed with one recommendation, partially agreed with two, and disagreed with one, as discussed below. Interior also stated that it is concerned that certain aspects of the draft report do not paint a representative picture of BOEM s valuation process and efforts to ensure receipt of fair market value. Regarding the recommendation that BOEM should develop a documented plan for determining whether and how to develop a progressive royalty structure, the agency agreed and indicated that BOEM will develop such a plan. Specifically, the agency stated that BOEM would develop a plan to identify the theoretical and practical benefits and drawbacks of a progressive royalty structure based on existing research and prepare materials for management to determine whether implementation of a price-based royalty would be beneficial. Regarding the recommendation that BOEM enlist an independent third party to examine the extent to which the bureau s use of delayed valuations assures the receipt of fair market value, the agency disagreed. The agency stated it did not agree with our characterization of BOEM s delayed valuations and stated that BOEM believes it is neither necessary nor cost effective to enlist an independent third party. However, BOEM agreed to (1) examine its delayed value calculation, particularly as it relates to the impact of biannual lease sales, (2) develop a plan to perform a comprehensive internal review of delayed value calculations and make appropriate changes, and (3) institute a peer-review process for all potential changes. These actions may address some of the deficiencies we identified, but our concerns regarding BOEM s use of delayed valuations are not limited to the move to biannual lease sales and the agency has not provided any reasonable explanations for its high levels of forecasted depreciation. BOEM forecast a median depreciation of about 23 percent. This implies we should observe significant declines in the actual value of tracts over long periods of time, which is impossible to reconcile with actual trends in bonus bids. The real average bonus bid per acre in 2018 was about the same as it was thirty years earlier in 1988. Alternatively, such a high forecast of depreciation implies either a long time frame between lease sales or a high discount rate. But the time between lease sales has been one year or 6 months, on average, and in our view, and the Office of Management and Budget s annual recommended discount rate of 7 percent would be more appropriate. Recognizing that Interior s view differs from ours in this regard, we continue to believe that enlisting an independent third party to examine all aspects of the bureau s use of delayed valuations not just proposed changes to address the move to biannual lease sales would better assure the receipt of fair market value. Regarding the recommendation that BOEM take steps to ensure that its bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids, Interior partially agreed. Specifically, Interior stated it agreed with the recommendation, but did not agree with our characterization of BOEM s bid valuation process. Interior stated that the apparent anomaly the lack of instances when BOEM valued tracts up to double industry s bid is skewed because a very large percentage of the data set comprise relatively low bids, and BOEM-generated valuations relative to the bids are constrained by the minimum bid amount. That is, Interior stated that the minimum bid level created an artificial floor for BOEM s acceptable bid threshold even in instances in which BOEM s valuation is substantially lower, resulting in more bids being up to double BOEM s valuation than would be the case if BOEM s acceptable bid thresholds were not constrained by the minimum bid amount. However, as discussed above, we removed all valuations for which BOEM used the minimum bid level as its acceptable bid threshold from our analysis (that is, we did not include instances when BOEM s actual valuation was below the minimum bid level). Had we included these valuations, the asymmetry in the relationship between bids representing 100 to 200 percent of BOEM s acceptable bid threshold (acceptances) and BOEM s acceptable bid threshold representing 100 to 200 percent of industry s bid (rejections) would have nearly doubled (see figure 6). Moreover, even though we did not include these instances, the minimum bid level only affects the distribution of instances when BOEM s valuation was less than industry s high bid. As such, it does not explain why there are so few instances when BOEM valued tracts slightly more than industry. We continue to believe that taking steps to ensure that its bid valuation process is not biased toward adjusting valuations downward based on their proximity to bids would be beneficial and will monitor BOEM s efforts as part of our regular recommendation follow-up. Regarding the recommendation that BOEM implement a systematic process for comprehensively evaluating its tract valuations, such as by expanding the scope of the bureau s lookback studies effort, and remediating any identified deficiencies, Interior partially agreed. Specifically, Interior stated it agreed with the recommendation, but did not agree with our characterization of BOEM s bid tract evaluation process and review procedures. The agency identified two areas where they did not agree with our characterization. First, the agency stated that our statement that resource discoveries are not updated is inaccurate. According to its comments, BOEM develops independent estimates of recoverable oil and gas contained within discovered fields by conducting field reserve studies. However, any updated estimates are not reflected in the lookback studies, which represent BOEM s formal mechanism for self-evaluation. For the lookback studies, as noted above, BOEM compares their forecast against the results of only the first exploratory well and does not update its studies with the results of further exploration. Second, the agency stated that we were incorrect to state that BOEM does not use the studies to improve processes because it uses its lookback studies to improve its valuations. However, BOEM did not provide documentation to support this claim. We continue to believe that implementing a systematic process for comprehensively evaluating its tract valuations would be beneficial and will monitor BOEM s efforts as part of our regular recommendation follow-up. In addition, Interior stated in its letter that it appeared that we did not account for industry assumptions regarding the applicability of price thresholds in comparing estimated increased bonus bid revenue and forgone royalties for leases subject to deep water royalty relief sold from 1996 through 2000. However, as stated above, we based our econometric modeling on the lease terms provided in Interior s final notice of sale documents for those leases, which reflect the expectations for royalty relief that industry bid on at the time of sale. In addition, as described in appendix I, we used several alternative model specifications to test the sensitivity of our results to the possibility that industry had different understandings of royalty relief than those contained in the sale documents. Our results are robust across these alternative specifications. As noted above, leases sold in 1996, 1997, and 2000 included provisions for royalty relief subject to price thresholds (that is, lease terms indicated that royalties would only be owed if the price of oil exceeded certain thresholds). Leases sold in 1998 and 1999 did not contain price thresholds (that is, lease terms indicated that no royalties would be owed regardless of the price of oil). As evidenced by our econometric modeling results, during the 1996 through 2000 period, we observed higher bidding when no price threshold provisions were included in lease terms, suggesting that industry accounted for the expectation of no royalties when developing bids. As noted above, in 2007, a federal court ruled that Interior s attempt to collect royalties through the application of price thresholds on production under leases subject to the 1996 through 2000 royalty suspension was unlawful. In its comments, Interior stated that industry bidding would have been different had companies known at the time of sale that the price thresholds would not apply, and as a result, the net amount of forgone revenue the difference between collected bonus bids and forgone royalties would have been lower. To account for this, we adjusted our calculation of estimated additional bonus bid revenues so that it is more comparable to BOEM estimated foregone revenues. This adjustment increased our estimate of additional bonus bid revenues to $1.98 billion (an increase of approximately $530 million), which is still subsumed by the $18 billion in foregone royalties collected through the end of 2018. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Interior, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Appendix I: Econometric Model Methodology and Results <8. Methodology> We developed an econometric model to analyze the effect of royalty rates and other key variables on bonus bids for offshore leases between 1985 and 2018. Specifically, we analyzed how changes in royalty rates affected the winning bids for offshore leases. Our analysis used data from 23,081 individual lease sales in the period from 1985 to 2018. <8.1. Dependent Variable> Our model analyzes the winning bid for each lease auctioned by the Bureau of Ocean Energy Management (BOEM). We used the log of the inflation-adjusted winning bid per acre for this dependent variable: Where represents the inflation-adjusted (real) value of the winning bid per acre and is its log value. =log ( ) . Our key set of explanatory variables was a set of indicator (dummy) variables that captured the different levels of royalty rates that pertained during our study period. We ran three alternative model specifications to capture the effects of royalty rates and royalty relief that occurred between 1996 and 2000. Each specification contained: A dummy variable for the 16.67 percent royalty rate. A dummy variable for the 18.75 percent royalty rate. In addition to a 16.67 and a 18.75 royalty rate dummy, model 1 included two additional dummy variables: one dummy variable for royalty relief that occurred in 1996, 1997 and 2000, which allowed a 0 percent royalty rate until the oil price reached a specified threshold; and a second dummy variable for royalty relief that occurred in 1998 and 1999, which allowed a 0 percent royalty rate in perpetuity. In addition to a 16.67 and a 18.75 royalty rate dummy, model 2 included five additional dummy variables for each year from 1996 to 2000. In addition to a 16.67 and an 18.75 royalty rate dummy, model 3 included a single dummy variable for the period 1996 to 2000. The omitted royalty rate dummy variable category was a rate of 12.5 percent. The estimates of the parameters for the other royalty rate dummies show the effect relative to this 12.5 percent royalty rate. Our model controlled for variables that were expected to be related to potential lease production and profitability. These variables included a dummy variable for whether the lease was determined by BOEM to be viable or nonviable; a set of dummy variables for different values of the number of bids, that is, 1 bidder, 2 bidders, 3 bidders, and so on; and a variable for the amount of oil production in the area (protraction area) of the lease s location at the time of the lease auction. We also controlled for various administrative factors. We used a dummy variable to indicate when the winning bid was too low and was rejected; the value of the minimum bid allowed for the auction; and a set of dummies that captured the use of different royalty suspension provisions, variation in rents charged and different amounts of deep gas relief. To control for effects that vary over time, we included a set of time dummy variables for each date of sale. These dummies account for effects that vary over time but are fixed for any given date, such as technology changes and oil and gas market conditions including the price of oil and gas. Our objective was to control for as many time-varying factors as possible. Attempting to include separate effects of, for example, oil prices and exploration costs, would create problems of leaving out important effects that are difficult to measure or for which there are no data. Finally, we included a set of fixed-effect dummies for each protraction area-block combination that account for locational effects not measured by our other explanatory variables. These fixed effects assist in controlling for unobserved heterogeneity. <8.2. Model Specification> The regression analysis employed an unbalanced panel model using data for offshore BOEM lease auction sales between 1985 and 2018 as follows: = is the dependent variable; namely, the log of the real winning auction bid for lease j at location (protraction area-block combination) i for sale date t. is a fixed effect parameter for its associated dummy variable , is a fixed effect parameter for its associate dummy variable for for winning bidder, company m. is a fixed effect parameter for dummy variable , for year t. location (protraction area-block number combination) i. is the kth characteristic associated with lease j at location i for discussed above and is the parameter associated with each of sale date t. There is one of these for each of the control variables these variables. are the error terms. We used xtreg in STATA to estimate our model. Our standard errors are heteroscedasticity-robust and are adjusted for clustering at the protraction area-block combination level. <9. Results> In some cases, our model showed that leases sold when royalty rates were lower had significantly higher winning bids. While not all the royalty rate dummy variables were statistically significant, those dummy variables that measured the largest differences compared to the omitted 12.5 percent royalty rate were statistically significant. Specifically, In model 1, the royalty exemption for 1996, 1997, and 2000, when producers expected zero royalties until oil prices rose above a given threshold, corresponded with an increase in bonus bids of about 34 percent. Similarly, the zero-in-perpetuity royalty rate relief for 1998 and 1999 corresponded with an increase in bonus bids of about 60 percent. In model 2, the royalty exemption dummy variables for each individual year, 1996 to 2000, when producers expected royalty relief, were all significant. The results for these parameter estimates range translate into about 19 to 64 percent increase in real bonus bids. In model 3, the royalty exemption dummy variable for 1996 to 2000 combined, when producers expected royalty relief, was significant. The result for this parameter estimate translates into about a 40 percent increase in real bonus bids. We tested for the restriction on the dummy variable parameters (all parameters equal) implied in model 3 versus model 2. Our test rejected equal parameters in favor of the specification in model 2. The 18.75 percent royalty rate dummy parameter was statistically significant and negative in all three models, which is to be expected since the base (comparison) case is 12.5 percent. The result for this effect translates to a drop in bonus bids of about 28 percent in all three models. However, the 16.67 percent dummy variable was not statistically significant in any of the models. We used a set of time-fixed effects for each sale date and, therefore, we could not separate out the individual effects of time-varying variables such as oil prices. These dummies show the effect on bonus bids of conditions pertaining on that particular sale date, where a larger positive value translates to higher bonus bids and a smaller or negative value translates to lower bonus bids. Figure 7 compares oil prices and the values of the sale date dummy variables over time and suggests a correspondence between higher oil prices and the size of these dummy variable estimates. This suggests that higher oil prices are likely to result in higher bonus bids. The set of dummy variables for the number of bids produced parameter estimates that were statistically significant and for the most part were of the expected size and sign. These suggest that greater interest (more bids) is associated with higher bonus bids (the exception was the slight deviation from this pattern for the 8 bids dummy). The number of bids may not represent market concentration because anyone is permitted to bid on a given lease, so potentially there are a large number of bidders. This set of dummies is more likely to represent perceived quality of the lease on the part of bidding firms. Other key factors were either significant with the expected direction of effect or else not statistically significant. Oil production in the protraction area at the time of the auction was positive and significant. Rejected bids were associated with smaller highest bids. Joint winning bids were associated with higher bonus bids. Leases designated as viable by Interior were associated with higher bids. <10. Limitations of the Regression Model> Our model contains no explicit consideration of market concentration effects. Our use of the number of bidders in the model may capture some market concentration effects but possible endogeneity issues that may arise with the use of such measures are not addressed due to lack of reasonable instruments. Our model does not explicitly isolate the impact of oil prices because we needed to include time-fixed effects (dummies). However, we are able to evaluate the effect of oil prices indirectly by observing the correspondence between the estimated values of the time dummies and oil prices. Our tests for joint significance of the time dummies rejected the null hypothesis of non-significance in all cases. Our results showed a significant effect of royalty rates of 18.75 percent relative to 12.5 percent. However, our results did not show a significant effect of royalty rates of 16.67 percent relative to 12.5 percent, which may be due to a lack of statistical power and that relatively modest differences in royalty rates have only a small impact of bonus bids. The model has limited controls for geological conditions at the lease location. We control for location imperfectly using fixed effects for protraction area-block combinations, and by including the amount of oil production on the date of the lease sale in that protraction area. Our use of these protraction area-block fixed effects does not allow us to control for water depth explicitly. Our analysis used data from 1985 to 2018. Earlier data were available, beginning in 1983, but initial tests of our model suggested the 1983 and 1984 data were not well captured by the model s specification. BOEM s system of using competitive bidding for leases began in 1983 and there may have been an initial period during which market operators learned how to bid efficiently under the new system. Our model includes a control for the minimum bid but we did not account for any censoring effects that may have arisen from setting this threshold. Ideally, we would have liked to establish whether there were different responses of bonus bids to the control variables in deep versus shallow water. However, separate models for deep and shallow water leases produced mostly non-significant effects for royalty rates, which suggested that splitting the sample in this way resulted in insufficient statistical power to estimate these effects. Appendix II: Comments from the Department of the Interior Appendix III: GAO Contact and Staff Acknowledgments <11. GAO Contact> <12. Staff Acknowledgments> In addition to the individual named above, Quindi Franco, Assistant Director; Matthew Tabbert, Analyst-in-Charge; Natalie Block; Tara Congdon; William Gerard; Cindy Gilbert; Michael Kendix; Michael Krafve; and Dan Royer made significant contributions to this report.

Why GAO Did This Study Production of oil and natural gas from offshore leases is a significant source of federal revenue, totaling almost $90 billion from 2006 through 2018. BOEM is required to seek a fair return from offshore leasing and production activities in federal waters. Companies generally pay (1) bids for leases for the right to develop tracts, (2) rents on leased but undeveloped tracts, and (3) royalties on revenues from the sale of oil and gas produced from leases. BOEM holds auctions to award leases to the company offering the highest bid so long as the bureau determines the bid represents fair market value. GAO was asked to examine issues related to offshore federal oil and gas leasing. This report, among other objectives, (1) describes the effect of oil prices and royalty rates on industry bids for leases and (2) examines the extent to which BOEM's valuation process assures receipt of fair market value. GAO reviewed laws, policies, and regulations; interviewed BOEM officials; and developed an empirical model using BOEM data to analyze the effect of royalty rates and other factors on industry bidding. What GAO Found GAO's analysis indicates that changes in the price of oil and in royalty rates drive changes in the amount companies in the offshore oil and gas industry bid for leases (the amount paid upfront at auction for the right to explore and develop offshore tracts of land). Specifically, between May 1985 and June 2018, peaks in industry bidding coincided with higher oil prices. Additionally, when the Department of the Interior's (Interior) Bureau of Ocean Energy Management (BOEM) offered leases at lower royalty rates, industry bid somewhat higher amounts per acre. For example, certain leases were sold from 1996 through 2000 with no royalties on initial volumes of production, which GAO estimates resulted in BOEM collecting, at most, nearly $2 billion in additional bid revenue. However, bureau estimates indicate these leases resulted in about $18 billion in foregone royalties through 2018. BOEM's valuation process might not fully assure receipt of fair market value, based on GAO's analysis of BOEM data. BOEM develops valuations for offshore tracts it assesses to be economically viable—assessments of their fair market value—and awards leases so long as the bid is greater than or equal to BOEM's valuation. BOEM's valuations for tracts were generally low relative to industry bids because, according to BOEM officials, they conservatively forecast to account for inherent uncertainties in, among other things, the quantity of oil and gas present as well as exploration and development costs. In addition, GAO identified two ways BOEM's valuation process results in lowering its already conservative valuations that might not fully assure receipt of fair market value: Unreasonably high depreciation . BOEM forecast that tracts would lose a median of 23 percent of their value in between sales, leading the bureau to accept lower bids because it determined the tracts might be worth even less in the future. Bureau officials told GAO that lower future values are generally due to BOEM discounting the delayed collection of revenue. However, BOEM's forecasted depreciation increased even though tracts are now available twice as frequently as they were prior to August 2017, reducing the time for discounting. Officials said they were unaware of the high rates and the issue warrants further examination. Enlisting a third party to examine the extent to which the bureau's use of delayed valuations assures the receipt of fair market value, and making changes as appropriate, would help BOEM mitigate risks of continuing to accept bids based on poor information on tracts' future values. Lowered valuations . BOEM officials told GAO that they lower some initial valuations that are “slightly above” industry's bids and which would therefore be rejected per procedures to assure fair market value. Officials said they prefer to accept bids unless there is high certainty that the bids are inadequate. However, GAO identified bias, or statistical anomalies, where BOEM lowered many valuations that were initially higher than industry's bids. Specifically, from March 2000 through June 2018, BOEM rejected 27 bids for tracts that it ultimately valued at up to double industry's bid whereas it accepted 359 bids in which industry's bid was up to double BOEM's valuation. Tracts for rejected bids are, on average, subsequently sold for more than twice the initial rejected amount, suggesting that BOEM could be forgoing hundreds of millions of dollars in bid revenue by accepting bids that are too low. What GAO Recommends GAO is making four recommendations, including that BOEM (1) enlist an independent third party to examine whether the use of delayed valuations assures the receipt of fair market value and (2) take steps to ensure its bid valuation process is not biased toward lowering valuations. Interior disagreed with the first and partially agreed with the second, disagreeing with GAO's characterization of BOEM's process. GAO maintains the recommendations are valid as discussed in the report.

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<1. Background> In February 2011, Boeing won the competition to develop the Air Force s next generation aerial refueling tanker aircraft, the KC-46. The KC-46 is to be equipped with subsystems that allow for two types of refueling (1) a refueling boom that is integrated with a computer-assisted control system, and (2) a permanent hose and drogue refueling system. This dual refueling capability is an enhancement over prior tanker aircraft because it enables the KC-46 to use boom refueling for Air Force aircraft and drogue refueling for Navy or allied aircraft on a single flight. The majority of legacy tankers, such as the KC-135s, were configured for only one of these types of refueling and had to land and be reconfigured to use the other refueling system. During boom refueling, an operator on the KC-46 tanker aircraft extends the boom a rigid, telescoping tube and inserts it into a receptacle on the aircraft being refueled. The KC-46 also has a remote vision system, which consists of a display, cameras, and computer processors, in lieu of a window that legacy tankers use. The system allows operators to observe the position of the boom and the receiving aircraft, and to reposition the fuel delivery system to facilitate refueling. In contrast, during drogue refueling, an operator uses the hose and drogue system comprised of a long, flexible refueling hose and a parachute-like metal basket that provides stability to provide fuel to receiver aircraft. Drogue refueling is available via the centerline drogue system in the middle of the tanker aircraft or via wing aerial refueling pods located on each wing. While refueling with the drogue or wing aerial refueling pods, the operator uses the remote vision system to identify when to extend or reel in the hoses. The wing aerial refueling pods can be used for simultaneous refueling of two Navy or allied aircraft an enhanced capability that only 20 of the 414 KC-135 tankers currently have the capability to do. Figure 1 shows the boom and drogue refueling subsystems on the KC-46. The KC-46 tanker is a commercial derivative aircraft that is based on Boeing s commercial 767 aircraft. To convert a 767 to a KC-46 tanker, Boeing modified the aircraft design in two phases. In the first phase, Boeing changed the design of the 767 to include a cargo door, new fuel tanks, and an advanced flight deck display borrowed from the 787 aircraft. This baseline non-military aircraft is called the 767-2C and is being built on Boeing s existing 767 production line. In the second phase, Boeing added military systems to the 767-2C and brought it to a KC-46 configuration in a separate Boeing modification facility. The completed KC-46 aircraft are then taken to a test and delivery center for Air Force acceptance. By using a commercial derivative aircraft, the Air Force intended to avoid the long process and costs associated with designing, testing, and evaluating a new aircraft. It also wanted to reap the benefits of decades of reliability upgrades Boeing made to the aircraft for commercial customers, an established commercial infrastructure for spare parts, and maintenance and training data needed for sustainment that have been validated and verified by the commercial industry, among other things. According to an Air Force Policy Directive in place at the time of contract award, programs that are based on commercial derivative aircraft are required to achieve Federal Aviation Administration certification to the maximum extent practical. The Air Force went further and required the contractor to exhaust all possible solutions to obtain Federal Aviation Administration certification on both commercial and military-unique parts including the boom, centerline drogue system, and wing aerial refueling pods before seeking military certification. The Federal Aviation Administration previously certified the airworthiness of Boeing s 767 commercial passenger airplane (referred to as a type certification), and in December 2017, awarded the amended type certificate for the 767-2C aircraft to Boeing. The amended type certificate allowed Boeing to use the 767-2C aircraft as the baseline non-military aircraft for the KC-46. Then, in September 2018, the Federal Aviation Administration certified the design of the KC-46 with a supplemental type certificate. The supplemental type certificate signifies the Federal Aviation Administration s approval of the KC-46 s airworthiness, including mission systems such as its aerial refueling components. According to program officials, the Air Force granted a limited duration airworthiness certification for the KC-46 in November 2018 to support the initial fielding, which they said is common for new aircraft. The Air Force is continuing testing to obtain a military type certification from the Air Force Engineering Directorate, expected in several years. See figure 2 for a depiction of the conversion of the 767 aircraft into the KC-46 tanker with the boom deployed and the Federal Aviation Administration s airworthiness certificate needed at each stage. During development, Boeing is expected to prove the aircraft s design and demonstrate that the aircraft performs as expected. This type of testing is referred to as developmental testing. This testing was originally planned to occur within a 15-month window starting in early 2015 and ending in 2016. Initial operational test and evaluation expected to occur after developmental testing and referred to in our report as operational testing is conducted on production aircraft, or production representative articles. During this testing, the Air Force determines whether systems are operationally effective and suitable to support a full-rate production decision. The Air Force obtained a military flight release in November 2018, which allows it to start operational testing. To support operational testing, the Air Force is undertaking testing to certify the KC-46 to refuel various receiver aircraft, such as the F-15 fighter and B-52 bomber. After the first four KC-46 aircraft are delivered and two receiver aircraft are certified for refueling, the Air Force will begin operational testing. The Air Force awarded Boeing a fixed-price incentive (firm target) contract to develop the KC-46, which includes the design, manufacture, and delivery of four test aircraft. Barring any changes, the contract specifies a ceiling price of $4.9 billion for Boeing to develop the first four aircraft. Once that price was reached, Boeing would assume responsibility for all additional costs for developing those aircraft. The Air Force used a fixed-price incentive development contract because KC-46 development was considered to be a relatively low-risk effort to integrate mostly mature military technologies onto an aircraft designed for commercial use. The contract limits the government s financial liability and provides the contractor incentives to reduce costs to earn more profit. The contract specifies a 60/40 incentive ratio for sharing savings in the event of underruns, or sharing costs in the event of overruns in relation to the target cost. The government s share is 60 percent, while Boeing s is 40 percent. Cost sharing ends when the contract price reaches the $4.9 billion ceiling. Thereafter, Boeing is responsible for all additional costs associated with the overruns. The contract also specifies that Boeing must correct any deficiencies and bring development and production aircraft to the final configuration at no additional cost to the government. In addition, the contract includes options for Boeing to manufacture 175 aircraft with firm-fixed-price contract options for the first two production lots, and options with not-to-exceed fixed prices for production lots 3 through 13. For purposes of this report, a production lot refers to a set number of aircraft that must be built and delivered in a given time frame and procured with a specific year of budget funding. The original contract required Boeing to deliver 18 operational aircraft, nine sets of wing aerial refueling pods, and two spare engines by August 2017. The Under Secretary of Defense for Acquisition, Technology and Logistics approved the KC-46 program to enter low-rate initial production in August 2016. Originally, the Air Force planned for the first two production lots to be low-rate production lots. The 19 aircraft associated with these two lots, or 11 percent of the 175 production aircraft, were to be built concurrent with developmental flight testing. The Office of the Under Secretary of Defense for Acquisition, Technology and Logistics approved additional low-rate production lots lots three through five in 2016 and 2017 to avoid interrupting the planned production of additional aircraft. As we have reported over the past several years, Boeing had problems developing the aircraft, which resulted in schedule delays and a decision by Boeing and the program office to separate the delivery of the first 18 aircraft from the delivery of the first nine sets of wing aerial refueling pods. As of March 2019, the Air Force has exercised options for the first four low-rate production lots, for 52 aircraft totaling about $7.8 billion. As a result, the number of aircraft being produced concurrent with developmental flight testing has increased to 52 aircraft, or 30 percent of the total number Air Force expects to purchase. Traditionally, the Department of Defense tracks concurrency to determine financial risk to the federal government; however, in this case, due to the terms of the development contract, the government s liability was limited to sharing in cost overruns only up to the contract s ceiling price. Figure 3 shows the number of aircraft the Air Force plans to procure in each lot. <2. Current Cost Estimate Is Less than Original Estimate, but Program Remains Years behind Schedule and Will Need to Address Deficiencies> The KC-46 program s cost estimates have remained lower than initially estimated, consistent with our past reports. The KC-46 program s total acquisition cost estimate is currently about $43 billion, or about $9 billion lower than the original 2011 estimate. The Air Force was able to decrease its cost estimate in large part because funds set aside for potential design changes were not needed. After a 3-year delay from the original plan, the Air Force began conditionally accepting the first seven KC-46 aircraft in early 2019. <2.1. Total Government Cost Estimate Has Declined Since the Initial Estimate> The KC-46 program s total acquisition cost estimate remains lower than the initial estimate, consistent with our April 2018 report. As of January 2019, the Air Force estimates that the total program acquisition cost for the KC-46, which includes development, procurement, and military construction costs, will be about $43 billion. This is about $9 billion, or 17 percent, less than the original estimate of $51.7 billion made in 2011. Correspondingly, the average acquisition cost of each aircraft has also decreased by 17 percent because aircraft quantities have remained the same. Table 1 provides a comparison of the initial and current quantity and cost estimates. The estimates include, among other things, the expected costs of the development and procurement contracts awarded to Boeing, government test and evaluation costs, program office expenses for advisory and assistance services from support contractors, as well as contingency funding that might be needed to address the potential risk of requirements changes or other unexpected issues. Overall, the Air Force decreased its development and procurement cost estimates by about $1.3 billion and $6 billion, respectively. As we have previously reported, the main reason for the decrease is it has not needed the large amount of contingency money the Air Force included in the initial estimates for possible requirements changes. Military construction cost estimates also decreased by about $1.4 billion as the Air Force decided, for example, to reuse existing facilities at its operating bases rather than build new ones. In contrast, as of February 2019, Boeing representatives estimate that costs to complete development have increased to about $6.2 billion, or about $1.3 billion over the contract ceiling price of $4.9 billion, due to development problems. Specifically, Boeing experienced problems related to wiring the aircraft, design issues with the fuel system components, a fuel contamination event that corroded the fuel tanks of one of the development aircraft, and test delays. According to the fixed- price incentive contract, the government is generally not responsible for these additional costs to the extent they exceeded the ceiling price of the development contract. <2.2. Air Force Began Accepting Aircraft in January 2019 with Several Critical Deficiencies That Will Need to Be Addressed> The Air Force conditionally accepted the first seven KC-46 production aircraft between January and March 2019, about 3 years later than originally planned, with three critical deficiencies related to the refueling subsystems. Although the federal government generally has no obligation to accept work that does not meet contract requirements, program officials told us that the Air Force negotiated minimum specifications under which it would begin conditionally accepting aircraft. Officials told us that among other benefits, conditionally accepting these aircraft provides the Air Force additional military capability and the aircraft can be used to start operational testing. These aircraft are among the 18 aircraft required by the original contract. As of April 2019, Boeing was producing the remaining 45 additional aircraft associated with the first four low-rate initial production lots. Some of the aircraft just started production on Boeing s 767 production line. Others are further along and being modified to become KC-46 aircraft in a separate facility, or are being tested and taken to the delivery center for Air Force acceptance. Still others are in storage, either waiting to be transferred to the KC-46 modification center to be retrofitted with the latest wiring configuration or transferred to the delivery center to prepare for Air Force acceptance. Figure 4 shows where these 45 aircraft are in Boeing s production and delivery process, along with the seven aircraft already delivered. Boeing is not expected to meet its most significant delivery requirement so far until mid-2020, 34 months after originally planned and almost 20 months later than we found in April 2018. Specifically, program officials anticipate that the Air Force will accept the first 18 aircraft by August 2019, and nine sets of wing aerial refueling pods by June 2020 which together with two spare engines constitute the contractual delivery requirement contained in the development contract. According to program officials, Boeing continued to have difficulty providing design documentation needed to start Federal Aviation Administration testing for the wing aerial refueling pods over the past year, which caused the additional delays beyond what we reported last year. Figure 5 shows the original and current delivery schedules for completing the development contract requirement. In February 2019, the Air Force stopped accepting KC-46 aircraft from Boeing because it had identified foreign object debris, including tools, in aircraft it had already accepted, as well as in the aircraft that were in the final stages of acceptance. Boeing issued a corrective action plan outlining steps the company needed to take to improve its foreign object debris identification and prevention activities before the Air Force would accept additional aircraft. Some of the steps included conducting daily inspections of each aircraft for foreign object debris, having Boeing production personnel submit lost tool reports to their superiors, and developing strategies for containing the debris issue, such as only taking the exact amount of small parts needed for an individual job in the aircraft build. The Air Force began accepting aircraft again after Boeing took steps to address the problem. However, in March 2019, Boeing found additional foreign object debris as it was conducting its newly implemented daily inspections and the Air Force suspended deliveries again. Boeing implemented additional corrective actions to the Air Force s satisfaction and, as of April 2019, the Air Force has authorized the resumption of KC-46 deliveries. Program officials stated that Boeing is responsible for the costs to inspect and remove foreign object debris from aircraft that have already been accepted and that are in various stages of the Boeing manufacturing process. Because of the delivery delays to date and other factors in the existing tanker fleet, an Air Mobility Command official said leadership is currently planning to fly and maintain some legacy KC-135 tankers longer than planned until the KC-46 is available to conduct missions. According to the official, the Air Force plans to reallocate $57 million in fiscal year 2020 funds from the KC-46 program to the KC-135 program to support this decision. The funding would cover the cost to fly and sustain some KC- 135 aircraft above what the Command had planned, including the associated personnel costs. Air Mobility Command officials said that decisions about retaining some legacy KC-135 aircraft will be reviewed annually thereafter. If these aircraft are retained, funding would be reallocated from the KC-46 program to support the decision. <3. Program Expects All Performance Goals Will Be Met, but Correcting Critical Deficiencies Will Take Several Years at a Cost to Boeing and the Government and Could Affect Operations> The program continues to expect that the KC-46 aircraft will ultimately meet its high-level system performance goals, such as those related to aerial refueling and operational availability. However, the Air Force and Boeing expect that the critical deficiencies that could affect the aircraft s aerial refueling operations will take several years to address at a cost to both the government and Boeing. <3.1. Program Expects KC-46 Aircraft Will Meet Key Performance Goals> Program officials reported that, similar to what we reported last year, they expect the KC-46 will ultimately meet all of its 21 performance goals. These goals include nine key performance parameters and five key system attributes set by the Air Force, as well as seven technical performance measures Boeing established to track its own progress toward meeting contract specifications. Appendix I provides a description of each of the performance goals. According to Air Force test officials, the program plans to ascertain if the aircraft meets its 14 key performance parameters and key system attributes during the operational test period, which began in May 2019. For example, the Air Force will test the tanker s ability to effectively refuel receiver aircraft with boom and drogue refueling on the same mission. The Air Force will also collect data to assess the operational availability of the aircraft. Operational availability is defined as the percentage of time the aircraft is available to complete its mission, which includes refueling aircraft or transporting cargo or people, when needed. The KC-46 needs to be available at least 80 percent of the time. Air Mobility Command officials will continue to monitor operational availability of the aircraft after it has been fielded to inform maintenance and future upgrade decisions. An important key system attribute is reliability and maintainability, which has implications on aircraft availability and life cycle costs. In general, aircraft that are reliable and easy to maintain are typically available more often to perform missions and can experience lower life cycle costs. To help assess this key system attribute, the Air Force set a reliability growth goal that is based on the mean time between unscheduled maintenance events due to equipment failure. This is defined as the total flight hours divided by the total number of incidents requiring unscheduled maintenance. The goal is 2.83 flight hours between unscheduled maintenance events due to equipment failure by the time the aircraft reaches 50,000 flight hours. As of February 2019, the program had completed 3,928 flight hours, achieving 2.51 hours at that time. Program officials believe that the reliability will improve as additional flight hours are completed and as unreliable parts are identified and replaced. According to Boeing representatives, the company met or is projected to meet the seven technical performance measures it tracked during KC-46 development. For example, the aircraft is now below the target weight of 204,000 pounds. In addition, program officials said that the aircraft is within the range of gallons of fuel used per flight hour that is specified in the contract. Boeing also projects that the aircraft will meet other measures, such as Air Force maintainers being able to fix mechanical problems on the aircraft within 12 hours 71 percent of the time once the aircraft has accumulated 50,000 fleet hours of service. <3.2. Program Estimates It Will Take Several Years to Fix Critical Aerial Refueling Deficiencies at a Cost to Boeing and the Air Force> Boeing and the Air Force are working to resolve three critical deficiencies related to the performance of the aerial refueling systems that the Air Force discovered during developmental testing. These deficiencies are related to contract specifications, which are at a greater level of specificity than the performance goals. The Air Force determined that the deficiencies in these systems could result in damage to some of the aircraft that are being refueled by the KC-46 and identified them as Category 1 urgent deficiencies that need to be addressed. The Air Force expects that it will take 3 to 4 years for Boeing to develop design solutions for these issues and a few more years to retrofit existing aircraft. A description of the deficiencies and how they are being addressed are discussed below. Remote Vision System Did Not Provide Visual Clarity in All Lighting Conditions: During developmental flight testing, there were instances when the aerial refueling operator was not able to make contact with the receiver aircraft for refueling as intended. This was because the remote vision system camera and processor had difficulty making timely adjustments to some environmental conditions. According to Boeing and program officials, these conditions include certain sun angles, where the glare from the sun can cause the receiver aircraft to washout or blackout on the display screen, making it difficult for the aerial refueling operator to sufficiently see the receptacle of the receiver aircraft to start refueling. The remote vision system also does not provide sufficient depth perception to safely refuel in all lighting conditions. Boeing has already made changes to the remote vision system software to improve visibility for refueling operators. According to program officials, the changes included adjusting the contrast on the display screen and increasing the speed at which operators can switch between different screen viewing options. However, these changes did not address the Air Force s concerns regarding whether the system could support refueling in all conditions as called for under the contract, which requires sufficient visual clarity in all lighting conditions. Boeing has agreed to redesign the remote vision system to meet the requirement. According to program officials, Boeing has not yet developed a solution, but has reported the redesign will include additional software and hardware changes. Program officials estimate that it may take Boeing 3 to 4 years to develop a solution for the remote vision system and have it certified by the Federal Aviation Administration so that aircraft parts will continue to be certified to the greatest extent possible. It will then take a few more years after that to retrofit all aircraft that are operating without the new system at that time. Boeing did not provide a cost estimate for this solution, but will fix and retrofit all aircraft at no cost to the government. In the meantime, program officials said the Air Force has placed limitations on some boom refueling operations. Lack of Remote Vision System Clarity Also Caused Undetected Contacts with Receiver Aircraft: As we reported in April 2018, during developmental flight testing, there were instances where the boom nozzle contacted a receiver aircraft outside the refueling receptacle. According to program officials, in many of these instances, the aerial refueling operators were unaware that those contacts had occurred. Boom nozzle contact outside the receptacle can damage antennae or other nearby structures. It is especially problematic for low-observable receiver aircraft, such as the F-22 fighter, because boom contact can also damage their special coatings and render them visible to radar. Boeing and program officials now anticipate that any hardware or software changes Boeing makes to the remote vision system, as discussed above, will also address the issue of undetected contacts with receiver aircraft. Efforts to address this issue are expected to be made at no cost to the government. Boom Stiffness Hampered KC-46 Refueling of Lighter Receiver Aircraft: During developmental flight testing, pilots of lighter receiver aircraft, such as the A-10 and F-16, reported the need to use more power to move the boom forward while in contact with the boom to maintain refueling position. According to program officials, the KC-46 boom currently requires more force to compress it sufficiently to maintain refueling position than the boom on the KC-135 or the KC- 10. In addition, program officials said that the additional force exerted by the lighter aircraft can also create an issue when the boom is disconnected. This is because the additional required power can cause the receiver aircraft to lunge forward into the boom and strike it, possibly damaging the receiver aircraft and the boom. The severity of the damage depends on the location of the refueling receptacle, which differs based on the aircraft type. In the case of the A-10, the receptacle is located on the nose of the aircraft and the boom stiffness creates a greater risk to the pilot because a boom strike could damage the windshield. For the F-16, the receptacle is located behind the cockpit and a boom strike could damage the vertical surfaces of its tail. The Air Force is currently allowing F-16s to be refueled by the KC-46 in operational test and training environments, but not the A-10 until the boom stiffness has been fixed. Modifications to address the boom stiffness will add cost for the government. Program officials said the development contract did not specify the amount of force needed to compress the boom. As part of the KC-46 low-rate initial production decision, the Air Force concurred with Boeing s proposed specifications, which are built into the current boom. Therefore, program officials said the Air Force will be responsible for costs associated with designing a solution for the boom stiffness and retrofitting aircraft. They said the deficiency will require a hardware change. Program officials believe that it will likely take 3 to 4 years to develop a solution and get it certified by the Federal Aviation Administration. It will then take additional time to retrofit about 106 aircraft in lots 1 to 8. The total estimated cost for designing and retrofitting aircraft is more than $300 million. The Air Force has taken steps to keep Boeing incentivized to address the deficiencies in a timely manner. In particular, at the time the Air Force accepted each aircraft, the government had already made progress payments to Boeing comprising 80 percent of the estimated price for each aircraft. Air Force officials stated that the program is currently withholding the remaining 20 percent payment on each aircraft until Boeing meets all contract specifications and corrects critical deficiencies. <4. Additional Test and Analysis Required to Validate That KC-46 Aircraft Fully Meet Key Contract and Mission Requirements> Over the next year, Boeing is to conduct developmental testing on the wing aerial refueling pods and correct deficiencies, and the Air Force is to finish analyzing test data to validate that performance and contract specifications have been met. In addition, the Air Force is to complete operational testing (planned for completion in December 2019) to determine if the KC-46 and its subsystems are fully capable of performing its mission in a realistic operational environment. Since our last report in April 2018, Boeing completed developmental testing and obtained airworthiness certification from the Federal Aviation Administration for the KC-46 aircraft and two of its three aerial refueling systems the boom and the centerline drogue system. This has allowed the Air Force to start accepting aircraft. Figure 6 shows the status of the KC-46 test activities. Developmental Testing: As of March 2019, Boeing had completed about 92 percent of the overall KC-46 developmental test program. The roughly 8 percent remaining, which consists of 2,303 of the 29,181 total developmental test points, relates to the wing aerial refueling pods. According to program officials, Boeing, in coordination with its supplier for this subsystem, submitted test plans to the Federal Aviation Administration in December 2018 for approval to begin flight testing the wing aerial refueling pods. These officials also told us that developmental testing on the pods began in early June 2019. Boeing projects that the Air Force will verify that the pods meet contract specifications and they will be airworthy by May 2020. The Air Force is also currently reviewing developmental test data to validate that performance and contract specifications have been met and identify aircraft deficiencies. As of March 2019, the Air Force has identified the three critical deficiencies that we discussed earlier in this report. It also identified 160 Category 2 urgent deficiencies that Air Force policy notes can be addressed through workarounds, which can include manual updates or procedural restrictions. For example, the flight control system does not have an indicator that would alert the KC-46 operators that they are overriding the automatic system that keeps the boom aligned with the receiver aircraft. If the boom is not aligned with the receiver aircraft, it can cause damage to the boom and the receiver aircraft. Program officials said that, as a result, the Air Force has currently placed limitations on some boom refueling operations. The number of Category 2 urgent deficiencies went up by about 26 percent between mid- February and the end of March 2019. Program officials attributed this growth to the progress the Air Force is making in analyzing test data and validating whether the aircraft meet contract specifications. The Air Force may identify additional deficiencies as it completes these developmental testing activities and during operational testing. Operational Testing: According to program officials, the Air Force Operational Test and Evaluation Center plans to conduct KC-46 operational testing from mid-May to December 2019. Operational testing is centered on five overarching test objectives. Three test objectives are focused on the ability of the KC-46 to perform operations for refueling, airlift, and aeromedical evacuation, including how quickly the KC-46 can offload fuel to a receiver aircraft. The fourth objective is focused on the ability of the KC-46 to meet its mission tasking, which includes measures such as the KC-46 s availability and ability to complete a mission. The fifth objective addresses whether the KC-46 is logistically supportable through measures including aircrew and maintainer training, and how well the demand can be met with available parts. According to Air Force test officials, operational testing consists of about 500 test conditions, each of which may include multiple test points. The Air Force plans to use four KC-46 aircraft for operational testing. During operational testing for aerial refueling, the Air Force will test whether the KC-46 can deliver fuel through the boom or centerline drogue system to 18 different types of receiver aircraft in operational conditions, including refueling another KC-46. The Air Force needs to certify receiver aircraft for refueling before these aircraft can be used for operational testing with the KC-46. Boeing and the Air Force are in various stages of testing and certifying 18 receiver aircraft. In its 2018 annual report, the Department of Defense s Office of the Director, Operational Test and Evaluation reported that the duration of the KC-46 operational test period will depend on how long it takes the Air Force to certify all 18 receiver aircraft. As of March 2019, two aircraft have been tested and certified by the Air Force as a receiver to the KC-46. Five have completed testing, but have not yet been certified, and testing for two others has begun. Figure 7 shows the status of testing and certifications for the KC-46 receiver aircraft currently planned for operational testing. The Air Force plans to obtain additional certifications for aircraft that are not being used for operational testing. The Air Force schedule for completing receiver testing continues to shift. According to Department of Defense developmental and operational test officials and program officials, it is taking longer than expected to complete receiver aircraft certification testing in advance of operational testing due in part to receiver aircraft availability. According to these officials, Air Force major commands have been reluctant to allow their receiver aircraft to be tested with the KC-46 over concerns that the lack of visual clarity in the remote vision system and the boom s stiffness could cause the boom to strike and damage the receiver aircraft. Program officials told us that, as a result, negotiations between the KC-46 program and Air Force major command officials concerning the use of receiver aircraft are taking longer than expected. These difficulties have resulted in delays to certification tests, in some cases for several weeks. The lack of availability of specific aircraft when they are scheduled to be tested may require the Air Force to reschedule other receiver aircraft. These schedule changes can require some resequencing of test planning and approval activities. In addition, because the wing aerial refueling pods have not been certified and delivered, the Air Force will need to conduct operational testing on refueling operations for them later. To conduct this test, major commands with receiver aircraft that require drogue refueling would need to provide receiver aircraft again. According to program test officials, the start of operational testing for the wing aerial refueling pods will depend on whether the Air Force Operational Test and Evaluation Center uses pods that have not been certified for airworthiness by the Federal Aviation Administration or waits until Boeing delivers a certified subsystem. Problems requiring changes could be identified during KC-46 operational testing, developmental and operational testing for the wing aerial refueling pods, or receiver aircraft certification testing. The development contract makes Boeing responsible to correct any deficiencies discovered during these test periods that do not meet contract specifications. <5. KC-46 Program Offers Insights for Future Acquisition Programs on the Benefits and Challenges of a Fixed-Price-Type Development Contract and a New Sustainment Approach> Based on our own observations, as well as our discussions with Department of Defense officials who have been involved with the KC-46 program for many years, we identified aspects of its acquisition approach that could provide insights to future programs. Specifically, the insights could apply to programs considering a fixed-price development contract and determining what sustainment approach to use for commercial derivative aircraft. For example, the KC-46 development contract provided some financial protection to the government from increases in development and some life cycle costs. However, other aspects of the contract did not require Boeing to demonstrate high levels of aircraft performance prior to being awarded production contracts or receiving payment for its work. Current and former program officials also provided insights about key aspects of program management that they believe are essential for executing fixed-price development contracts based on their experiences. In addition, the Air Force s new approach for sustaining the KC-46, relying heavily on the Federal Aviation Administration to certify even military-unique aircraft systems, could be useful in considering future acquisition approaches. We previously recommended in March 2012 that the Under Secretary of Defense for Acquisition, Technology and Logistics closely monitor the cost, schedule, and performance outcomes of the KC-46 program to identify positive or negative lessons learned for future acquisition programs. We noted that, as one of only a few major acquisition programs to award a fixed-price incentive (firm target) development contract in recent years, evaluating performance and identifying lessons learned would be illustrative, important for informing decision makers, and help guide and improve future defense acquisition programs. The Department of Defense agreed with the recommendation and compiled lessons learned during the source selection phase of the program. However, the department has not yet identified and reported on lessons learned during program implementation to evaluate cost, schedule, and performance outcomes as we recommended. Program officials said they are collecting lessons learned, but will not report them until after the development contract is complete in 2021. However, by waiting until 2021, other acquisition programs considering using a similar approach will not be able to take advantage of KC-46 lessons learned, including the ones we identify below that could reduce government risk and save taxpayer money. <5.1. Fixed-Price Incentive Contract and Several Key Clauses Benefitted the Air Force by Limiting the Government s Financial Risk> The Air Force used a fixed-price incentive (firm target) contract type to limit the government s financial risk for KC-46 development. The KC-46 development contract was designed to provide a profit incentive for Boeing to control or even reduce overall costs. The use of a fixed-price contract did not result in a reduction in development costs below target costs, but did help control the government s costs. Specifically, the Air Force was able to avoid $1.3 billion in costs exceeding the contract ceiling that Boeing has incurred while developing the aircraft, according to program officials, as of February 2019. Boeing initially declared cost overruns related to wiring while manufacturing the first development aircraft in the spring of 2014. At that time, it discovered wire separation issues, which were caused by an inaccurate wiring design. It took Boeing about 6 months to correct the wiring design and resume wiring work on the developmental aircraft. Boeing declared other cost overruns later in development as it faced challenges in obtaining Federal Aviation Administration certification for the aircraft, which caused significant testing delays. Together, the wiring problems, certification and testing delays, and other setbacks have resulted in a projected 3-year schedule delay. To the extent these costs exceeded the contract ceiling price, Boeing has borne the costs to address these issues, which included retaining more personnel such as design engineers and testers than it originally planned. The KC-46 contract also contains three specific clauses that further benefited the government by limiting its financial risk: Correction of deficiencies clause: This clause requires Boeing to pay for aircraft retrofits when the government determines that the company is not meeting contract specifications. According to the development contract, Boeing is responsible for correcting deficiencies discovered during engineering and manufacturing development, and in production and deployment. Based on the initial schedule, operational testing would have ended in 2017. Up to 19 low-rate initial production aircraft would have been covered by this clause and deficiencies would have been almost exclusively identified through testing activities. Because of delays in the development phase, more aircraft will now be covered by the correction of deficiencies clause. According to the integrated master schedule, Boeing will still be completing development activities in 2020. As a result, the correction of deficiencies clause is expected to now cover the 52 low-rate production aircraft already ordered as well as any other aircraft ordered while development activities are ongoing. Boeing will now be responsible for correcting deficiencies identified during testing as well as in day-to-day operations on all of these aircraft. Fuel usage rate clause: This clause requires Boeing to meet a specified fuel usage rate for each individual aircraft, which will help the Air Force control some of the KC-46 s life cycle costs. According to the contract clause, if an individual aircraft does not meet the fuel usage rate, Boeing would have to propose a corrective action at no cost to the Air Force. The Air Force could also make an equitable price adjustment based on a formula that projects the additional costs the Air Force would incur over the expected 40-year life of the aircraft. Long-term pricing: The KC-46 contract includes long-term pricing terms for 175 production aircraft. In agreeing to these terms, Boeing had to estimate its costs through 2027. The pricing in the contract protects the government from cost increases including inflation and higher supplier costs that were not already embedded in the prices. The contract includes a variety of purchasing options so that the Air Force is not locked into acquiring a set amount of aircraft each year. It identifies the most cost effective approach for procuring the 175 production aircraft, which is typically between 12 and 15 aircraft for each production lot. It also identifies the additional costs the Air Force would incur if it procured fewer or more aircraft in each production lot that would deviate from the most cost effective approach. Program officials stated that including the long-term pricing in the contract has helped it secure adequate funding from Congress to procure the most cost effective number of aircraft in each of the four low-rate production lots it has awarded so far. <5.2. Several Provisions of the Fixed-Price Incentive Contract Magnified Program Challenges> Several aspects of the fixed-price incentive development contract, however, did not reduce risk to the government and further complicated existing program challenges. First, production lot awards were not linked to Boeing s performance. Second, progress payments to Boeing were based on costs the contractor incurred rather than on its demonstrated performance. Third, the contract did not identify the timing of when production aircraft would be delivered to the Air Force for acceptance. Production lot awards are not tied to demonstrated performance: The development contract linked the award of production lots to schedule milestones rather than to contractor performance. The contract specified that the first and second low-rate production lots had to be awarded within 30 days and 14 months of the low-rate initial production decision, respectively. According to the initial plan, Boeing would have completed 13 months of developmental testing and 66 percent of the flight test program with the KC-46 by the low-rate initial production decision. As we have previously reported, however, the program experienced delays. At the time of the low-rate initial production decision, the program had only completed about one-third of the planned flight test program. The Air Force decided to award both low-rate production lots within a week of the decision despite the lower amount of testing knowledge. Program officials stated that they awarded the contract because Boeing met the low-rate decision criteria, including demonstrating successful refueling operations. Further, based on the correction of deficiencies clause, they believed at that time that Boeing would be responsible for paying to correct all deficiencies it discovered during subsequent testing on aircraft it produced. Our prior work on best practices, however, emphasizes that awarding production lots before performance is demonstrated introduces risk of cost increases, schedule delays, and performance problems. Progress payments are not based on demonstrated performance: The KC-46 contract included a financing approach that requires the Air Force to make progress payments to Boeing up to 80 percent of its incurred costs. These progress payments incentivized Boeing to make progress on building the aircraft, and the program s withholding of some payment incentivizes the company to resolve deficiencies more quickly. In general, Department of Defense guidance recognizes that performance-based payments incentivize a contractor to optimize its activities to meet the goals that are important to the government, such as completing a certain amount of engineering or developmental testing by specific milestones. It also notes that they are not practical on all contracts, and contracting officers should consider whether the benefits outweigh the time and effort to establish and administer them. The guidance also notes that progress payments based on costs incurred by a contractor may not reflect the contractor s progress towards meeting program goals or incentivize a contractor to meet those goals. On the KC-46 for example, the program office had made 80 percent of the allowed progress payments for the four development aircraft by November 2015 9 months before the low-rate initial production decision, despite only completing 15 percent of the flight test points at that time. KC-46 program officials said that once the low-rate production contracts were awarded in August 2016, Boeing prioritized completing the manufacturing of those aircraft because it had previously started manufacturing them with its own funds. It also focused on completing aspects of developmental testing related to the boom and centerline drogue so that it could begin delivering aircraft to the Air Force. In general, once the Air Force accepts an aircraft, Boeing is eligible to receive additional payment for its work on that aircraft. Program officials, however, would have preferred that Boeing placed more emphasis on completing receiver aircraft certifications so that when aircraft were accepted, the Air Force could begin operational testing, which is led and paid for by the government. Contract originally did not identify aircraft delivery time frames: The original development contract did not identify a specific delivery period for production aircraft. Instead, it specified that Boeing was supposed to deliver the first 18 aircraft by August 2017. According to program officials, not identifying a delivery period was an oversight. Program officials stated that the Air Force needed more specific aircraft delivery information to develop detailed plans for establishing operating bases and performing depot maintenance, including training pilots and maintainers. For example, if training is done too early, the Air Force may have to provide refresher training to pilots and maintainers. If it is done too late, then the Air Force may not be able to use the aircraft as soon as it could or to the extent it had planned. The Air Force was eventually able to get specific delivery dates for the aircraft as part of negotiations it had with Boeing to modify the development contract after Boeing did not meet the original August 2017 contract delivery date. <5.3. KC-46 Program Officials Identified Other Key Insights for Successful Implementation of Fixed- Price Incentive Development Contracts> According to current and former KC-46 program officials, stable requirements and a skilled acquisition workforce are essential for executing a fixed-price incentive contract. Stable Requirements: The current KC-46 program manager said that there were no major requirements changes on the program between 2011 and 2018. The only requirements change occurred in 2019 to address the critical deficiency identified on the boom which, as we discussed earlier, the Air Force is paying to fix. As we previously found in 2012, controls were put in place to limit requirements changes. These controls were in response to a 2011 memorandum issued by the Office of Cost Assessment and Program Evaluation in the Office of the Secretary of Defense. The memorandum maintained that, on the whole, the Department of Defense had demonstrated limited ability to maintain stable requirements and limit changes to program baselines on previous complex weapon system programs, and that minimizing such change would be essential to the success of the KC-46. For the KC-46 program, any engineering or contract changes affecting system requirements or that have the potential to impact program cost, schedule, and performance baselines must be approved by the Air Force Service Acquisition Executive in consultation with the Secretary and the Chief of Staff of the Air Force. Skilled Acquisition Workforce: Some current and former program managers also noted that having personnel with strong negotiating and cost estimating skills, as well as data rights expertise, is essential for programs with fixed-price incentive development contracts. One former program official explained that in general, contractors such as Boeing on the KC-46 do not know exactly how they are going to build a weapon system until they have completed detailed systems engineering and design drawings, which occurs in the development phase. We previously found in November 2016 that as top-level capability requirements are defined and decomposed into lower-level design requirements, they become more specific and the number of requirements grows. This growth can be exponential, with tens of thousands of detailed design requirements derived from a relatively small number of capability requirements. While the government generally does not specify how a contractor designs a weapon system for fixed-price incentive contracts, officials we spoke with said KC-46 program managers and engineers have been involved in almost daily discussions with Boeing to make design tradeoffs. As such, one former program executive officer said program offices that are using fixed-price incentive development contracts should ensure that program management staff, including contracting officers and engineers, has strong negotiating skills to protect the government s interest during these daily negotiations where design tradeoffs are made. Further, these program offices need financial management staff with strong cost estimating skills to support the negotiations when necessary. This official indicated that the KC-46 program office had people with these skills. However, several former program officials stated that the KC-46 program office needed personnel with data rights expertise. They said that they had to rely on a data rights expert from outside the KC-46 program to assist in drafting a section of the request for proposal that would allow the Air Force to obtain data it would need to maintain KC- 46 aircraft. The officials indicated that the Air Force has few data rights experts and that it would be beneficial to have contracting officers and attorneys in the program offices with data rights expertise. For example, program officials anticipate that there will be ongoing discussions and negotiations with Boeing about the type of data it will need for the Air Force to perform depot maintenance activities over the life of the program. <5.4. Air Force Is Gaining a Better Understanding of the Benefits and Challenges of Implementing a New Sustainment Approach That Could be Considerations for Future Acquisition Programs> The Air Force plans to use a sustainment approach on the KC-46 that it has not yet used on other aircraft, that presents added complexity, and which Boeing is having difficulty supporting. Under the new approach, the Federal Aviation Administration will certify nearly all parts of the aircraft, including most of the military-unique parts such as the centerline drogue, boom, and wing aerial refueling pods. By certifying through the Federal Aviation Administration, the Air Force expects to take advantage of commercial aircraft updates that occur regularly and to obtain new or refurbished parts for the aircraft through a global parts pool that commercial users of the 767 aircraft rely on to maintain their aircraft. Further, the Air Force, instead of a contractor, will provide product support for the aircraft. Previous commercial derivative aircraft programs, including the KC-10, did not have the Federal Aviation Administration certify military-unique functions such as aerial refueling, and the Air Force has relied on the KC-10 contractor for product support over the lifetime of that program. According to the KC-46 acquisition strategy, Boeing will initially provide product support for the KC-46 for a period of up to 5 years. During that time, the Air Force will gradually take over the responsibility and then maintain the aircraft for the lifetime of the program, which is expected to be 40 years. The KC-46 program s experience in obtaining and maintaining Federal Aviation Administration certification, including participation in the parts pool, can offer insights for future acquisition programs to consider. The Air Force also required Federal Aviation Administration certification to a greater extent than the Air Force policy in place at the time the development contract was awarded. Specifically, the contract states that the contractor shall obtain Federal Aviation Administration certification for all the aircraft s mission equipment. In cases where this is not workable, the contract says that the contractor must exhaust all possible solutions prior to not obtaining full certification. As we mentioned earlier in the report, Boeing is having difficulty getting certification for the military-unique portions of the aircraft related to the aerial refueling systems, which has contributed to significant program delays. Boeing s commercial business unit already obtained Federal Aviation Administration certification for the commercial parts of the aircraft. However, according to program officials, Boeing s defense business unit, which is responsible for obtaining certifications for the military-unique parts, was not as well versed on the certification process. We previously reported that, according to Boeing officials, the company and the supplier had underestimated the extent of design drawing details required by the Federal Aviation Administration to certify that the parts conformed to the approved design. The supplier of the wing aerial refueling pods spent several years negotiating agreements with several of its key sub-tier suppliers to obtain the necessary documentation. To reduce the risk of further delays, in 2015, Boeing co-located some of its employees with the supplier to provide technical support to complete the documentation for certification over the past several years. Based on a study completed by Morgan Borszcz Consulting in 2014, the Air Force expected to benefit from saving up to $420 million by maintaining the Federal Aviation Administration certification for the KC-46 over the life of the program. Savings were primarily estimated in three areas: 1. $200 million could be saved by having Boeing maintain responsibility for all design changes on the aircraft, including working with the Federal Aviation Administration to certify design changes and updating instruction manuals based on the changes. 2. $70 million could be saved by having Boeing address any safety issues identified by the Federal Aviation Administration in Airworthiness Directives. 3. Between $57 million and $150 million in costs could be avoided if the Air Force maintains Federal Aviation Administration certifications and does not recertify parts to military standards. The study also stated that the Air Force could save money by participating in the 767 aircraft parts pool, mentioned above, though it did not specify the amount of savings. The parts pool limits the risk of diminishing manufacturing sources over time and the costs the Air Force typically incurs when qualifying new suppliers. Program officials told us that they decided to use a worldwide 767 parts pool because more than 75 percent of KC-46 parts are expected to be available through that parts pool, which reduces the need for the Air Force to procure these parts in advance and place them in its distribution system. Programs that do not have Federal Aviation Administration certified parts have to find and qualify suppliers for needed parts on their own and they must find and qualify new suppliers if one goes out of business over the operational lifetime of the aircraft. In using the 767 parts pool, the Air Force anticipated readily obtaining parts as needed for maintaining the KC-46 aircraft as well as repairing parts and putting them back into the pool. Since the time the study was completed, however, program officials have learned that the Air Force cannot put parts back into the parts pool because commercial members of the pool do not want to use repaired or reconditioned parts that were used on Air Force aircraft. As a result, the Air Force will not achieve all of the savings it anticipated. Program officials explained that commercial companies do not fly their aircraft under the same conditions as the Air Force, and these companies believe it is too risky for them to use parts that were once used on a KC-46. Program officials said the Air Force can still purchase parts from the parts pool though. The Air Force can also refurbish and use its own parts as long as the parts and the processes it uses to refurbish the parts meet Federal Aviation Administration certification standards and mechanics are properly certified. However, it remains to be seen if the Air Force can maintain the certifications because it has not yet had to do this on other aircraft and requires adherence to Federal Aviation Administration procedures. <6. Conclusions> The Air Force s approach to building the KC-46 has been somewhat unique deriving a military aircraft from a commercial model using a fixed-price incentive contract, among other things. After experiencing delays of nearly 3 years, the Air Force started accepting aircraft that can now be used for operational testing and support of worldwide missions. While work remains to ensure that critical deficiencies are corrected, the KC-46 program offers lessons that could be shared with other Department of Defense acquisition programs that are considering using a fixed-price-type development contract or a commercial derivative aircraft regarding contracting for and sustaining weapon systems. In particular, the contract provided substantial protections to the government against cost increases that Boeing experienced while developing the aircraft, but it also used a financing approach that did not tie Boeing s performance to completing important program goals. In addition, the Air Force s effort to leverage commercially available parts to reduce sustainment costs created challenges. We previously recommended that the Department of Defense develop and share KC-46 lessons learned for future acquisition programs; however, it does not plan to do so until 2021. By sharing identified lessons now with other program leaders considering fixed-price- type contracts or developing commercial derivative aircraft, programs may be able to increase the effectiveness of any new similar development programs. <7. Recommendation for Executive Action> We are making the following recommendation to the Department of Defense: The Secretary of Defense should ensure that the KC-46 program office disseminates insights we identified in this report about the KC-46 s contracting and sustainment planning experiences for consideration by acquisition programs, in particular those considering a fixed-price-type development contract or a commercial derivative aircraft. <8. Agency Comments> We provided a draft of this product to the Department of Defense for comment. In its comments, reproduced in appendix II, the department concurred with our recommendation, but did not identify the specific actions it would take to implement the recommendation. It also provided, in technical comments, language clarifying that the Air Mobility Command cost estimates for flying and maintaining KC-135s longer, as a result of KC-46 delivery delays, did not also account for any savings that would be achieved from not flying KC-46 aircraft. We provided additional detail in the report to address this comment. We also incorporated other technical comments as appropriate. We are sending copies of this report to the Acting Secretary of Defense, the Acting Secretary of the Air Force, and appropriate congressional committees. The report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-4841 or ludwigsonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Appendix I: KC-46 Performance Capabilities The program office has 21 performance goals that are critical to the KC- 46 aircraft s military capability and track progress to meeting contract specifications. These performance goals include nine key performance parameters, five key system attributes, and seven technical performance measures. Table 2 provides a description of each key performance parameter and key system attribute. Table 3 provides a description and status of each technical performance measure. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, Cheryl Andrew, Assistant Director; Lorraine Ettaro; Kurt Gurka; Stephanie Gustafson; Katheryn Hubbell; Jean Lee; Malika Rice; Jenny Shinn; and Steve Woods made key contributions to this report. Related GAO Products GAO, KC-46 Tanker Modernization: Program Cost is Stable, but Schedule May Be Further Delayed, GAO-18-353 (Washington, D.C.: Apr. 18, 2018). GAO, KC-46 Tanker Modernization: Delivery of First Fully Capable Aircraft Has Been Delayed Over One Year and Additional Delays are Possible, GAO-17-370 (Washington, D.C.: Mar. 24, 2017). GAO, KC-46 Tanker Aircraft: Challenging Testing and Delivery Schedules Lie Ahead, GAO-16-346 (Washington, D.C.: Apr. 8, 2016). GAO, KC-46 Tanker Aircraft: Key Aerial Refueling Capabilities Should Be Demonstrated Prior to the Production Decision, GAO-15-308 (Washington, D.C.: Apr. 9, 2015). GAO, KC-46 Tanker Aircraft: Program Generally on Track, but Upcoming Schedule Remains Challenging, GAO-14-190 (Washington, D.C.: Apr. 10, 2014). GAO, KC-46 Tanker Aircraft: Program Generally Stable but Improvements in Managing Schedule Are Needed, GAO-13-258 (Washington, D.C.: Feb. 27, 2013). GAO, KC-46 Tanker Aircraft: Acquisition Plans Have Good Features but Contain Schedule Risk, GAO-12-366 (Washington, D.C.: Mar. 26, 2012).

Why GAO Did This Study Aerial refueling—the transfer of fuel from airborne tankers to combat and airlift forces—is critical to the U.S. military's ability to effectively operate globally. The Air Force initiated the KC-46 program in 2011 to replace about a third of its aging KC-135 aerial refueling fleet. Boeing was awarded a fixed-price incentive contract to develop the first four aircraft, which are being used for testing. Boeing was also required to deliver the first 18 fully capable aircraft by August 2017. The program plans to eventually field 179 aircraft. This report assesses the program's progress toward meeting cost, schedule, and performance goals. The report also assesses how the program's contracting and sustainment planning approach could inform other acquisition programs. GAO analyzed cost, schedule, performance, test, manufacturing, contracting, and sustainment planning documents; and interviewed officials from the KC-46 program office, other defense offices, such as the Defense Contract Management Agency, the Federal Aviation Administration, and Boeing. What GAO Found Costs for the KC-46 program remain lower than expected, as shown below. The Air Force accepted the first KC-46 in January 2019, but Boeing remains nearly 3 years behind schedule. As shown below, Boeing now plans to deliver the first 18 aircraft with all three aerial refueling subsystems by June 2020. Program officials expect the KC-46 to meet key performance goals over the next few years as it accumulates 50,000 fleet hours. However, the Air Force is accepting aircraft that do not fully meet contract specifications and have critical deficiencies, including ones that affect (1) the operators' ability to guide the fuel delivery boom into position, and (2) the boom itself. The deficiencies could affect operations and cause damage to stealth aircraft being refueled, making them visible to radar. Program officials estimate it will take 3 to 4 years to develop fixes for the deficiencies and a few more years to retrofit up to 106 aircraft. The Air Force and Boeing will incur costs to fix the deficiencies, with the Air Force's portion estimated to be more than $300 million. The Air Force is withholding 20 percent payment on each aircraft until Boeing fixes the deficiencies and non-compliances. Meanwhile, the Air Force has limited some refueling operations. GAO identified a number of insights that could benefit other programs, including the use of a fixed-price-type development contract and a correction of deficiencies clause in the contract that protected the government from some cost increases. The Department of Defense agreed to provide lessons learned about the KC-46 program for future acquisition programs based on a recommendation GAO made in March 2012, but does not plan to do so until development is complete in 2021. GAO believes other programs could benefit from insights identified in this report if they were disseminated sooner. What GAO Recommends GAO recommends that the Department of Defense disseminate insights in this report about the KC-46's contracting and sustainment planning experiences for consideration by acquisition programs, particularly those that plan to use a fixed-price-type development contract or a commercial derivative aircraft. The Department of Defense concurred with the recommendation.

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<1. Background> SAMHSA and other organizations recognize recovery homes peer-run and peer-managed supportive homes as an important step in SUD treatment and recovery. Definitions of and terms for recovery homes can vary, and recovery homes may differ in the types of services offered and resident requirements. Alcohol- and drug-free homes for individuals recovering from SUD may be referred to as recovery residences, sober homes, or other terms. For the purposes of our March 2018 report, we used the term recovery homes to refer to peer-run, nonclinical living environments for individuals recovering from SUD in general. Recovery homes generally are not considered to be residential treatment centers, are not eligible to be licensed providers for the purposes of billing private insurance or public programs such as Medicaid and residents typically have to pay rent and other home expenses themselves. Recovery home residents may separately undergo outpatient clinical SUD treatment, which is typically covered by health insurance. In addition, recovery homes may encourage residents to participate in mutual aid or self-help groups (e.g., 12-step programs such as Alcoholics Anonymous) and may require residents to submit to drug screening to verify their sobriety. Residents may be referred to recovery homes by treatment providers, the criminal justice system, or may voluntarily seek out such living environments. <2. Nationwide Prevalence of Recovery Homes Was Unknown> In our March 2018 report, we found that the prevalence of recovery homes nationwide was unknown, because complete data were not available. We found these data are not collected at the federal level to provide a nationwide picture, in part, because there was no federal agency responsible for overseeing them. However, as we reported in March 2018, two national organizations with missions dedicated to recovery homes collect data on the prevalence and characteristics for a sub-set of recovery homes and the number of homes that were not affiliated with these organizations was unknown. NARR collected data on recovery homes that sought certification by one of its 15 state affiliates that actively certify homes. As we previously reported, as of January 2018, NARR told us that its affiliates had certified almost 2,000 recovery homes, which had the capacity to provide housing to over 25,000 individuals. Oxford House, Inc. collected data on the prevalence and characteristics of its individual recovery homes (known as Oxford Houses). In its 2018 annual report, Oxford House, Inc. reported that there were 2,542 Oxford Houses in 45 states. <3. Most Selected States Had Investigated Potential Fraud Related to Recovery Homes and Taken Steps to Enhance Oversight> <3.1. Four of Five Selected States Had Conducted Investigations of Recovery Homes> Officials from four of the five selected states we reviewed for our March 2018 report (Florida, Massachusetts, Ohio, and Utah) told us that since 2007, state agencies had conducted, or were in the process of conducting, law enforcement investigations of unscrupulous behavior and potential insurance fraud related to recovery homes. According to the state officials, the outcomes of some of these investigations included criminal charges and changes to health insurance policies. Across the four states, officials told us that the potential insurance fraud may have relied on unscrupulous relationships between SUD treatment providers (including laboratories that perform tests to check for substance use) and recovery home operators. Officials explained that recovery home operators establish these relationships, because they cannot directly bill health insurance themselves due to the fact that recovery homes are not considered eligible providers for the purposes of billing health insurance. For example, treatment providers may form relationships with recovery home operators who then recruit individuals with SUD in order to refer or require residents to see the specific SUD treatment providers. This practice is known as patient brokering, for which recovery home operators receive kickbacks, such as cash or other remuneration from the treatment provider, in exchange for patient referrals. The extent of potential fraud differed across the four states, as discussed below. <3.1.1. Florida> Officials from several state agencies and related entities described investigations into fraud related to recovery homes in southeastern Florida as extensive, although the scope of the fraud within the industry is unknown. In 2016, the state attorney for the 15th judicial circuit (Palm Beach County) convened a task force composed of law enforcement officials tasked with investigating and prosecuting individuals engaged in fraud and abuse in the SUD treatment and recovery home industries. The task force found that unscrupulous recovery home operators or associated SUD treatment providers were luring individuals into recovery homes using deceptive marketing practices. These practices included online or other materials that willfully misdirected individuals or their family members to recruiters with the goal of sending these individuals to specific treatment providers so that the recruiters could receive payments from those treatment providers for each referral. According to officials from the Florida state attorney s office, these individuals often from out of state were lured with promises of free airfare, rent, and other amenities to recover in southern Florida s beach climate. Recruiters brokered these individuals to SUD treatment providers, who then billed their private insurance plans for extensive and medically unnecessary urine drug testing and other services. Officials from the Florida state attorney s office told us that SUD treatment providers were paying $300 to $500 or more per week to recovery home operators or their staff members for every individual they referred for treatment. In addition, these officials cited one case in which a SUD treatment provider billed an individual s insurance for close to $700,000 for urine drug testing over a 7-month period. Officials from the state attorney s office noted that the recovery homes that the task force investigated were not shared homes in the traditional, supportive sense, but rather existed as warehouses intended to exploit vulnerable individuals. As a result of these investigations, as of December 2017, law enforcement agencies had charged more than 40 individuals primarily with patient brokering, with at least 13 of those charged being convicted and fined or sentenced to jail time, according to the state attorney s office. In addition, the state enacted a law that strengthened penalties under Florida s patient brokering statute and gave the Florida Office of Statewide Prosecution, within the Florida Attorney General s Office, authority to investigate and prosecute patient brokering. <3.1.2. Massachusetts> An official from the Massachusetts Medicaid Fraud Control Unit told us that the unit began investigating cases of Medicaid fraud in the state on the part of independent clinical laboratories associated with recovery homes in 2007. The unit found that, in some cases, the laboratories owned recovery homes and were self-referring residents for urine drug testing. In other cases, the laboratories were paying kickbacks to recovery homes for referrals for urine drug testing that was not medically necessary. According to the Medicaid Fraud Control Unit official, as a result of these investigations, the state settled with nine laboratories between 2007 and 2015 for more than $40 million in restitution. In addition, the state enacted a law in 2014 prohibiting clinical laboratory self-referrals and revised its Medicaid regulations in 2013 to prohibit coverage of urine drug testing for the purposes of residential monitoring. <3.1.3. Ohio> At the time of our March 2018 report, Ohio had begun to investigate an instance of potential insurance fraud related to recovery homes, including patient brokering and excessive billing for urine drug testing. Officials from the Ohio Medicaid Fraud Control Unit told us that the unit began investigating a Medicaid SUD treatment provider for paying kickbacks to recovery homes in exchange for patient referrals, excessive billing for urine drug testing, and billing for services not rendered, based on an allegation the unit received in September 2016. Officials from other state agencies and related state entities, such as the state s substance abuse agency and NARR affiliate, were not aware of any investigations of potential fraud on the part of recovery home operators or associated treatment providers when we interviewed with them. According to these state officials, this type of fraud was not widespread across the state. <3.1.4. Utah> In our March 2018 report, we reported that officials from the Utah Insurance Department told us that the department was conducting ongoing investigations of private insurance fraud similar to the activities occurring in Florida, as a result of a large influx of complaints and referrals the department had received in 2015. These officials told us that the department had received complaints and allegations that SUD treatment providers were paying recruiters to bring individuals with SUD who were being released from jail to treatment facilities or recovery homes; billing private insurance for therapeutic services, such as group or equine therapy, that were not being provided, in addition to billing frequently for urine drug testing; and encouraging individuals to use drugs prior to admission to qualify them and bill their insurance for more intensive treatment. In addition, insurance department officials told us that they believed providers were enrolling individuals in private insurance plans without telling them and paying their premiums and copays. According to these officials, when doing so, providers may lie about the individuals income status in order to qualify them for more generous insurance plans. Officials found that providers were billing individuals insurance $15,000 to $20,000 a month for urine drug testing and other services. Officials noted that they suspect that the alleged fraud was primarily being carried out by SUD treatment providers and treatment facilities that also own recovery homes. The officials said the department had not been able to file charges against any treatment providers, because it had been unable to collect the necessary evidence to do so. However, according to the officials, the state enacted legislation in 2016 that gave insurers and state regulatory agencies, such as the state s insurance department and licensing office, the authority to review patient records and investigate providers that bill insurers. As we noted in our March 2018 report, this authority may help the insurance department and other Utah regulatory agencies better conduct investigations in the future. <3.2. Three Selected States Have Established Oversight Programs, and Two Selected States Are Taking Other Steps to Support Recovery Homes> In addition to actions taken in response to state investigations, our March 2018 report described steps taken by three of the five selected states (Florida, Massachusetts, and Utah) to formally increase oversight of recovery homes by establishing state certification or licensure programs. Florida enacted legislation in 2015 and Massachusetts enacted legislation in 2014 that established voluntary certification programs for recovery homes. Further, Florida established a two-part program for both recovery homes and recovery home administrators (i.e., individuals acting as recovery home managers or operators). According to officials from the Florida state attorney s office and Massachusetts Medicaid Fraud Control Unit, their states established these programs, in part, as a result of state law enforcement investigations. Utah enacted legislation in 2014 to establish a mandatory licensure program for recovery homes. According to officials from the Utah substance abuse agency and the state licensing office, Utah established its licensure program, in part, to protect residents safety and prevent their exploitation and abuse. In our March 2018 report, we found that although state recovery home programs in Florida and Massachusetts are voluntary, there are incentives for homes to become certified under these states programs, as well as incentives to become licensed under Utah s programs. Specifically, all three states require that certain providers refer patients only to recovery homes certified or licensed by their state program; therefore, uncertified and unlicensed homes in the three states are ineligible to receive patient referrals from certain treatment providers. Further, state officials told us that state agencies are taking steps to ensure providers are making appropriate referrals. For example, according to officials from the Florida substance abuse agency, treatment providers may refer individuals to certified recovery homes managed by certified recovery home administrators only and must keep referral records. To become state-certified or licensed, recovery homes in Florida, Massachusetts, and Utah must meet certain program requirements, including training staff, submitting documentation (such as housing policies and a code of ethics), and participating in onsite inspections to demonstrate compliance with program standards. However, specific requirements differ across the three states. For example, while all three state programs require recovery home operators or staff to complete training, the number of hours and training topics differ. In addition, for recovery homes to be considered certified in Florida, they must have a certified recovery home administrator. Similar to Florida s certification program for the homes, individuals seeking administrator certification must meet certain program requirements, such as receiving training on recovery home operations and administration, as well as training on their legal, professional, and ethical responsibilities. Features of the state- established oversight programs also differ across the three states, including program type, type of home eligible for certification or licensure, certifying or licensing body, and initial fees. As we noted in our March 2018 report, the state-established oversight programs in Florida, Massachusetts, and Utah also include processes to monitor certified or licensed recovery homes, and take action when homes do not comply with program standards. For example, an official from the Florida Association of Recovery Residences the organization designated by the state to certify recovery homes told us that the entity conducts random inspections to ensure that recovery homes maintain compliance with program standards. State-established oversight programs in the three states also have processes for investigating grievances filed against certified or licensed recovery homes. Further, officials from certifying or licensing bodies in all three states told us their organizations may take a range of actions when they receive complaints or identify homes that do not comply with program standards, from issuing recommendations for bringing homes into compliance to revoking certificates or licenses. According to officials from Florida s certifying body, the entity has revoked certificates of recovery homes that have acted egregiously or have been nonresponsive to corrective action plans. Officials from the certifying and licensing bodies in Massachusetts and Utah told us that they had not revoked certificates or licenses, but had possibly assisted homes with coming into compliance with certification standards or licensure requirements. Officials from Ohio and Texas told us that their states had not established state oversight programs like those in Florida, Massachusetts, and Utah, but said their states had provided technical assistance and other resources to recovery homes in an effort to increase consistency, accountability, and quality. Officials from the Ohio substance abuse agency told us that since 2013 the state has revised its regulatory code to define recovery homes and minimum requirements for such homes. Officials also told us that the agency did not have authority to establish a state certification or licensure program for recovery homes. According to these officials, the state legislature wanted to ensure that Ohio s recovery homes community maintained its grassroots efforts and did not want a certification or licensure program to serve as a roadblock to establishing additional homes. However, officials from the Ohio substance abuse agency told us that the agency encourages recovery homes to seek certification by the state s NARR affiliate Ohio Recovery Housing to demonstrate quality. In addition, these officials told us that the state substance abuse agency also provided start-up funds for Ohio Recovery Housing, as well as continued funding for the affiliate to provide training and technical assistance, and to continue certifying recovery homes. According to officials from Ohio Recovery Housing, the NARR affiliate regularly provides the state s substance abuse agency with a list of newly certified recovery homes, as well as updates on previously certified homes as part of ongoing efforts to develop a recovery home locator, under its contract with the agency. Officials from the Texas substance abuse agency told us that establishing a voluntary certification program would be beneficial. However, the state legislature had not enacted legislation establishing such a program at the time of our review. At the time of our report, the agency was in the process of developing guidance for providers on where and how to refer their patients to recovery housing, which includes a recommendation to send patients to homes certified by the Texas NARR affiliate. Chairman Grassley, Ranking Member Wyden, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. GAO Contact and Staff Acknowledgments> If you or your staff members have any questions concerning this testimony, please contact me at (202) 512-7114 or deniganmacauleym@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Tom Conahan (Assistant Director), Kristin Ekelund (Analyst-in-Charge), Drew Long, Sarah Resavy, and Emily Wilson. Other staff who made key contributions to the report cited in the testimony are identified in the source product. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Why GAO Did This Study Substance abuse and illicit drug use, including the use of heroin and the misuse of alcohol and prescription opioids, is a growing problem in the United States. Individuals with a substance use disorder may face challenges in remaining drug- and alcohol-free. Recovery homes can offer safe, supportive, drug- and alcohol-free housing to help these individuals maintain their sobriety and can be an important resource for recovering individuals. However, as GAO reported in March 2018, some states have conducted investigations of potentially fraudulent practices in some recovery homes. This statement describes (1) what is known about the prevalence of recovery homes across the United States; and (2) investigations and actions selected states have undertaken to oversee such homes. It is largely based on GAO's March 2018 report (GAO-18-315). For that report, GAO reviewed national and state data, among other things, and interviewed officials from the Department of Health and Human Services, national associations, and five states—Florida, Massachusetts, Ohio, Texas, and Utah. GAO selected these states based on their rates of opioid overdose deaths, their rates of dependence or abuse of alcohol and other drugs, and other criteria. What GAO Found In March 2018, GAO found that the prevalence of recovery homes (i.e., peer-run or peer-managed drug- and alcohol-free supportive homes for individuals in recovery from substance use disorder) was unknown. Complete data on the prevalence of recovery homes were not available, and there was no federal agency responsible for overseeing recovery homes that would compile such data. However, two national organizations collected data on the prevalence of recovery homes for a subset of these homes. The National Alliance for Recovery Residences (NARR), a national nonprofit and recovery community organization that promotes quality standards for recovery homes, collected data only on recovery homes that sought certification by some of its state affiliates. As of January 2018, NARR told us that its affiliates had certified almost 2,000 recovery homes, which had the capacity to provide housing to over 25,000 individuals. Oxford House, Inc. collected data on the number of individual recovery homes it charters. In its 2018 annual report, Oxford House, Inc. reported that there were 2,542 Oxford Houses in 45 states. The number of recovery homes that were not affiliated with these organizations was unknown. In March 2018, GAO also found that four of the five states in its review—Florida, Massachusetts, Ohio, and Utah—had conducted, or were in the process of conducting, investigations of potentially fraudulent recovery home activities in their states. Activities identified by state investigators included schemes in which recovery home operators recruited individuals with substance use disorder to specific recovery homes and treatment providers, and then billed those individuals' insurance for extensive and unnecessary drug testing for the purposes of profit. For example, officials from the Florida state attorney's office told GAO that, in some instances, substance use disorder treatment providers were paying $300 to $500 or more per week to recovery home operators for every individual the operators referred for treatment. Then, in one of these instances, the provider billed an individual's insurance for hundreds of thousands of dollars in unnecessary drug testing over the course of several months. Further, these officials told GAO that as a result of these investigations at least 13 individuals were convicted and fined or sentenced to jail time. To increase oversight, officials from three of the five states—Florida, Massachusetts, and Utah—said they had established state certification or licensure programs for recovery homes in 2014 and 2015. Officials from the other two states—Ohio and Texas—had not established such programs, but were providing training and technical assistance to recovery homes.

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<1. Background> <1.1. Illegal, Unreported, and Unregulated Fishing and Forced Labor> Prevalence of Forced Labor in Thailand A 2020 report by the United Nation s International Labor Organization included research on hundreds of Thai workers employed on seafood vessels or in processing facilities. The report found that nearly 10 percent of interviewees shared circumstances of involuntary work and coercion that, taken together, constituted forced labor. The report concluded that if its selection of interviewees is representative of workers employed across the Thai seafood industry, it would indicate that tens of thousands of workers in Thai fishing and seafood processing are working in forced labor conditions. Fishing activities are vulnerable to a number of illicit practices, including illegal, unreported, and unregulated (IUU) fishing and forced labor. IUU fishing is a broad term that includes a variety of fishing activities with social, economic, and environmental impacts and concerns all aspects and stages of the capture and marketing of fish, according to the United Nations Food and Agriculture Organization. Examples of IUU activities include fishing without a license or in excess of quota for certain species; failing to report catches or making false reports on catches; and conducting unauthorized transshipments, such as transfers of fish to cargo vessels at sea or port, according to NOAA. IUU fishing poses a threat to food security and socioeconomic stability in many parts of the world, according to NOAA documents, and many crew members on fishing vessels that engage in IUU fishing are from poor or underdeveloped areas. In addition, the Food and Agriculture Organization has noted that activities of those engaging in IUU fishing can constitute, lead to, or be associated with organized crime or other crimes, such as human trafficking, that may include forced labor. The International Labor Organization an agency within the United Nations that, among other things, sets labor standards has identified common indicators of forced labor in any work sector, as shown in figure 1. The presence of a single indicator in a given situation may, in some cases, indicate the existence of forced labor; in other cases, several indicators taken together may point to forced labor, according to an International Labor Organization document. Forced labor can occur at various points along the seafood supply chain which can be long and complex with limited visibility at various points, making it difficult to detect (see fig. 2). For example, forced labor may occur if workers are held on fishing vessels for long durations without adequate breaks or the ability to return to land. It may also occur in later stages of seafood processing, such as during filleting and canning the fish for export and sale to consumer, according to an NGO report. Additionally, various NGO reports indicate that during the harvesting and processing stages, seafood caught with forced labor may be combined with legally caught seafood, making illegal shipments more difficult to identify. For example, companies may combine catches from several smaller boats onto a bigger vessel before transporting it to shore for processing. Moreover, some seafood supply chains have an additional layer of complexity because low-value fish may not be directly exported but, rather, used as feed for farm-raised seafood that could eventually be imported into the United States. Forced labor related to this type of situation can be difficult to detect because the source of feed for farm- raised fish is an early step in a supply chain that occurs well before the seafood is imported into the United States, according to CBP officials. <1.2. Laws and Regulations Relevant to Detaining Seafood Imports Produced by Forced Labor and Illegal, Unreported, and Unregulated Fishing> Federal law prohibits the import of goods made with forced labor. In particular, section 307 of the Tariff Act of 1930 prohibits the importation of goods, wares, articles, and merchandise mined, produced, or manufactured, wholly or in part, in any foreign country by convict labor, forced labor, or indentured labor under penal sanctions. TFTEA, enacted in February 2016, among other things, amended section 307 of the Tariff Act of 1930 by repealing an exception referred to as the consumptive demand clause. The consumptive demand clause permitted the importation of certain forced labor-produced goods if they were not produced in such quantities in the United States as to meet the consumptive demands of the United States. determination that merchandise was produced with forced labor in violation of section 307, the Commissioner will publish a formal finding. Various other laws and regulations are also relevant to IUU fishing and the importation of illegally harvested seafood into the United States. For example, under the High Seas Driftnet Fishing Moratorium Act, among other things, the Secretary of Commerce is charged with identifying and certifying countries that have fishing vessels engaged in IUU. According to NOAA officials, a negative certification may result in restrictions on the importation of some fish and fish products at a port of entry. NOAA also administers and enforces a number of statutes that include prohibitions on the importation of illegally harvested seafood, most notably the Magnuson-Stevens Fishery Conservation and Management Act and the Lacey Act. Under these authorities and others, NOAA enforces a number of trade monitoring programs. For example, NOAA administers the Seafood Import Monitoring Program (SIMP), which establishes permitting, data reporting, and recordkeeping procedures for the importation of 13 species of fish and fish products identified as being at particular risk of IUU fishing or seafood fraud. NOAA also implements the Tuna Tracking and Verification Program, which monitors domestic cannery production and importation of all frozen and processed tuna products to ensure compliance with federal requirements regarding dolphin-safe certification. <1.3. Federal Agencies and Stakeholder Involvement and Interest in Forced Labor and Seafood- Related Efforts> A number of federal agencies and stakeholders are involved in or have an interest in forced labor and seafood-related efforts. In particular, CBP is responsible for enforcing violations of section 307 as part of its overall efforts to deter and detect violations of U.S. customs and trade laws at the more than 300 ports of entry into the United States. CBP s enforcement efforts include, but are not limited to, actions to identify, detain, seize or exclude illegitimate imports, including imports produced by forced labor, counterfeits, and goods evading customs duties. After passage of TFTEA in 2016, CBP initiated new efforts to emphasize and focus on enforcement of section 307. Specifically, CBP formally established its Forced Labor Division in March 2018, within its Office of Trade. Since its inception, the Forced Labor Division has grown in size, according to CBP officials, with about 12 staff onboard as of the end of 2019, mainly comprised of analysts and international trade specialists. The Forced Labor Division does not have staff in other countries, but CBP can leverage foreign attach s from other CBP offices, to the extent they are available, to assist with enforcement of section 307, according to CBP officials. Staff in the Forced Labor Division also collaborate with others throughout CBP, including the Office of Field Operations, which, among other things, oversees operations at U.S. ports. Other federal agencies, such as the Department of State and the Department of Labor, conduct activities and collect information related to forced labor. According to CBP officials, CBP may use information from these federal agencies to help support its enforcement of section 307 for particular cases, including those involving seafood. Also, since the enactment of TFTEA in 2016, a number of working groups or task forces have been established, primarily involving U.S. federal agencies, to share information collected related to forced labor and imports, in general, as well as illegal activities involving fishing more specifically, in some cases (see app. II). In addition, numerous stakeholders, such as NGOs, also have an interest in combating forced labor, including forced labor related to the seafood industry. Often stakeholders interests in forced labor include other human rights issues or are broader than specific commodities such as seafood. Stakeholders may provide a variety of services to advocate for workers and identify potential forced labor. For example, some NGOs investigate potential human rights abuses of workers in the seafood industry while others focus on collecting data to help other interested stakeholders identify cases of forced labor. Other NGOs may work with importers who have interests in corporate social responsibility by helping them identify potential issues in their supply chain and comply with U.S. laws, including section 307. <1.4. CBP s Process to Enforce Section 307 Has Resulted in One Seafood-Related Withhold Release Order as of March 2020 CBP Uses a Four-Phase Process to Enforce Violations of Seafood and Other Imports Produced with Forced Labor under Section 307> CBP enforces section 307 involving seafood imports generally following the same process it uses for any other goods suspected of being produced with forced labor imported into the United States, such as apparel, electronics, or consumer products. CBP carries out its process through its Forced Labor Division, in collaboration with other offices across CBP. According to CBP documents and officials, the process CBP uses to enforce section 307 generally includes four phases: (1) assessing leads to determine whether to initiate a case; (2) investigating cases; (3) reviewing information for legal sufficiency to propose a WRO; and (4) implementing the WRO and detaining shipments (see fig. 3). An importer has several options if CBP detains its shipment, including contesting the WRO or deciding not to enter the good into U.S. commerce. Phase 1: Initiation. CBP analysts within the Forced Labor Division assess leads for credibility when deciding whether to initiate cases involving potential forced labor at any point in the supply chain for a particular good. According to CBP officials, an analyst would examine, for example, whether an allegation made by an external party is credible, the goods in question are being imported into the United States, and sufficient information is available on potential forced labor to initiate and build a case. CBP officials told us that they do not have the resources to gather firsthand information on labor practices such as on fishing vessels or processing operations overseas, but that they can initiate cases based on information obtained from external sources. For example, CBP may receive information through its e- allegations system, which is CBP s online mechanism for the public to report any suspected violations of trade laws or regulations related to the importation of goods into the United States. In addition, CBP may receive an allegation directly from external entities, such as NGOs; letters from industry or other concerned parties; and information from other U.S. government agencies. Publicly available information, such as media reports or NGO publications, can also serve as leads for CBP to self-initiate a case. If CBP s initial evaluation shows further evaluation is warranted, CBP initiates a case and moves to the next phase. Phase 2: Investigation. CBP analysts investigate cases by collecting information from various sources to help determine whether the evidence reasonably but not conclusively indicates that goods being imported into the United States were produced with forced labor, according to CBP officials. For example, analysts may ask other federal agencies for information, such as import data, or speak with NGOs that may have information about a particular good or supply chain overseas. CBP officials also said they may investigate the strength of the information collected as part of their case development. In doing so, they said the Forced Labor Division uses the International Labor Organization s forced labor indicators, among other standards, to help evaluate the sufficiency of evidence for forced labor conditions. If there is insufficient evidence to continue investigating a case, the Forced Labor Division may either close or suspend it pending further information, according to CBP officials. If there is sufficient evidence to propose a WRO, the case moves to the next phase. Phase 3: Legal review. CBP s Forced Labor Division prepares a package, which includes an assessment of evidence and a justification for a proposed WRO for the goods suspected to be produced with forced labor, and submits it to CBP s Office of Chief Counsel for legal review. To propose a WRO, CBP officials said that the package must provide sufficient evidence to reasonably but not conclusively indicate a violation of section 307. This entails having sufficient supply chain information showing importation of a good harvested, produced, or otherwise manufactured with forced labor, according to CBP officials. During its legal review, the Office of Chief Counsel may request additional information or have discussions with the Forced Labor Division. If the Office of Chief Counsel determines there is insufficient evidence to proceed with a WRO, then the Forced Labor Division may choose to close the case or suspend it and consider whether to seek additional information for the case. If the Office of Chief Counsel determines there is sufficient evidence to proceed with a WRO, then the Forced Labor Division prepares a WRO package to be presented to the CBP Commissioner for review and approval. Phase 4: Implementation. Once the CBP Commissioner issues a WRO, CBP is responsible for implementing the parameters of the WRO. According to CBP officials, numerous officials within CBP, including those at U.S. ports and the Centers of Excellence and Expertise, are responsible for implementation. CBP officials located at U.S. ports screen import data to identify, hold, and detain shipments associated with a WRO. When CBP detains a shipment subject to a WRO at a port of entry, the importer has the option to reexport the shipment to a different country. Alternatively, officials said the importer can contest the detention and provide additional information to show that the shipment did not contain forced labor elements. If CBP determines the importer has provided sufficient evidence, it allows the shipment to enter into U.S. commerce. Should the importer not provide additional information, the shipment can be excluded (not admitted into U.S. commerce) and/or seized and destroyed in certain circumstances, according to CBP officials. A WRO remains in place until the circumstances surrounding the original WRO change to indicate that forced labor is no longer part of the production or manufacturing process, and the CBP Commissioner revokes the order, according to CBP documents. CBP officials said the agency can also issue civil penalties to importers for forced labor violations for importing goods in violation of section 307, where appropriate. <1.5. CBP Tracks Cases of Suspected Forced Labor Violations and Issued One Withhold Release Order for Seafood as of March 2020> CBP s Forced Labor Division tracks its cases of suspected forced labor violations, including seafood cases, in a case-tracking spreadsheet throughout the various phases of the enforcement process. The spreadsheet notes the status of each case as (1) open and active, (2) suspended, or (3) closed/inactive. At any given time, the Forced Labor Division may be working on a number of seafood cases that are in various phases of the enforcement process, according to CBP officials. Further, officials said the status of these cases changes as new information becomes available. Data CBP provided to us showed a small number of open and active cases as well as suspended cases that were related to seafood. CBP officials stated that they suspended these seafood cases partly because they lacked personnel to obtain additional information to further investigate the cases. In other instances, they said they may suspend cases while waiting for additional information, which may take significant time to obtain. From February 2016 when TFTEA was enacted through March 2020, CBP issued 13 WROs for goods suspected of violating section 307, of which one involved seafood, according to CBP data (see table 1). The seafood-related WRO was for all seafood imports caught by the fishing vessel Tunago No. 61, registered in Vanuatu, an island nation in Oceania. After issuing the WRO in February 2019, CBP detained multiple shipments of seafood, according to CBP data, but revoked the order at the end of March 2020. CBP s other WROs cover a variety of goods such as cotton, toys, food, and agricultural products. Six of the 13 WROs included imports from China, while several WROs included goods from African countries. As of March 2020, CBP officials said they had not issued any civil penalties for forced labor violations involving seafood imports. <2. CBP Uses Information from a Variety of External Sources to Enforce Section 307 for Seafood but May Be Missing Opportunities to Obtain Key Information from Stakeholders> <2.1. CBP Uses Information from Media Reports, Other Federal Agencies, and Stakeholders to Initiate and Investigate Forced Labor Cases> CBP officials told us they obtain and use information from a variety of external sources, including media reports, other federal agencies, and stakeholders, that can help them initiate new forced labor-related cases or advance existing ones. <2.1.1. Media Reports> CBP officials said that media reports can be a catalyst for its Forced Labor Division to initiate or investigate a case. For example, CBP officials noted that forced labor in Thailand s shrimp industry had been in the news since 2015, and in response, CBP collected additional information from companies importing shrimp from Thailand. Additionally, the Forced Labor Division initiated the case that resulted in the seafood-related WRO based partially on news reporting, according to CBP officials. CBP officials also told us that they have formed working relationships with journalists that can be helpful in obtaining information to initiate or investigate cases. <2.1.2. Other Federal Agencies> CBP also uses information on an as-needed basis from a variety of federal agencies to initiate and investigate cases, according to CBP officials. NOAA. CBP can use certain data collected through NOAA s trade monitoring programs to help the agency support specific forced labor cases for seafood, according to CBP officials. For example, in the case of the seafood-related WRO, CBP officials told us they used vessel names collected through NOAA s Tuna Tracking and Verification Program to link specific shipments of tuna to the vessel in question, which CBP officials said was essential information to confirm imports were being made to the United States. This information was available because the seafood in question was one of the species of fish subject to NOAA trade monitoring programs that generate data CBP can access; however, not all species of fish are included in these programs. Through its trade monitoring programs, NOAA collects harvest-related data, such as the name of the fishing vessel and the species of fish caught, but NOAA officials told us the agency does not collect data specific to labor conditions. NOAA officials and other stakeholders said that there have been discussions regarding potentially expanding the scope of data collected through NOAA s trade-monitoring programs, such as SIMP, to collect labor-related data. However, the officials noted some potential difficulties in doing so. For example, NOAA officials said that they would need to determine what specific information would be feasible to collect from importers and how it would collect, review, and validate such information. Some NOAA officials raised concern that collecting data on labor conditions may be outside NOAA s mission; as such, the agency may not have a clear use for the data once collected. The Department of Labor. CBP officials told us they may use reports published by the Department of Labor for context to inform section 307 investigations, including those involving seafood. CBP officials also said they may reach out to the department on an as-needed basis to seek additional information. According to Department of Labor officials, the department also contacts other U.S. government agencies, including CBP, on an ad-hoc basis to share information. The Department of State. CBP officials said they may use reports published by the Department of State for contextual information in their enforcement of section 307, including investigation of cases involving seafood. CBP officials also said that the Department of State may include CBP in official communications from embassies discussing potential instances of forced labor. Department of State officials also said that they may reach out to CBP on a case-by-case basis regarding issues of potential forced labor detected in the course of their work overseas. <2.1.3. Stakeholders> CBP officials said they may use information from stakeholders to initiate or investigate cases. For example, CBP officials stated that they have reached out to NGOs to obtain clarification on sources used in NGOs reports for specific cases. Stakeholders can also submit information or allegations proactively to the agency. CBP officials said that firsthand information collected in-country, including victim accounts, can be beneficial for initiating or investigating forced labor cases. We found many stakeholders collect such information. For example, a representative from one NGO told us that its organization conducts interviews with laborers from fishing vessels once the vessels dock to gather information on labor payment practices, which can serve as an indicator of potential forced labor. However, CBP officials said they also face challenges using information provided by stakeholders because information is often insufficient to initiate or investigate a forced labor case. For example, CBP officials said that information they receive from NGOs might not provide sufficient detail on the supply chain that includes the alleged forced labor, including the manufacturer or vessel committing forced labor, or the connection to a U.S. importer. Additionally, these officials told us that information from stakeholders may conflate poor working conditions with forced labor. <2.2. CBP May Be Missing Opportunities to Obtain Key Information Stakeholders Collect Related to Seafood and Forced Labor> Firsthand Account of Abuse and Potential Forced Labor Involving Workers on Fishing Vessels In its 2019 Seabound report, Greenpeace included testimonials of migrant fishers that detailed abuse and violent conditions on fishing vessels: I witnessed horrible torture. We were working even on midnights. When the Fishing Master was angry, he hit my friend s head near his left ear. After that he was forced to continue working until the work was finished and only then was he allowed to rest. In the morning when we woke up for breakfast, we found him dead in his room. The Captain wrapped up my dead friend s body with a blanket and then stored him in the freezer. According to stakeholders we interviewed and our review of information on CBP s website, CBP has not clearly communicated its information needs externally. Representatives from 14 of the 18 NGOs we interviewed indicated that they had some uncertainty about the types and level of information CBP needs to investigate forced labor cases in the seafood industry. For example, representatives from one NGO said it was not clear what constituted a credible allegation for CBP, or what information CBP needs to make a section 307 determination. Additionally, representatives from two NGOs managing a grant program designed to support nonprofit organizations collecting firsthand evidence of forced labor said that they were unable to obtain specific guidance from CBP on the types of information the agency needs. As a result, these representatives said they could not communicate to potential grantees the specific kinds of information that would be most useful to submit to CBP. In asking CBP officials about this, CBP confirmed that the NGOs had reached out but they misunderstood the goals of the grant program at the time. CBP could improve the quality of information it receives from stakeholders, including NGOs, by better communicating what information is most useful to initiate and investigate forced labor cases, including those involving seafood, according to stakeholders. Of the 14 stakeholders that told us there was uncertainty, 11 indicated that additional or clearer information about the agency s information needs could result in more reporting of information to CBP. For example, representatives from one NGO said there was reluctance among stakeholders that may have limited resources to develop an allegation without knowing whether it is helpful, and that they would be more likely to do so with a better understanding of CBP s needs. Similarly, representatives from another NGO said it is not worth dedicating the time and resources to develop an allegation without a clear sense of the types of information CBP is looking for to investigate its forced labor cases. Many of these stakeholders indicated that they are collecting firsthand information about potential forced labor in seafood supply chains in countries where labor violations are prevalent, which is information CBP officials told us could benefit forced labor investigations. CBP officials said they have communicated in general about their information needs for forced labor cases, and that requisite information varies by case, including for seafood cases. The agency s website contains some information, including a reference to a regulation identifying information individuals are to submit to CBP when making a forced labor allegation. However, CBP does not indicate what specific information to submit such as the timing or location of alleged forced labor activities. Similarly, CBP does not provide examples of the type of information such as photos or testimonials from victims that could be useful information for initiating or investigating cases. In addition, CBP officials said that their e-allegations system provides a means for stakeholders to submit allegations of potential forced labor, among other things, to the agency. However, as of April 2020, the instructions for submitting an allegation do not include specifics on the types of information CBP needs to initiate or investigate cases, such as whether photographs or firsthand accounts of forced labor could be helpful. CBP officials agreed with the need to better communicate to stakeholders the types of information that are helpful for initiating or investigating forced labor cases. They said that the Forced Labor Division had begun considering how it might do so but, to date, had yet to identify further details such as the approach it might take. Federal standards for internal control establish that management should externally communicate the necessary quality information to achieve an agency s objectives. For example, an agency should use appropriate methods to communicate quality information so that external parties can help the agency achieve its objectives. With better communication to stakeholders about the types of information it needs to initiate and investigate forced labor cases, CBP may be able to improve its enforcement efforts through enhanced information from stakeholders. <3. Conclusions> The exploitation of labor in the seafood supply chain is a global issue that, according to a recent United Nations report, affects millions of people working in the fishing sector. With the United States importing billions of dollars worth of seafood in 2018 and reliant on those imports for much of the seafood it consumes, it is important that CBP take action to detect and prevent imports produced with forced labor from entering the country. Following the enactment of TFTEA in February 2016, CBP created the Forced Labor Division and placed an increased emphasis on detecting forced labor in imports, including seafood. CBP officials told us they do not have the resources to gather firsthand information on labor practices. To this end, CBP uses information from a variety of sources, including external stakeholders such as NGOs, to initiate and investigate cases. However, stakeholders are unclear about the types of information CBP needs to initiate and investigate cases because CBP has not clearly communicated this information. As a result, CBP may be missing opportunities to obtain key information that stakeholders collect specific to forced labor in the seafood industry information that could enhance CBP s enforcement efforts. <4. Recommendation for Executive Action> The Acting Commissioner of CBP should better communicate to stakeholders the types of information stakeholders could collect and submit to CBP to help the agency initiate and investigate forced labor cases related to seafood and, as appropriate, other goods. (Recommendation 1) <5. Agency Comments and Our Evaluation> We provided a draft of this report to the Departments of Commerce, Homeland Security, Justice, Labor, State, and the U.S. Agency for International Development for review and comment. We received written comments from the Department of Homeland Security and the U.S. Agency for International Development, which are reproduced in appendixes III and IV, respectively. The Department of Homeland Security concurred with our recommendation and noted that CBP is committed to continued collaboration and communication with stakeholders about the types of information needed to develop forced labor cases and improve enforcement efforts of section 307 of the Tariff Act of 1930, as amended. CBP described the actions it plans to take to address the recommendation, including steps to improve collaboration and information sharing during meetings with working groups. In addition, the Departments of Commerce, Homeland Security, Justice, Labor, and State provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Commerce, Homeland Security, Justice, Labor, and State; and the Administrator of the U.S. Agency for International Development. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Anne-Marie Fennell at (202) 512-3841 or fennella@gao.gov or Kimberly Gianopoulos at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology The objectives of this report are to examine (1) the process U.S. Customs and Border Protection (CBP) uses to enforce section 307 for seafood imports and the results of its civil enforcement actions and (2) the external sources of information CBP uses to help carry out enforcement of section 307 specific to seafood imports and stakeholder perspectives on CBP s communication of information needs. To examine the process the Department of Homeland Security s CBP uses to enforce section 307 for seafood imports, we reviewed laws, regulations, and CBP documents and data pertaining to section 307 enforcement. These laws included section 307 of the Tariff Act of 1930 and the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). We interviewed CBP officials from the Office of Trade and Office of Field Operations, in both Washington, D.C., and the field, who are involved in forced labor detection and enforcement about the steps in CBP s process to enforce section 307. In addition, we interviewed officials from U.S. Immigration and Customs Enforcement to learn about their involvement in addressing section 307. We examined CBP s efforts to enforce section 307 since TFTEA was enacted, in February 2016, through March 2020, the most currently available information at the time of our review. We examined CBP s enforcement of section 307 but did not include other forced labor laws in the scope of our review. To describe the results of CBP s civil enforcement actions, we looked at enforcement actions CBP took from February 2016 when TFTEA was enacted through March 2020. We reviewed CBP s list of civil enforcement actions pertaining to all commodities it published on its website. In addition, we collected and analyzed information specific to seafood from a spreadsheet that CBP uses to track cases, which contains information on all of its active, suspended, and inactive forced labor investigations pertaining to section 307. CBP provided us with updated versions of this case-tracking spreadsheet in July 2019, November 2019, and March 2020. To assess the reliability of the data, we interviewed CBP officials about the accuracy and completeness of the data and discussed each seafood case to understand the data represented in the various fields, such as how the seafood case originated and what the outcome of the case was. We also discussed in detail the information that led to the one seafood withhold release order (WRO) CBP issued in February 2019. Based on our interviews with CBP officials, we determined that the seafood case data were sufficiently reliable for the purposes of describing CBP s enforcement actions. To describe the external sources of information CBP uses to help carry out enforcement of section 307 for seafood, we conducted interviews with CBP officials, including officials in the Office of Trade, which includes the Forced Labor Division, and the Office of Field Operations, to learn about the types of information they gather from external sources and how they might use that information. In addition, we interviewed various other federal agencies and stakeholders that collect information that could be relevant to CBP s enforcement of section 307. We identified these agencies by interviewing CBP officials about the external sources of information they use to help enforce section 307 cases. Federal agencies. We interviewed the following agencies: Department of Commerce s National Oceanic and Atmospheric Administration (NOAA), Department of Justice, Department of Labor, Department of State, U.S. Immigration and Customs Enforcement, and U.S. Agency for International Development. We also interviewed officials from NOAA about the Seafood Import Monitoring Program and other trade-related programs that collect data aimed at preventing illegal, unreported, and unregulated seafood from entering the United States. In addition, we reviewed documents provided by NOAA that focused on trade programs that CBP could use as a source of information to help carry out enforcement of section 307. We interviewed officials from the Departments of State and Labor about each agency s reports on human trafficking and forced labor and obtained copies of and reviewed their reports. Stakeholders. We interviewed current and former representatives from 18 nongovernmental organizations (NGOs) that have interests in forced labor in the seafood industry. Our original scope included 19 NGOs, but we eliminated one NGO from our scope since an official from this organization told us its responses would not vary from those we received from a larger parent NGO, and officials we interviewed did not have separate viewpoints on the extent to which they understood CBP s information needs. We identified NGOs using internet searches for groups focused on seafood and forced labor and the recommendations of officials from federal agencies and NGOs we interviewed. We also selected NGOs that represented a variety of goals and missions, including those focused on helping U.S. importers remain compliant with section 307 and those focused on assistance to survivors of forced labor overseas. We asked representatives from each NGO a standard set of questions that addressed, among other things, information they may share with CBP. Statements these stakeholders made are not generalizable to all stakeholders but provide perspectives on information for enforcing section 307. To describe stakeholder perspectives on CBP s communication of information needs, we interviewed stakeholders about their perspectives of CBP s information needs. Specifically, we asked about the extent to which they understood CBP s information needs for enforcement of section 307, the extent to which they have shared information with CBP about potential forced labor they have identified, and factors that may affect their sharing information with CBP. In some cases, NGO representatives we interviewed told us their organizations were unable to share information with CBP because of external factors, such as nondisclosure agreements or differing information collection objectives, but they noted that CBP actions could affect the likelihood of other stakeholders sharing information. Statements these stakeholders made are not generalizable to all stakeholders but provide perspectives on information sources. We also interviewed CBP officials about the extent to which information stakeholders provided was sufficient to use in initiating and investigating section 307 cases. To evaluate CBP s communication of its information needs to initiate or investigate forced labor cases as part of its section 307 enforcement process, we interviewed CBP officials about how the agency communicates its information needs to initiate or investigate forced labor cases as part of its section 307 enforcement process. We also reviewed CBP documents and the agency s website to identify what information CBP provided to the public about its information needs. We compared the agency s existing communication efforts to federal standards for internal control, as appropriate. We assessed the agency s procedures to determine whether CBP communicated information to external parties through appropriate methods. We also assessed the quality of available information to ensure it was appropriate, current, complete, and accessible, among other things. We conducted this performance audit from February 2019 to June 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Working Groups Focused on Forced Labor and Combating Illegal Activities in the Fishing Industry Since the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), a number of working groups or task forces have been established, primarily involving U.S. federal agencies, to focus on forced labor and imports in general as well as combating illegal activities in the seafood supply chain more specifically in some cases. Interagency Working Group on Forced Labor. The Department of Homeland Security established this working group in 2017. According to U.S. Customs and Border Protection (CBP) officials, the group s purpose is information sharing and collaboration on forced labor topics with interagency partners, which include officials from the Departments of Labor, State, and Justice and the National Oceanic and Atmospheric Administration (NOAA), among other federal agencies. CBP officials stated that the group generally meets monthly. Task Force on Human Trafficking in Fishing in International Waters. In 2017, the Senate Appropriations Committee directed the Department of Justice to lead a multi-agency task force to examine the issue of human trafficking in seafood supply chains and report to Congress on the status of such issues, along with any related funding, policy recommendations, and legal decisions. Department of Justice officials said they launched the task force in October 2018, and it includes officials from NOAA; the Departments of Homeland Security, Justice, State, Labor, and Treasury; and the Office of the United States Trade Representative. Department of Justice officials said they drafted a report that identified relevant legal and jurisdictional issues, with recommendations to help further efforts to limit human trafficking in fishing in international waters. As of March 2020, the draft was undergoing interagency review and no publication date had been specified, according to the officials. Commercial Customs Operations Advisory Committee Forced Labor Working Group. The Commercial Customs Operations Advisory Committee is a longstanding public-private partnership between the federal government and the private sector. It advises the Department of Homeland Security on matters involving commercial operations, including significant changes that are proposed to CBP regulations, policies, or practices. After the enactment of TFTEA, a working group within the committee s Intelligent Enforcement Subcommittee the Forced Labor Working Group began discussing a variety of issues related to the implementation of section 307, according to CBP officials. The officials said that in 2017 the Forced Labor Working Group sought information from several nongovernmental organizations knowledgeable about labor and human rights in sectors involving seafood and other goods to obtain their insights that could then be shared with CBP. Appendix III: Comments from the Department of Homeland Security Appendix IV: Comments from the U.S. Agency for International Development Appendix V: GAO Contacts and Staff Acknowledgments <6. GAO Contacts> <7. Staff Acknowledgments> In addition to the contacts named above, Alyssa M. Hundrup (Assistant Director), Christine Broderick (Assistant Director), Christina Werth (Assistant Director), Andrea Riba Miller (Analyst in Charge), and Emily Norman made key contributions to this report. Martin De Alteriis, Patricia Moye, Sheryl Stein, Sara Sullivan, and Nicole Willems also contributed to the report.

Why GAO Did This Study The United States, which relies on imports for most of the seafood it consumes, imported about $40 billion in fishery products in 2018. Seafood imports often involve complex supply chains, which may include forced labor. A 2017 United Nations report estimated that there are 24.9 million people in forced labor around the world, 12 percent of whom work in the agriculture and fishing sectors. Section 307 of the Tariff Act of 1930, as amended in 2016, prohibits the importation of goods, including seafood, produced or manufactured, wholly or in part, in any foreign country by forced labor, among other things. GAO was asked to review CBP's enforcement of section 307. This report examines (1) the process CBP uses to enforce section 307 for seafood imports and the results of its civil enforcement actions; and (2) the external sources of information CBP uses to help carry out enforcement of section 307 for seafood imports and stakeholder perspectives on CBP's communication of its information needs. GAO reviewed laws and CBP documents pertaining to section 307 enforcement and interviewed officials from CBP, other federal agencies, and 18 NGO stakeholders. GAO selected NGOs with various goals and missions related to seafood and forced labor. What GAO Found The Department of Homeland Security's U.S. Customs and Border Protection (CBP) uses a four-phase process to enforce section 307 of the Tariff Act of 1930, which prohibits imports produced with forced labor, including seafood. CBP's Forced Labor Division, established in 2018, largely carries out this process. In phase 1, CBP assesses leads when deciding to initiate a case involving potential forced labor. In phase 2, CBP investigates cases using a variety of information to determine whether evidentiary standards have been met. In phase 3, CBP reviews information for legal sufficiency and, in phase 4, may take action at a port of entry to detain imports in violation by issuing a withhold release order. Between 2016 and March 2020, CBP issued one order for seafood, prohibiting tuna shipments from a specific fishing vessel from entering U.S. commerce. CBP uses information from external sources to help enforce section 307 for seafood imports but may miss opportunities to obtain key information from stakeholders. CBP officials said they use media reports and information from federal agencies and stakeholders to develop forced labor cases. For example, CBP initiated the case that resulted in the seafood order based partly on media reports and investigated it using vessel data from the Department of Commerce. CBP officials said that stakeholders such as nongovernmental organizations (NGOs) often have firsthand accounts of forced labor—valuable information for investigations. However, most stakeholders told GAO that they do not have a clear understanding of the information CBP needs to investigate seafood cases because CBP has not communicated such information. For example, CBP's website provides general information about what individuals can submit if forced labor is suspected but does not provide specific types of information that could be useful. With better communication to stakeholders about the types of information it needs to develop forced labor cases, CBP may be able to improve its enforcement efforts. What GAO Recommends GAO recommends that CBP better communicate to stakeholders the types of information stakeholders could collect and submit to CBP to help the agency initiate and investigate forced labor cases related to seafood and, as appropriate, other goods. CBP agreed with GAO's recommendation.

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<1. Background> VA s mission is to serve America s veterans and their families, and one of the ways it does so is by providing veterans with medical services. To help meet the health care needs of veterans, VHA is planning to complete approximately 70 new major medical projects between 2020 and 2024. Activation is one of the key steps that must occur before veterans can access care at these facilities. According to VA s Activation Process Guide, activation typically involves activities such as planning for, purchasing, and installing new furniture, fixtures, and equipment (FF&E), ordering supplies, and hiring staff. For new buildings, the Guide states that activation activities begin when the building is being designed, continue through construction, and end when the facility is fully operational. The expenses associated with activation can reflect either one-time purchases or ongoing expenditures. One time purchases called non- recurring activation expenses involve the acquisition of assets such as furniture or equipment, or payment to a contractor for services such as equipment installation. Ongoing expenses, or expenses incurred more than once called recurring activation expenses are for staff salaries and consumable supplies, such as gowns and gloves. After a facility opens and begins serving patients, facilities are permitted to treat supplies and the salaries of new staff as activation costs until the site is serving enough patients to receive funding through one of VA s regular funding processes, known as the Veterans Equitable Resource Allocation (VERA). Figure 1 provides examples of recurring and non-recurring activation expenses. The total cost of activation for major lease and major construction projects can be substantial. The median activation funding that facilities reported spending on major activations from fiscal year 2012 through 2018 was approximately $16 million. The four newest hospitals (in Denver, Las Vegas, Orlando, and New Orleans) spent a cumulative total of more than $1.9 billion for activation during this time period. The types of facilities undergoing activation can vary in size, services provided, and overall purpose within the VHA healthcare system, as shown in figure 2. For example, a community-based outpatient clinic (CBOC) is typically much smaller than a medical center but can provide primary, specialty, subspecialty, mental health, or any combination of delivery services that can be appropriately provided in an outpatient setting. Large medical centers can provide outpatient services as well as a broad range of inpatient services, including emergency services, surgery, and acute psychiatric care. Smaller facilities may refer patients to medical centers for complex treatment. National, regional, and local staffs play different roles in the activation process: National: VHA s Activations Office under the Office of Capital Asset Management (OCAM) historically provided ad-hoc support to sites activating a major lease or construction project, such as providing on-site training related to the activation process and facilitating input from subject matter experts within VHA. The office also determines the base amount of activation funding that sites receive. Officials overseeing the office stated that its role is being reassessed and that the type of support it provides for activations may change in light of an internal reorganization and consideration for VA s future growth plans. Regional: VHA s18 regional networks, known as Veterans Integrated Service Networks (VISN), are responsible for the coordination and oversight of all administrative and clinical activities at health care facilities within their specified region. A VISN s role in activation varies depending on the expertise available at the facility level, but VISNs can help facilities arrange contracts for services (like laundry or hazardous waste removal); review a facility s budget submissions to VHA; and facilitate discussions with senior management or knowledge-sharing with other sites that have recently completed activation. The VISNs are also responsible for distributing activation funding from VHA. Local: In addition to providing medical services, medical centers function as administrative hubs for services in the area. As a result, the medical center director is ultimately responsible for activating facilities within the center s administrative boundary. The medical centers can appoint staff to manage the activities required for activation. These staff can include the activations project manager, financial officers, and subject matter experts like interior designers. As a team, the staff are responsible for developing technical requirements, creating risk mitigation strategies, and deciding key acquisition dates, among other tasks. <1.1. Activation Tasks Include Identifying and Fulfilling Staffing, Equipment, and Other Needs Planning and Execution of Activation Tasks Align with Building Acceptance and the First Day of Clinical Services> While VHA has not identified standard milestones for activation, based upon our review of VHA documents and interviews with local and regional VHA officials, we found that two events are especially relevant to the planning and execution of activation activities: (1) building acceptance (when VHA formally takes possession of and occupies a building) and (2) providing medical services to the first patient. Figure 3 describes examples of activation activities in relation to these events, although the actual timing of tasks will vary depending on the needs of individual facilities. <1.2. Activation Teams Begin Equipping and Staffing New Facilities Prior to Building Acceptance> Officials from selected facilities said that prior to building acceptance, their activation activities typically focus on determining furniture and equipment needs, placing orders, anticipating staffing needs, and hiring new staff. Determining furniture and equipment needs is intertwined with the building design process, according to officials from three VHA facilities, because the design of the physical space can dictate what equipment is purchased. For example, a VHA official from one health-care center said that the activations team showed the medical care providers a mock-up of a treatment room and created cardboard models of furniture to help them select items. The official told us that getting the medical care team s input early in the planning process can avoid the need to make costly changes in order to make the physical space fit the equipment or furniture requested by the medical care providers. Conversely, the building may be designed to accommodate specific equipment. For example: Officials from one facility shared the specifications of the radiology equipment with the team designing the building in order to leave a proper amount of space for the equipment. Similarly, an annex s activation staff worked with the resident engineer to design an enclosed area separate from their main building for a mobile MRI machine. This design ensured a new MRI machine could be swapped out in the event of a breakdown without causing a disruption to the facility s operations. Officials said that they also begin the purchasing process for equipment and furniture prior to building acceptance. VHA officials stated they work backwards from the construction endpoint to determine when to order items. VHA officials told us they need to place orders for certain items such as high-tech equipment or made-to-order furniture well in advance of the facility s opening because the items are known to have long delivery times. For example: Officials from one clinic reported they ordered their facility s imaging equipment 22 months before they needed it. Similarly, an official from a different clinic said that furniture is often not manufactured until it is ordered, so it can take several months to arrive. In contrast, the official said items like a staff refrigerator could be picked up at a local store within days and do not require substantial advance planning. Facilities also begin planning for their workforce needs prior to building acceptance. For example: An official from one clinic stated that facilities typically identify their staffing needs during this time period by position, title, and pay. Officials from an annex said that before their facility s construction groundbreaking, they discussed how many staff would move from the old facility to the new facility, and how many new staff they expected to hire. After activation teams determine their staffing needs, facilities hire and begin training new staff. For example: An official from one clinic said that new staff needed to be trained prior to opening day, so it is not uncommon for staff to be hired and brought on-board before the facility begins providing clinical services. In the case of a very large facility, such as a medical center, hiring the required staff can require an extensive search that must commence before the building is finished. An official from a medical center said that a shortage of skilled medical workers required a nationwide search for suitable candidates. <1.3. New Facilities Prepare for Patient Care after Building Acceptance> Officials said that after a building is accepted as complete, activation typically focuses on tasks associated with moving into the space, such as equipment installation and training staff. For example: One clinic s project calendar showed in the weeks leading up to opening day that the activations staff planned to install office furniture such as desks and filing cabinets, as well as to perform checks on biomedical equipment to ensure proper functioning. Officials from another clinic coordinated equipment and furniture deliveries between the warehouse (where items were being stored) and the new facility. The extent of staff training after building acceptance depends on the need to familiarize staff with the new facility, and the complexity of services offered. Activation staff might choose to have medical staff become familiar with the new facility by working at the facility prior to new operations. For example: One clinic s staff started working in the building before their first patient was seen in order to become familiar with the new space. An official from a medical center said that facility staff adjusted to operating newer infrastructure, such as learning to operate a modern computerized boiler system. That official also stated that the medical center might need to conduct extensive training exercises to simulate 24/7 inpatient care. In contrast, outpatient facilities that do not operate around the clock may not have these same training needs. <1.4. Activation Continues after Facilities Begin Providing Clinical Services> Once a facility begins providing medical care, officials said that activation tasks are typically related to facility operations. These tasks can include on-the-job training in the new space and making necessary adjustments to the facility to ensure it runs properly while concurrently serving new patients. For example: An official at one clinic said that beginning patient care with a decreased workload, known as a soft opening, can help facilitate on- the-job training. The same official explained that this approach allows staff to become accustomed to their new facility s operations and address any issues that may emerge without the demands of operating at full capacity. VHA officials from a health care center said that space adjustments included repositioning exam beds and ordering ergonomic chairs. Officials at several sites stated that they used SharePoint, an internal communication tool, to keep track of needed adjustments. This approach enables staff to monitor ongoing issues during the beginning of new operations, resolve unexpected problems, and track issues as they occur. Several VHA officials also said that some activation tasks such as hiring staff may occur after a facility begins serving patients. If a facility plans on a phased opening, in which some services will not be available on the first day, processes that would typically be completed earlier may take place during this time frame instead. For example, a medical center in our review utilized a phased-opening approach, as it expanded its capabilities with new medical services after opening. <2. Selected Facilities Provided Most Clinical Services within Expected Time Frames, but Delays Occurred for a Variety of Reasons> The facilities included in our review provided most medical services within planned time frames; however, nearly one-third of services were delayed for various reasons. Overall, 59 of the 87 services were offered within planned time frames (69 percent). Of the 28 services that were not provided on time, staffing, equipment size, commissioning , and procurement issues contributed to the delays, according to officials. Staffing issues delayed a total of 14 services in two of the seven facilities reviewed. One facility had 13 services with delays that ranged from 4 to 6.5 months. Officials said the delays were due to difficulties recruiting the staff necessary for those services, which included various types of surgery, radiology, and mental health, among others. Similarly, difficulties recruiting a dentist at a second facility delayed dental service 4 months beyond the expected delivery time frame. Equipment at one facility did not fit into some of the rooms and the space needed to be altered in order to accommodate it. Officials said that all 12 services were delayed by approximately 1 month so that the facility could open with all services available, though officials noted that the full extent to which the equipment issues contributed to these delays was unknown (i.e., there could have been other causes that they could not recall.) Commissioning issues delayed women s healthcare services at one annex by approximately 1 month. Officials said that the air circulation rate which needed to be higher in rooms where certain procedures are performed was inadequate. As a result, the air exchange had to be improved before the facility could begin performing the planned clinical procedures. Procurement issues led to delays in providing radiology services at one facility. Officials told us that x-ray services were delayed by 3 months because the equipment was ordered through the centralized purchasing process, which took longer than local officials had anticipated. These delays primarily affected services that were originally planned to be offered within 2 months of building acceptance. While selected facilities planned to offer approximately 92 percent of services within 2 months of building acceptance, as shown in figure 4, 61 percent were actually offered within that time frame. VHA does not provide a guideline for how much time facilities should need after building acceptance to provide clinical services. Officials explained that the appropriate amount of time will vary based upon the scope of the project, including factors such as the number and kinds of services offered and the level of effort associated with installing the equipment (e.g., a replacement hospital will require more effort than a small outpatient clinic). Thus, we did not determine if facilities were allotting appropriate amounts of time to complete activation activities and serve patients. However, VA s Activation Process Guide provides some information regarding when full services should be available. The Guide states that clinical services can be added for up to 6 months after opening day (i.e., the first day that patients receive any services at the facility). The Guide further states that facilities may expect to offer services gradually versus all on opening day when services are new to an area. Of the 87 services offered by the facilities in our review, 86 were offered within 6 months of opening day. The remaining service a clinic that provides colonoscopy and other related procedures at one facility opened on schedule approximately 11 months after opening day. This facility was replacing another facility that had not previously offered this service. Officials explained that because the service was new, they needed more time to develop and equip the space as well as hire staff, so they planned on offering this service later than services that were being transferred from the previous facility. <3. VHA Lacks Processes and Clear Definitions to Estimate and Oversee Total Activation Costs> VHA lacks processes to develop total cost estimates for major activations. Without total cost estimates, VHA is unable to determine whether actual activation expenses are higher or lower than planned. Furthermore, VHA does not have documentation that defines allowable activation costs, including what facilities can purchase with activation funding and when facilities should cease spending activation funds. As a result, VHA officials lack critical information to support decision-making about resource allocation, and are not well positioned to effectively identify and investigate deviations from planned spending. <3.1. VHA Lacks Processes to Develop Total Activation Cost Estimates and Compare Them against Actual Costs> VHA lacks processes to develop reliable total activation cost estimates for major activation projects and to compare actual costs against these estimates. According to our assessment of information from VHA, the current cost estimation process does not cover the full duration of activation and does not reflect best practices for developing reliable cost estimates. In addition, VHA officials said that until recently, the agency lacked the accounting mechanisms necessary to facilitate comparisons of a project s total activation costs against estimated costs; however, while VHA now possesses these mechanisms, it has not documented the process for how the new information should be used. The Activations Office and facility activation staff annually develop cost estimates for the upcoming 3 fiscal years using (1) an activation cost model (the model) and (2) a cost template (the template). According to Activations Office officials, the model is managed by the Activations Office and uses inputs such as a facility s square footage and project schedule. Activations Office officials also said that the template is typically completed by facility activation staff and includes inputs such as planned clinical services as well as estimated staffing, equipment, and supply costs. While the cost estimate is driven primarily by the model, information in the template is also considered before annual activation funds are distributed, according to Activations Office officials. Figure 5 shows the steps for determining and distributing annual activation funds. We determined that the model and template do not estimate costs for the entire duration of a facility s activation. According to our review of facilities spending data, activation spending for a given facility can occur over more than 3 fiscal years. All eight of the facilities in our review, for example, spent activation funds over 4 or 5 fiscal years. Thus, the estimate the Activations Office would have developed at the beginning of these projects would not have reflected total activation costs. Moreover, we did not see evidence that VHA medical facilities independently develop total activation cost estimates that are appropriate to compare against total actual costs. None of the eight selected facilities we reviewed could provide total activation cost estimates appropriate for this use, according to officials at each facility. Officials from five facilities stated that they had not developed such estimates, an official from one facility said that an estimate could not be located and probably had never been done, and officials from two facilities said that such documentation could not be located. VHA officials said that the existing cost estimation tools reflected the budgeting process (i.e., the current fiscal year and two future years) and that they had not previously been required to develop a cost estimate for the entirety of activation. Officials noted that as the Activations Office s role shifts to include more oversight, it will be important for the Office to have total cost estimates for activation; however, as of September 2019, VHA did not have any specific plans for how to collect estimates for a project s entire activation cost. We also found that VHA s current process for developing activation cost estimates does not fully align with best practices for developing cost estimates as established in the GAO Cost Guide (see table 1 below). VHA s process minimally met 10 and did not meet 2 of the steps each of which reflects multiple best practices required to develop reliable cost estimates. A reliable cost estimate is critical to the success of any program, providing the basis for informed decision-making, realistic budget formulation and program resourcing, and accountability for results. VHA officials acknowledged that following these practices would be valuable for the activations process, and explained that the agency did not previously incorporate these practices because they had not assessed the strength of their activation cost estimation process in this manner. Lastly, the Activations Office does not compare existing estimates and actual activation costs. While the Activations Office develops activation cost estimates for the upcoming 3 fiscal years and has some capabilities to track activation costs, to date it has not compared the planned costs to actual expenses. According to Activations Office officials, they have historically been unable to track how activation funding was spent at the facility level, which impeded such comparisons. Starting in fiscal year 2020, officials from the Activations Office plan to use accounting codes associated with each activation project, which will allow them to track expenses at the facility level. An internal review conducted in mid-2019 by the department overseeing the Activations Office concluded that the agency needed to regularly assess the extent to which activations spent funds as planned. As of October 2019, however, officials said the office has not documented the process for how they will deploy their new accounting oversight capabilities, including which personnel would be responsible for conducting such comparisons, the frequency of comparisons, and any follow-up steps that would be considered in the event of significant differences. Without processes for estimating total costs and comparing them against actual expenses, the Activations Office is limited in its ability to improve resource planning, budgeting, and allocation critical elements that support VA s stated management priority to enhance data-driven decision-making. Further, guidance from the Office of Management and Budget states that agencies should obtain information on actual project costs and compare them against planned expenses so managers can have a clear understanding of how resources are being used and whether cost goals are being met. Documented processes for cost estimation and comparison would be particularly important in the case of large medical centers, whose activation costs are in the hundreds of millions of dollars. <3.2. VHA s Activations Office Has Not Clearly Defined Allowable Activation Costs or Spending Time Frames> The Activations Office has not clearly defined what officials at local facilities can purchase with activation funding and how long activation funding should continue after opening day. Activations Office officials said that there is a general understanding that some expenses, such as medical equipment for new facilities or services, are activation expenses, and that the Activations Office intends to provide activation funding until the facility begins to receive VERA funding to cover operational expenses. However, there is no policy to inform facility activation staff of what they can purchase with activation funding and when funding will cease. In mid-2019, an internal review conducted by the department overseeing the Activations Office found that the lack of clarity regarding what could or could not be purchased should be remedied; however, as of September 2019, no specific plans have been established to define appropriate purchases. Officials we spoke with both at the selected medical facilities and VISNs expressed uncertainty about what expenses they could pay for using activation funding. Officials from two of eight facilities told us that there were times when they did not know if they should charge an expense to activation or another funding source, such as construction accounts. For example, officials at one facility told us that they were unsure whether construction or activation funds would pay for the special window blinds needed for the intensive care units. Officials at four of the VISNs also said that when contacted by medical facility officials for guidance on allowable expenses, there were times when they did not know if facilities should charge an expense to activation or another funding code. In addition, officials from the selected sites held differing views on how long they were eligible to receive activation funding from the Activations Office. Finance officials for one of the selected facilities said that activation funding is provided for up to 5 years, while officials from several other facilities said that activation funding is available until operational expenses are covered by VERA. Activations Office officials said that the latter interpretation is accurate and that this transition to ongoing VERA support should take place within approximately 2 years after opening day. However, an official from the Activations Office said that a few facilities have received funding from the Activations Office for more than 2 years after opening because there was no clear definition for when activation funding should cease. The lack of clear definitions regarding what constitutes allowable activation expenses and when activation funding should end limits VHA s ability to consistently and accurately estimate and track activation costs. For example, similar facilities could develop varying total cost estimates due to different understandings of what expenses are allowable. VA management priorities include making data-driven decisions to improve resource planning, budgeting, and allocation. In addition, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity s objectives. Clear definitions on what expenses facilities should charge to activation accounts, and for how long, would improve the Activations Office s ability to monitor activation costs and improve resource stewardship. <4. Conclusions> As VHA undertakes the process of replacing facilities to better reflect its focus on outpatient and specialized care, it is poised to spend hundreds of millions of dollars per year to equip and staff these new sites. However, VHA does not have a clear understanding of total costs and whether individual activation projects are spending funds effectively. Because VHA does not have a process for developing an estimate for the entire activation cost of a project, the agency lacks a critical baseline that can inform future spending decisions. In addition, because VHA lacks a process that describes how officials should compare actual expenses to that estimate, the agency has no mechanism to regularly identify and respond to unplanned differences in activation costs. Furthermore, defining allowable activation expenses would better position VHA to ensure total cost estimates are consistent from facility to facility. Lastly, additional clarification on how to estimate activation costs and compare them against actual expenses would help VHA to more effectively manage the activations process. Without processes and clear definitions associated with activation cost measurement, VHA does not have reasonable assurance that it will be able to effectively manage the resources associated with activation. <5. Recommendations for Executive Action> We are making the following four recommendations to VA: The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for estimating total activation costs for major medical facility projects. This process should reflect the 12 steps for developing a reliable cost estimate outlined in the GAO Cost Guide. (Recommendation 1) The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for comparing actual activation costs for major medical facility projects to estimates. This process should identify the personnel responsible for comparing the estimated costs to the actual expenses and document their responsibilities. (Recommendation 2) The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document what items and services officials can purchase with activation funds. (Recommendation 3) The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document when facilities should cease to spend activation funds. (Recommendation 4) <6. Agency Comment> We provided a draft of our report to VA for review and comment. VA provided written comments, which are reprinted in appendix II. VA concurred with all of our recommendations. VA further provided information on how it intends to address our recommendations, with target dates for completion in December 2020. We are sending this report to the appropriate congressional committees and to the Secretary of the Department of Veterans Affairs. In addition, this report is available at no charge on the GAO website at http://gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix III. Appendix I: Reported Activation Costs at Selected VHA Medical Facilities To understand the costs of the activations of the eight selected facilities, we asked activation officials at each facility to provide a breakdown of the activation costs by the following categories: (1) Furniture, Fixtures, and Equipment; (2) Staffing; (3) Supplies; (4) Other; and (5) Total Cost. We used these cost categories because these are the categories in the template that facilities complete to estimate activation costs. Appendix II: Comments from the Department of Veterans Affairs Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact above, Heather Halliwell (Assistant Director); Alison Snyder (Analyst-in-Charge); Rose Almoguera; Brian Bothwell; Geoffrey Hamilton; Jason Lee; Terence Lam; Ethan Levy; Josh Ormond; Daniel Setlow; Laurel Voloder; Mary Weiland; and Elizabeth Wood made key contributions to this report.

Why GAO Did This Study VHA operates one of the nation's largest health care systems with more than 1,200 sites across the country; however, many facilities were built decades ago and do not align with the agency's current emphasis on outpatient and specialized care. Additionally, new or expanded facilities are needed to accommodate veterans returning from recent conflicts. VHA is constructing and leasing new facilities to respond to these needs. GAO was asked to review VHA's efforts to activate new major medical facilities. This report examines the extent to which VHA is able to compare the actual costs of activation against the estimated costs, among other objectives. GAO analyzed VHA's documentation on estimating activation costs. GAO also interviewed officials and analyzed cost information reported by a non-generalizable selection of eight medical facilities. The facilities had more than $1 million in annual rent or $20 million in construction costs, reported finishing activation in fiscal years 2016 and 2017, and were located in various regions. What GAO Found The Veterans Health Administration (VHA) under the Department of Veterans Affairs (VA) is constructing and leasing new medical facilities, such as outpatient clinics, to better serve and meet the changing needs of veterans. VHA equips and staffs these new facilities in a multi-year process called “activation.” From fiscal year 2012 through 2018, VHA channeled more than $4 billion to major medical facilities undergoing activation, which these facilities could use toward furniture, equipment, and new staffing costs, among other start-up expenses. VHA lacks processes and clear definitions for estimating total activation costs and for comparing actual expenses against these estimates. Specifically, VHA's current cost estimation process does not cover the full duration of activation. Headquarters officials have never compared activation costs against estimated costs because until recently, officials said, VHA lacked the accounting mechanisms to facilitate such comparisons; however, while VHA now possesses these mechanisms, it has not documented the process for how the new information should be used. VHA documentation does not clearly define allowable activation expenses or the appropriate spending timeframes. Local and regional officials expressed confusion over what items could be purchased with activation funds. In addition, local officials held inconsistent beliefs regarding how long expenses could qualify as activation-related. VHA management's priorities include data-driven decision-making. Further, the Office of Management and Budget's guidance states that agencies should compare actual project costs against planned expenses so managers can determine if cost goals are being met. Without processes and clear definitions associated with measuring activation costs, VHA does not have reasonable assurance that it will be able to effectively manage the resources associated with activation. What GAO Recommends GAO recommends that VA (1) develop and document a process for estimating total activation costs, (2) develop and document a process for comparing actual activation costs to the estimates, (3) define allowable activation expenses, and (4) clarify when facilities should cease to classify expenses as activation-related. VA agreed with GAO's recommendations.

gao_GAO-19-649

gao_GAO-19-649_0

<1. Background> It is DOD policy that installations, property, and personnel shall be protected and that the authority of a DOD commander to take reasonably necessary and lawful measures to maintain law and order and to protect installation personnel and property includes the individuals removal from or denial of access to, an installation when those individuals threaten the orderly administration of the installation. The Under Secretary of Defense for Intelligence develops overall security policy, including requirements for the DOD Physical Security Program, and the secretaries of the military departments and heads of DOD components establish policies and procedures to implement the Under Secretary s policies. <1.1. DOD s Process for Determining Whether to Grant Unescorted Access to Individuals Seeking Access to DOD Installations> Individuals may seek unescorted, escorted, or trusted traveler access to DOD installations. As previously mentioned, this report focuses on individuals seeking unescorted access. Unescorted installation access requires, with limited exceptions, individuals seeking access to establish their identity, be determined fit for access, and establish an acceptable purpose for their presence on the installation. DOD components security forces establish the identity of individuals at authorized installation control points by using identification credentials, specifically a DOD-issued common access card or other credentials listed in DOD guidance. DOD s Identity Matching Engine for Security and Analysis (IMESA), which is maintained by the Under Secretary of Defense for Personnel and Readiness, helps security forces make current fitness-for-access determinations for installations that have PACS that connect to IMESA. IMESA electronically links PACS to federal government (including DOD s) and local population databases to verify information contained in individuals credentials and to search for derogatory information. IMESA continuously vets individuals for fitness- for-access determinations against these authoritative government databases every 24 hours. If derogatory information is found, IMESA is to send an alert to the PACS so that security forces can take appropriate action if and when those individuals next seek access to installations. Individuals without a common access card or another acceptable credential who seek access to installations with PACS are sent through the installations visitor control process where security forces are to (1) authenticate the individuals identity, (2) establish an acceptable purpose for their presence on the installations, and (3) make fitness-for-access determinations using any derogatory information from authoritative government databases. These databases could include those accessible through IMESA, where available and as applicable. Figure 1 illustrates the process for gaining unescorted access to installations with PACS that connect to IMESA both for individuals with and without acceptable credentials. <1.2. Types of PACS That DOD Components Have Fielded and IMESA s Capabilities> DOD components have fielded the following types of PACS at their domestic installations: DBIDS. DMDC developed DBIDS and it is used by the Air Force, the Navy, the Marine Corps, and DLA to control access to their respective installations. DBIDS consists of hardware and software specifically, computers, servers, badge printers, and handheld identification devices. DBIDS has the capability to electronically connect to authoritative government databases using IMESA. AIE. The Army developed AIE to control access to its installations. AIE consists of hardware and software specifically, computers, servers, badge printers, and handheld identification devices. AIE also includes additional hardware such as gate arms and automated pedestals where individuals can scan their own credentials. AIE has the capability to electronically connect to authoritative government databases using IMESA. RAPIDGate. RAPIDGate is a legacy system that according to DMDC officials is no longer being fielded to DOD installations and, according to Army officials, as of October 2018 was in use at only four domestic Army installations. RAPIDGate does not have the capability to electronically connect to authoritative government databases. Deployed by DOD in 2014, IMESA verifies enrolled individuals information against (1) DOD s Defense Enrollment Eligibility Reporting System to determine if the credentials have been revoked; (2) the Federal Bureau of Investigation s National Crime Information Center s Wanted Persons file to determine if there are records on the individuals for an outstanding felony warrant; (3) the Federal Bureau of Investigation s Terrorist Screening Database to determine if the individuals are known or suspected terrorists; and (4) the local population database, according to an OUSD(I) official, to determine if credentials issued by installations have been revoked or have expired. Individuals with enrollable credentials are enrolled in IMESA when their credentials are scanned by PACS for the first time. According to DMDC officials, once individuals are enrolled, IMESA continuously vets them against these authoritative government databases every 24 hours and it takes approximately 2 seconds for each individual s credential to be vetted through IMESA. Figure 2 illustrates the process of using PACS to electronically connect to IMESA to validate individuals identity and continuously vet individuals fitness for access to DOD installations. <1.3. Roles and Responsibilities Related to Physical Access Controls> The Under Secretary of Defense for Intelligence is responsible for establishing department-wide physical access control standards, procedures, and guidance, consistent with DOD guidance and applicable laws, to include developing processes for establishing the identity of individuals seeking access to installations. The Under Secretary of Defense for Personnel and Readiness is responsible for designing and maintaining IMESA, and establishing and executing a plan to integrate IMESA with PACS at all DOD installations. DMDC is a center within the Office of the Under Secretary of Defense for Personnel and Readiness that provides identity management services and oversees the fielding and maintenance of DBIDS. DOD components issue their own component- and installation-specific requirements for physical access control. These include physical access barrier requirements such as fences, as well as the use of PACS. Each DOD component has designated a program manager to supervise and oversee its physical security program, to include PACS. According to DOD component guidance and officials: The Army Acquisition Corps, Product Manager for Force Protection Systems, is responsible for the procurement and fielding for the Army s PACS. The Army Office of the Provost Marshal General develops PACS requirements based on DOD and Army policies for the Army s physical security program. The Commander Navy Installations Command is responsible for the Navy s PACS. The Air Force Security Forces Center is responsible for the Air Force s PACS. The Office of the Deputy Chief of Staff for Logistics, Engineering, and Force Protection, Directorate of Security Forces, is responsible for developing service-wide access control policies. The Commander, Marine Corps Installations Command, is responsible for the Marine Corps PACS. The Deputy Commandant, Plans, Policies, and Operations establishes policies, sets requirements, and is responsible for the Marine Corps Physical Security Program. DLA Information Operations and Installation Support Security and Emergency Services Staff Directors share responsibility for the DLA s PACS. Additionally, DOD component installation commanders are responsible for the physical security of their installations, including for the use of PACS. <1.4. DOD Has Issued Guidance on Physical Security, Fielded or Planned to Field PACS, and Identified Future Enhancements DOD Has Recently Issued Department-wide Guidance for Controlling Installation Physical Access, and Fielded or Planned to Field PACS at All Domestic Installations> OUSD(I) issued a physical security manual in January 2019 that addresses minimum department-wide standards for access to DOD installations. The manual incorporates and cancels Directive-Type Memorandum 09-012, the interim policy for DOD physical access control that was in effect for about 9 years. The manual directs DOD components to, among other things, implement procedures for all populations to gain access to component installations; field electronic PACS at all DOD installations; and fund the continued operation, maintenance, and enhancement of IMESA with additional government data sources. The manual also states that new electronic PACS and existing electronic PACS undergoing significant upgrades (valued at more than 50 percent of replacement cost) must interface with IMESA. Each DOD component had also issued guidance on installation physical access control standards that pre-date the January 2019 physical security manual. For example, DLA Manual 5200.08 Volume 1 identifies DBIDS as DLA s PACS and requires certain installation commanders to incorporate and maximize the use of electronic credential authentication. In another example, Army Regulation 190-13 assigns installation commanders responsibility for implementing AIE, when available, and states that deviations from the Army AIE standards and specifications are not authorized without written approval from Army headquarters. DOD component officials said that they will update their guidance to incorporate the DOD installation access control standards contained in OUSD(I) s 2019 physical security manual. To implement these department-wide access control standards, according to OUSD(I) and DOD component officials, each DOD component has fielded or plans to field PACS that connect to IMESA at all their domestic installations. According to DOD component officials, as of February 2019, the Air Force, the Navy, the Marine Corps, and DLA have fielded DBIDS at all of their domestic installations. Specifically, according to DOD component officials, DBIDS is fielded at: 67 Air Force installations 16 Marine Corps installations According to Army officials, as of February 2019, AIE was fielded at 35 of the Army s domestic installations. The officials stated that the Army currently plans to field AIE at an additional 60 installations by September 2019, and at all of its remaining domestic installations by the end of fiscal year 2021. However, Army officials told us that, at the direction of the Secretary of the Army, AIE is undergoing additional testing and assessment to inform a comparison with DBIDS. The Secretary of the Army is expected to make a decision sometime in summer 2019 on which PACS to field at remaining Army installations. <1.5. DMDC Has Identified Future Enhancements to IMESA and DBIDS, and the Army Has Identified Future Enhancements to AIE> DMDC plans to enhance IMESA s capabilities to allow for increased information sharing and vetting, and to expand the type of credentials that DBIDS can scan. Specifically, the Under Secretary of Defense for Intelligence has identified additional authoritative government databases that IMESA will connect with to access derogatory information. For example, the Under Secretary of Defense for Intelligence directed the secretaries of the military departments to develop a plan to vet individuals seeking unescorted access to domestic installations for disqualifying derogatory information in additional files within the National Crime Information Center s database and the Interstate Identification Index by September 30, 2019. According to an OUSD(I) official, IMESA will be able to access two additional National Crime Information Center files by 2020: the National Sexual Offender Registry File and the Violent Persons File. The official also stated that there are plans to connect IMESA to DOD s Automated Biometric Identification System by 2020. DMDC plans to expand the types of credentials that DBIDS can scan, to include all credentials listed in DOD s 2019 physical security manual. For example, according to DMDC officials, scheduled enhancements to DBIDS will enable security forces to scan cards and driver s licenses compliant with the REAL ID Act of 2005 by the end of fiscal year 2019. Moreover, according to DMDC officials, this enhancement will eliminate the time and expense to annually issue and print hundreds of thousands of temporary DBIDS credentials. The officials also stated that DMDC has plans to enable DBIDS handheld devices to read military veterans health identification cards, although no time frame for implementation has been set. Army Office of the Provost Marshal General officials told us that AIE can already scan identification cards and driver s licenses compliant with the REAL ID Act. This capability allows individuals with these credentials to be vetted and enrolled in IMESA in the access control lane without having to go the visitor control center. According to Army officials, this in-lane initial vetting and IMESA enrollment takes approximately 30 seconds by checking the National Crime Information Center database and Interstate Identification Index for criminal history and active warrants. Further, these officials told us that the Army has also identified future enhancements to AIE, such as transitioning to a cloud-based version. The officials told us that a cloud-based version of AIE will allow for quicker and more cost- effective fielding because of fewer installation prerequisites and reduced computer hardware requirements. Army officials are also considering other enhancements, such as self-service kiosks and web-based registration options, to streamline and expedite initial visit registrations. <2. The Air Force and DLA Have Monitored the Use of PACS, but the Army, the Navy, and the Marine Corps Have Not> The Air Force and DLA monitor their installations use of PACS and the Army, the Navy, and the Marine Corps do not. As a part of our work, we conducted numerous site visits to domestic installations to observe the DOD components use of PACS, but details concerning our findings associated with these visits are omitted because the information was deemed sensitive by DOD. Air Force and DLA officials stated they routinely collect data on PACS use and the number of credentials scanned at their installations and provide those data to their leadership. Additionally, the Air Force is using these data to brief installation commanders on the risks associated with not using DBIDS at their installations. Army, Navy and Marine Corps officials stated they do not monitor PACS use at their installations because there is not a requirement to do so. Our review of DOD guidance also found no such requirement. DOD component officials emphasized the importance of installation commanders having discretion to make risk-based decisions regarding access control in general, and in deciding when or when not to use PACS. Nevertheless, OUSD(I), Army, Navy, and Marine Corps officials agreed that monitoring installations use of PACS would be beneficial and could be readily accomplished without significant cost using existing technology. For example, Army, Navy, and Marine Corps officials stated that their installations could collect monthly scanning data using existing PACS reporting mechanisms to identify below average use and determine if actions are needed to increase use. One OUSD(I) official further stated that, depending on the extent to which installations are not using PACS, changes to guidance might be warranted to require monitoring of the use of PACS. DOD Instruction 5010.40, Managers Internal Control Program Procedures directs the Office of the Secretary of Defense and DOD component heads to implement a comprehensive system of internal controls that provides reasonable assurance that programs are operating as intended and to periodically evaluate the effectiveness of those controls. Furthermore, Standards for Internal Control in the Federal Government for performing monitoring activities states that management should monitor and evaluate the results of its internal control systems by obtaining relevant data on a timely basis, and determine appropriate control actions for any identified deficiencies. Because the Army, the Navy, and the Marine Corps do not monitor the use of PACS and because OUSD(I) does not require that they do so, those military services do not know the extent to which PACS are being used at more than 100 installations. Consequently, the military services do not have the data they need to evaluate the effectiveness of PACS and inform risk-based decisions to safeguard personnel and mission critical, high-value installation assets. Demonstrating the importance of using PACS that connect to IMESA, we note that, according to DMDC, IMESA has identified more than 42,000 instances of individuals who were granted access to a DOD installation and were subsequently issued a felony warrant. <3. DMDC and the Army Have Approaches for Resolving PACS Technical Issues, but DMDC Has Not Assessed the Performance of Its Approach While the Army Has DMDC and the Army Have Approaches and Helpdesks for Resolving PACS Technical Issues> Installation security forces call the DMDC helpdesk for assistance in resolving DBIDS technical issues. According to DMDC officials, this helpdesk handles technical issues for more than 100 DMDC applications and programs, including DBIDS, and is staffed 24 hours a day, 7 days a week. DMDC helpdesk staff classify DBIDS technical issues into one of three tiers, based on complexity and the estimated time to resolve an issue. According to DMDC officials, tier I issues tend to be the least complex and typically take the least time to resolve, whereas tier III issues tend to be the most complex and typically take the longest time to resolve. Tier II issues fall between tier I and tier III issues with respect to complexity and anticipated resolution time. Below are examples of issues that are experienced in each tier: Tier I. Unresponsive computer screens, passwords that need to be reset, and relatively simple network printer issues. Tier II. Handheld device battery charging issues, network synchronization issues, and problems installing fingerprint readers. Tier III. Handheld devices not connecting to servers, locked user accounts, and equipment that needs to be replaced. According to DMDC officials, all calls to the helpdesk are initially handled by a tier I customer service representative. The tier I representative triages the issue using DBIDS reference materials, and if he or she is unable to resolve the issue it is passed to a tier II customer service representative. If the tier II representative is unable to resolve the issue using DBIDS reference materials, then, with a supervisor s review and approval, the call is transferred to the tier III group. The issue is then assigned to either the tier III hardware group or the tier III software/application group, depending on the nature of the technical issue. According to DMDC officials, the tier III hardware group is located in Ashburn, Virginia, and the tier III software/application group is located at DMDC s offices in Seaside, California. The Army also has instituted a tiered approach for resolving AIE technical issues through its helpdesk. The AIE helpdesk is also staffed 24 hours a day, 7 days a week. Similar to DBIDS, the Army classifies AIE technical issues into one of three tiers, based on complexity and time to resolve. According to Army officials, all Army installation security forces calls to the helpdesk are initially handled by a tier I customer service representative who tries to resolve the issue using AIE reference materials. If the tier I representative is unable to resolve the issue, the issue is passed to a tier II field service representative. The field service representative is expected to contact the installation within 24 hours and attempt to resolve the issue by email or phone. If the field service representative is unable to resolve the issue remotely, the representative will make an in-person service visit to attempt to resolve the issue. If the issue cannot be resolved, then the customer service representative classifies the issue as tier III and transfers the issue to AIE system engineers for resolution. According to Army officials, tier III issues are usually Army-wide issues, such as problems associated with software updates. <3.1. DMDC Has Not Assessed the Performance of Its DBIDS Helpdesk but the Army Has Developed Performance Measures and Goals to Assess AIE s Performance> DMDC has collected data on DBIDS technical issues; however, DMDC has not been able to assess its performance due to a lack of performance measures and associated goals. Table 1 shows the number of DBIDS technical issues and the average time it took to resolve them, by tier, from January 2016 through July 2018. Specific details regarding the number of issues and the resolution time were omitted because the information was deemed sensitive by DOD. The Army collects data on AIE technical issues and has developed performance measures and associated goals to assess AIE performance. Specifically, the AIE Reliability Analytics Model tracks real-time information on operational availability with a goal of 100 percent, the number and age of open helpdesk tickets with a goal of resolving tier II issues within 48 hours, and field service representative performance with a goal of a 100 percent closure rate for tier II issues. According to Army officials, the Army is currently developing specific targets for its tier I and tier III technical issues. The Army has used data on AIE technical issues to improve AIE performance. For example, due to the age and number of tickets, the Army analyzed 646 AIE helpdesk tickets generated from October 2017 through February 2018 and determined that the root causes of the most prevalent technical issues were site server and handheld device failures. As a result of its analysis, the Army implemented an AIE software update and has begun fielding a more reliable brand of handheld device to installation security forces. According to Army officials, AIE operational availability has increased and technical issues are resolved more quickly since the AIE Reliability Analytics Model came online in September 2017. For example, from September 2017 through August 2018, AIE s operational availability increased from 93 percent to 98 percent and the average ticket age for all tiers decreased by 33 percent. Increased AIE operational availability allows for increased continuous vetting of individuals seeking access to Army installations. Army officials at all levels have access to the model, and the Army Product Manager for Force Protection Systems sends weekly emails to Army leadership highlighting AIE performance achievements and challenges. We have previously reported, that by tracking performance and developing performance measures, agencies can better evaluate whether they are making progress and achieving their goals. Further, to fully address challenges agencies must be able to demonstrate progress achieved through corrective actions, which is possible through the reporting of performance measures. Characteristics of effective performance measures include having baseline or trend data, setting measurable program goals, and establishing time frames for achieving goals. Program goals communicate what results the agency seeks and allow agencies to assess or demonstrate the degree to which those desired results are achieved. Both performance measures and goals give managers crucial information to identify gaps in program performance and plan any needed improvements. Although user agreements between DMDC and the DOD components state that DMDC will provide helpdesk and maintenance support, the agreements do not include performance measures and associated goals regarding DBIDS operational availability and the timely resolution of technical issues. DMDC officials acknowledged that performance measures and associated goals would likely reduce the time it takes to resolve DBIDS technical issues, particularly for tier II and tier III issues. However, until DMDC develops performance measures and goals, its ability to systematically address the underlying issues negatively affecting DBIDS operational availability is hindered. <4. Conclusions> Although according to DOD officials DOD has fielded or plans to field PACS that connect to IMESA at all domestic installations, only the Air Force and DLA have monitored PACS use at their installations. The Army, the Navy, and the Marine Corps at more than 100 installations have not monitored the use of PACs because, as stated by officials, there is not a requirement to do so. As a result, these components do not have the data necessary to evaluate PACS effectiveness and inform risk-based decisions regarding PACS use to safeguard personnel and mission- critical, high-value installation assets. Further, DOD component and installation officials told us about their dissatisfaction with the time it takes to resolve DBIDS technical issues. Although the Army has developed performance measures and associated goals for its helpdesk that have improved the ability to resolve technical issues and overall AIE operational availability, DMDC has not. Without such performance measures and associated goals, DMDC is unable to systematically evaluate how well DBIDS is performing and address underlying issues negatively affecting DBIDS operational availability. <5. Recommendations for Executive Action> We are making the following five recommendations to the Department of Defense: The Secretary of Defense should ensure that the Under Secretary of Defense for Intelligence requires that DOD components (including the military departments and DLA) monitor the use of PACS at their installations. (Recommendation 1) The Secretary of the Army should ensure that the Office of Provost Marshal General monitors the use of PACS at Army installations. (Recommendation 2) The Secretary of the Navy should ensure that the Commander, Navy Installations Command, monitors the use of PACS at Navy installations. (Recommendation 3) The Secretary of the Navy, in coordination with the Commandant of the Marine Corps, should ensure that the Commander, Marine Corps Installations Command, monitors the use of PACS at Marine Corps installations. (Recommendation 4) The Secretary of Defense should ensure that the Under Secretary of Defense for Personnel and Readiness develops appropriate performance measures and associated goals for the timely resolution of DBIDS technical issues to facilitate improved PACS performance. (Recommendation 5) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for comment. In its written comments, reproduced in appendix II, DOD concurred with our five recommendations and identified actions that it was taking or planned to take to implement our recommendations. Regarding our second recommendation, DOD concurred with that recommendation to monitor the use of PACS at Army installations, and on the basis of the department s written comments we modified the recommendation to indicate that the Army Office of the Provost Marshal General is responsible for monitoring the use of PACS at Army installations. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Under Secretary of Defense for Intelligence. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9627 or maurerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology In this report we (1) describe actions the Department of Defense (DOD) has taken to develop guidance on physical access to domestic installations and to field physical access control systems (PACS) at these installations, (2) evaluate the extent to which DOD components have monitored the use of fielded PACS at these installations, and (3) evaluate the extent to which DOD has implemented an approach for addressing PACS technical issues and assessing associated performance. This report is a public version of a sensitive report that we issued on May 31, 2019. The sensitive report included an objective related to the extent to which security forces at various DOD domestic installations used fielded PACS. DOD deemed a significant portion of the information related to this objective to be sensitive, necessitating protection from public disclosure. This public report omits information related to our observations of PACS use at these installations and the risks associated with not using PACS. As a result of this omission, we updated the wording of the second objective to focus on DOD components efforts to monitor the use of fielded PACS at installations. Although the second objective and the information associated with it in this public report is more limited, we relied on the same methodology to support our findings and the excluded information does not impact our recommendations. The first and third objectives in this report are the same as in the sensitive report and use the same methodology as in the sensitive report. DOD deemed some of the detailed information presented in conjunction with the third objective to be sensitive, necessitating protection from public disclosure. As a result, this public report omits specific details regarding the technical issues of PACs. This report focuses on physical access controls at authorized access control points at DOD s domestic installations that are owned and operated by the Army, the Navy, the Air Force, the Marine Corps, and the Defense Logistics Agency (DLA). We did not consider actions DOD has taken to prevent unauthorized access to its domestic installations by means such as tunneling under or climbing over perimeter barriers. For objective one, we analyzed key Office of the Under Secretary of Defense for Intelligence (OUSD(I)) and DOD component policies outlining physical access control requirements. The key guidance documents we analyzed are listed in table 2. Additionally, we interviewed officials from OUSD(I), the Joint Staff, each of the DOD components, and the U.S. Northern Command to discuss the guidance documents and any efforts to update, revise, or draft new guidance on the use of installation PACS. We also reviewed DOD component documentation and interviewed OUSD(I) and DOD component officials to determine the extent to which PACS was fielded at domestic installations and to identify ongoing efforts to field PACS at additional domestic installations. Finally, we interviewed DOD officials to identify any planned future enhancements to PACS and the Identify Matching Engine for Security and Analysis (IMESA). For our second objective, we focused on individuals seeking unescorted access to DOD domestic installations. We reviewed and analyzed OUSD(I), DOD component, and installation-specific guidance on the use and monitoring of PACS. We conducted site visits to six domestic installations to meet with installation command and security force officials to discuss their experiences using PACS and to observe their use of PACS. We then compared the guidance and our observations with Standards for Internal Control in the Federal Government for monitoring activities, which states that management should obtain data on a timely basis so that they can be used for effective monitoring. Although findings from these six installations are not generalizable to all DOD domestic installations, they are illustrative of how PACS are used, and more generally, how installation access is controlled. In selecting the six installations to visit we considered installation ownership to ensure that we included an installation from each DOD component, geographic proximity among installations, and the type of PACS used by the installation. We also visited an installation where no PACS was installed. We limited our site selection to active-duty installations in the continental United States. Based on this methodology we visited Fort Stewart, Georgia; Moody Air Force Base, Georgia; Naval Station Mayport, Florida; Marine Corps Support Facility Blount Island, Florida; Tobyhanna Army Depot, Pennsylvania; and DLA Distribution Center Susquehanna, Pennsylvania. For our third objective, we reviewed DOD user agreements to determine the support agreement terms, requirements, and responsibilities for addressing PACS technical issues. We analyzed DOD component data on the number and type of Defense Biometric Identification System (DBIDS) helpdesk technical issues reported from January 2016 through July 2018, and compared the data with provisions in the user agreements that discuss the PACS helpdesk. We also compared the steps the Army and DMDC have taken or planned to address helpdesk technical issues with Standards for Internal Control in the Federal Government for developing performance measures, which states that management should establish performance measures and indicators. We interviewed officials from DOD components and the installations we visited to discuss their experiences with PACS helpdesks, and their views on the performance and reliability of PACS. We assessed the reliability of the helpdesk technical issue data by interviewing knowledgeable officials about the data and by testing the raw data to determine the accuracy of the summary data provided by DOD. Additionally, we collected and analyzed the raw data to determine whether calculations were made correctly. We determined that the data were sufficiently reliable for our understanding the number and types of PACS technical issues. To address our three reporting objectives, we met with officials from the DOD organizations listed in table 3. We conducted this performance audit from February 2018 to August 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with DOD from July 2019 to August 2019 to prepare this public version of the original sensitive report. This public version was also prepared in accordance with these standards. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact name above, GAO staff who made key contributions on this report include Brian Lepore, Director (retired); Jason Bair, Acting Director; Marc Schwartz, Assistant Director; Shawn Arbogast, Analyst-in-Charge; Jamilah Moon; Richard Hung; Mae Jones; Amie Lesser; Serena Lo; Amber Lopez Roberts; and Carter Stevens.

Why GAO Did This Study In November 2009, an Army officer killed or wounded 45 people at Fort Hood, Texas; 4 years later in September 2013, a Navy contractor killed or wounded 16 people at the Washington Navy Yard in Washington, D.C. Independent reviews conducted in the aftermath of these shootings identified physical access control weaknesses at DOD installations. The conference report accompanying the National Defense Authorization Act for Fiscal Year 2018 contained a provision for GAO to assess DOD's installation access control efforts. GAO (1) described actions DOD has taken to develop guidance on physical access to domestic installations and to field PACS at these installations, (2) evaluated the extent to which DOD has monitored the use of fielded PACS at these installations, and (3) evaluated the extent to which DOD has implemented an approach for addressing PACS technical issues and assessing associated performance. GAO analyzed DOD guidance on physical access control requirements, and visited installations to discuss with installation command and security force officials their experiences using PACS. This is a public version of a sensitive report that GAO issued in May 2019. Information that DOD deemed sensitive has been omitted. What GAO Found The Department of Defense (DOD) has issued guidance on accessing its domestic installations and strengthening physical access control systems (PACS)—used to scan credentials to authenticate the identity and authorize individuals to access DOD installations. Specifically, DOD has recently issued guidance directing the fielding of PACS and has fielded or plans to field such systems at domestic installations. The Defense Manpower Data Center (DMDC) developed the PACS used by the Air Force, the Navy, the Marine Corps, and the Defense Logistics Agency. The Army developed its own PACS. Both types of PACS electronically connect to DOD's Identity Matching Engine for Security and Analysis (IMESA). IMESA accesses authoritative government databases to determine an individual's fitness for access (i.e., whether an individual is likely a risk to an installation or its occupants), and continually vets this fitness for subsequent visits (see fig.). The Air Force and DLA have monitored their installations' use of PACS, but the Army, the Navy, and the Marine Corps have not. Army, Navy, and Marine Corps installation officials stated that they do not monitor PACS use at their installations because there is no requirement to do so. Because the Army, the Navy, and the Marine Corps do not monitor PACS use and DOD does not require that they do so, those military services do not have the data they need to evaluate the effectiveness of PACS and make informed risk-based decisions to safeguard personnel and mission-critical, high-value installation assets. DOD, Army, Navy, and Marine Corps officials agreed that monitoring installations' use of PACS would be beneficial and could be readily accomplished without significant cost using existing technology. The Army and DMDC have used a tiered approach and established helpdesks to address PACS technical issues. The Army has established performance measures and goals to assess its approach, which has improved the ability to resolve technical issues. DMDC, however, does not have performance measures and goals, and thus lacks the information needed to evaluate its PACS' performance and address issues negatively affecting operational availability. What GAO Recommends GAO made five recommendations, including that DOD monitor installations' use of PACS and develop appropriate performance measures and goals for resolving technical issues to improve PACS performance. DOD concurred with GAO's recommendations.